Part 1: Owner’s equity
For the purpose of this assignment, two companies which are listed on the Australian Securities Exchange are selected. These companies are: Caltex Australia and Whitehaven Coal Limited. In order to analyse the financial performance of the selected companies, the said companies are chosen from the energy industry of Australia. The selection of the companies from the same industry will allow performing comparative analysis of performance of both companies on the same grounds.
Caltex Limited is one of the leading manufacturers and supplier of petroleum products in Australia. However, the company exports its products to Singapore and New Zealand also. Caltex is in operations since 1900 and is headquartered in Sydney, Australia. It is operating its business through two prime segments: Supply & Marketing Segment and Lytton Segment. The former segment undertakes the selling function of Caltex’s products such as fuels, lubricant & diesel oils, liquefied petroleum gas, speciality products and so on. The Lytton segment, on the other hand undertakes the refining function in respect of crude oil to convert the same into diesel oil, fuel and other petroleum products.
Whitehaven Coal Limited is also an Australian leading corporation in energy sector, headquartered in Sydney. It is engaged in the business of development of coal mines in the New South Wales, Australia. The company started its operations in 1999 and presently it is supplying its coal products to various domestic units and also to various different foreign countries such as Japan, Taiwan, India, China, Korea, Malaysia, Indonesia, Vietnam, the Philippines and Chile. Whitehaven Limited also operates its business through two segments i.e. pen Cut Operations and Underground Operations. Also, the company owns six mines in North West New South Wales. It basically offers thermal coal and also the metallurgical coal products.
To assess and analyse the financial performance of Caltex Limited and Whitehaven Limited, various aspects of financial statements have been studied in detailed for the last three financial years: 2017, 2016 and 2015. The major financial aspects that have been taken into account for the purpose of this report are: company’s equity structure, capital structure, cash flows from operating, investing and financing activities and the tax structure of both the companies.
The term equity refers to owner’s interest in the business of the corporation. Technically, it is the residual interest in the company’s assets after deduction of all the business liabilities. It basically represents the amount owned by company to its owners (Hermanson, Ivancevich, Edwards, 2016).
Part 2: Debt and equity position
Caltex Limited
Amount in Australian Dollars Thousands
|
2017 |
2016 |
2015 |
|
|
Issued capital |
$ 378,505.00 |
$ 524,944.00 |
$ 543,415.00 |
|
Treasury stock |
-$ 1,210.00 |
-$ 344.00 |
-$ 644.00 |
|
Reserves |
-$ 39,511.00 |
-$ 7,955.00 |
-$ 9,223.00 |
|
Retained earnings |
$ 2,610,195.00 |
$ 2,280,754.00 |
$ 2,241,981.00 |
|
Equity |
$ 2,947,979.00 |
$ 2,797,399.00 |
$ 2,775,529.00 |
|
Non-controlling Interest |
$ 13,843.00 |
$ 12,816.00 |
$ 12,276.00 |
|
Total Equity |
$ 2,961,822.00 |
$ 2,810,215.00 |
$ 2,787,805.00 |
From the annual report of Caltex Limited for the year 2017, 2016 and 2015, the items contained in the above table (Table 1) have been identified.
Issued capital is the part of share capital held by business, which has been issued to the shareholders of the company to seek funds for the operations of business (AASB, 2005). There has been reported a material change in the value of issued capital of Caltex Limited in 2017 since 2016. The reason from the same is that Caltex has announced a buy-back plan for its shares during 2016 in order to adequately management its capital (Caltex, 2016).
Treasury stock covers the amount of shares bought-back by the company and it is shown as the negative amount in the financial statements because it reflects reduction in the share capital of the reporting entity on account of share buy-back. The changes in the treasury stock account have taken place because of Caltex’s decision of buying back its shares from the market.
Reserves contain the profits of the business which are appropriated for some particular purpose. Caltex has prepared various reserves such as foreign currency translation reserve, hedging reserve, equity compensation reserve. The reserves of Caltex are showing negative balances in 2016 and 2017 which shows that it is not able to maintain adequate funds for the other non-operating operations of the business (Caltex, 2016). The reduction in the reserves amount over the last 3 reported years is due to negative differences in the foreign currency translation, hedging losses and due to the actuarial gains.
Retained earnings are the part of profits earned by business during the given period which is set aside for the subsequent use in the daily operations of business only and for the purpose of payment of dividend. The balance of retained earnings has increased over the previous 3 financial years due to the increased profitability of Caltex in those periods. The company has not merely earned from the sales of its products but also it has earned other incomes by way of hedging and changes in fair valuations. Though the company has made buy-back of its shares, still it has maintained adequate amount for the internal functions because of large profits.
There are certain shareholders who do not hold more than 50% of the outstanding shares of the company and hence they do not enjoy the voting rights for the important decisions that are made by the company. They do not have control on the decisions of the company. These shareholders are also known as minority interest. In the present case of Caltex, the minority interest in the company’s shareholding has slightly been increased due to the introduction of various share based plans.
Part 3: Cash Flows Statement
Whitehaven Coal
|
2017 |
2016 |
2015 |
|
|
Issued capital |
$ 3,136.94 |
$ 3,144.94 |
$ 3,146.15 |
|
Share based payments reserve |
$ 7.83 |
$ 18.42 |
$ 36.54 |
|
Hedge reserve |
$ 1.28 |
-$ 0.55 |
-$ 1.38 |
|
Retained earnings |
$ 146.25 |
-$ 275.17 |
-$ 317.35 |
|
Parent Company Interest |
$ 3,292.30 |
$ 2,887.64 |
$ 2,863.96 |
|
Non-controlling interest |
$ – |
$ 1.08 |
$ 1.08 |
|
Total Equity |
$ 3,292.30 |
$ 2,888.72 |
$ 2,865.03 |
The above table (Table 2) enlists the items that have been identified as the components of equity of Whitehaven Limited.
Issued capital of Whitehaven has not significantly varied in all the three reported years and this shows that there is no major event or activity taken on part of the company in respect of its capital structuring. Merely some share based incentive plans have been exercised by few of the employees which has caused slight change in the quantum of issued capital of the company.
Share based payment reserves are prepared for the payment of goods and services received during the course of the business to be made in the form of equity instruments. This enhances the capital of the company when such shares are issued to the dealers of the company. In the case of Caltex, there are some share based payment options which have been lapsed in the respective years and due to this balance of these reserves have been reduced.
Hedge reserves are maintained by the firm to undertake hedging activities. The company has earned profits on its hedging transaction in 2017 due to which its hedging reserves have increased (Woodhaven, 2017).
Retained earnings have also increased in 2017 and this due to higher profits earned by the company in this particular year. Even though, there was negative in 2016 due to inadequacy of profits in 2015, the company has earned sufficient income in 2017.
The parent company is the company which holds maximum portion of shareholders of the company. The portion of parent company’s control has increased due to increase in the number of shares issued to them in 2017 (Woodhaven, 2017).
Comparative analysis of debt and equity structure:
|
Comparative Analysis |
Caltex Limited |
Proportion |
Whitehaven Coal |
Proportion |
|
Equity |
$ 3,108.26 |
49% |
$ 3,292.30 |
83% |
|
Debt |
$ 3,247.32 |
51.% |
$ 674.74 |
17% |
|
Capital Structure |
$ 6,355.58 |
100.00% |
$ 3,967.04 |
100.00% |
In terms of insolvency, Caltex is facing high risk because of its higher debt proportion in the total capital structure. Caltex is relying more on debt financing than the internal financing for its business operations and hence it has high financial leverage. On the other hand, Whitehaven is highly relying on equity financing and hence it has no or negligible financial risk but there is greater risk of loss of control over the ownership of the company due to heavy reliance on equity in case of Whitehaven.
Caltex Limited
|
WHITEHAVEN COAL |
2017 |
2016 |
2015 |
|
Cash flows from operating activities |
|||
|
Receipts from customers |
$ 1,737,063.00 |
$ 1,188,341.00 |
$ 740,162.00 |
|
Payments to suppliers & employees |
-$ 1,081,737.00 |
-$ 919,010.00 |
-$ 527,738.00 |
|
Interest received |
$ 1,405.00 |
$ 1,056.00 |
$ 4,752.00 |
|
Interest paid |
-$ 49,087.00 |
-$ 56,123.00 |
-$ 39,914.00 |
|
Income taxes paid/refund |
-$ 42,331.00 |
$ 36,111.00 |
|
|
Net operating cash inflows |
$ 607,644.00 |
$ 171,933.00 |
$ 213,373.00 |
|
Cash flows from investing activities |
|||
|
Acquisition of property, plant and equipment |
-$ 89,462.00 |
-$ 88,867.00 |
-$ 430,555.00 |
|
Sale of property, plant and equipment |
$ 971.00 |
$ 902.00 |
|
|
Purchase of intangible assets |
-$ 4,975.00 |
||
|
Exploration and evaluation expenditure |
-$ 5,161.00 |
-$ 5,107.00 |
-$ 851.00 |
|
Net investing cash outflows |
-$ 93,652.00 |
-$ 93,072.00 |
-$ 436,381.00 |
|
Cash flows from financing activities |
|||
|
Purchase of shares |
-$ 8,380.00 |
-$ 1,351.00 |
-$ 153.00 |
|
Proceeds from borrowings |
$ 18,687.00 |
$ 9,450.00 |
$ 1,125,000.00 |
|
Repayments of borrowings |
-$ 519,299.00 |
-$ 73,610.00 |
-$ 858,246.00 |
|
Repayment of finance lease( principal) |
-$ 18,708.00 |
-$ 13,503.00 |
-$ 17,283.00 |
|
Payment of finance facility upfront costs |
-$ 607.00 |
-$ 787.00 |
-$ 27,084.00 |
|
Net financing cash outflows |
-$ 528,307.00 |
-$ 79,801.00 |
$ 222,234.00 |
|
Net (decrease) in cash and cash equivalents |
-$ 14,315.00 |
-$ 940.00 |
-$ 774.00 |
|
Opening Cash and cash equivalents |
$ 101,453.00 |
$ 102,393.00 |
$ 103,167.00 |
|
Closing Cash and cash equivalents |
$ 87,138.00 |
$ 101,453.00 |
$ 102,393.00 |
Whitehaven Coal
Operating activities are those activities which are undertaken in the course of business as a result of normal business operations which helps in generating normal sales from the business.
Part 4: Other Comprehensive Income Statement
In case of Caltex Limited, the basic operating activities that have been undertaken in all the three years are enlisted in the above table. There is an inflow of cash in the business from the cash collection made from the customers to whom goods are sold by Caltex and also the company has received certain amount of interest and dividend income in all the three years. The payment of income tax and to the suppliers and employees of the company has resulted in outflow of cash from the business.
In case of Whitehaven Limited also the payment has been made to the suppliers and employees of the company and also the income taxes have paid in 2016. Further the interest on the borrowings made for the operations have been made in all the three years. These activities have resulted in outflow of cash from the business. However, the Whitehaven has also made cash collections from its customers for the sales made to them and in 2015, the company has also received income tax refund for the excessive payment made by it during the previous year. All it has earned certain operating interest income. These activities have contributed to inflow of cash for the business.
Investing activities are those activities which involves buying and selling of the non-current assets of the business and also investments. In 2016, Caltex has purchased certain investments and this has resulted in the cash outflow for the business. In 2017 and 2015, the assets and liabilities are assumed as a result of business combination transactions entered into by Caltex. Further, the company has also paid the cyclical maintenance charges for its sites and equipment and has also purchased the assets which are of intangible nature. All these transactions and events have led to outflow of cash from the business. Along with these purchase transactions, Caltex has also disposed its property, plant and equipment which had resulted in cash inflow of the business.
Whitehaven limited has made investment in acquisition of long term assets for the business such as property plant and equipment, tangible assets and also expenditure has been incurred in respect of its evaluation and exploration process. Since, this expenditure is going to provide benefits for the longer years it has been treated as the capital investment under which cash flow is taken place. During the course of business, the company has also disposed its certain non-current assets because of the termination of their useful lives or for the reason of technological obsolesce. The sale of these assets has resulted in cash inflow for the business.
Part 5: Accounting For Croporate Income Tax
Financing activities involves those transactions that are entered into by the firm with its creditors and investors to finance the basic operations of business.
In case of Caltex Limited, the company has made payment of various borrowings made by it previously to generate the required funds for business. These borrowings have been repaid in the reported years and it has resulted in outflow of cash. Also, since the company has undertaken buy-back event in 2016, there is an outflow of cash for such event. Further, the company has generated additional funds from the market through debt financing and this has resulted in cash inflow for the business. Moreover, Caltex has also paid dividend to its shareholders.
As a part of financing activities, Whitehaven has purchased the shares of other companies and this has resulted in cash outflow from its business. Further, the company has made repayment for its debt obligations which had become due during the reported years. Finance facility upfront costs are those costs which are incurred at the initiation time while undertaking financial assistance from the providers of finance. These transactions have resulted in cash outflow for the business.
Comparative analysis of 3 years performance
|
2017 |
2016 |
2015 |
||
|
Caltex Limited |
Net operating cash inflows |
$ 735,032.00 |
$ 928,202.00 |
$ 884,666.00 |
|
Caltex Limited |
Net investing cash outflows |
-$ 800,348.00 |
-$ 357,283.00 |
-$ 411,105.00 |
|
Caltex Limited |
Net financing cash outflows |
-$ 135,020.00 |
-$ 589,826.00 |
-$ 262,919.00 |
|
2017 |
2016 |
2015 |
||
|
Whitehaven Coal |
Net operating cash inflows |
$ 607,644.00 |
$ 171,933.00 |
$ 213,373.00 |
|
Caltex Limited |
Net investing cash outflows |
-$ 93,652.00 |
-$ 93,072.00 |
-$ 436,381.00 |
|
Whitehaven Coal |
Net financing cash outflows |
-$ 528,307.00 |
-$ 79,801.00 |
$ 222,234.00 |
In case of Caltex Limited, the maximum cash amount generated through operating activities was in 2016 in-spite of having minimum collection from customers for the sales made to them. This is due to the fact that company has made lesser payments to the suppliers and employees in 2016 as compared to other two reported years. In terms of investing activities, maximum cash flow is occurred in 2017 due to occurrence of business combination events in the said year and in 2016, the least outflow of cash has been reported due to the fact that company has incurred least amount for its maintenance of sites and for the purchase of PPE. In 2016, there has been reported maximum cash out flows in the areas of financing activities because of implementation of share buy-back scheme in 2016.
In case of Whitehaven Limited, maximum cash collection has been in 2017 from the operating activities because of larger sales. In terms of investing activities, least outflow of cash was reported in 2015 because in that particular year company has made lesser purchase of PPE. In terms of financing activities, maximum cash outflow was reported in 2016 because of larger sums of repayment of borrowings (Whitehaven, 2015).
Conclusion
Comparative analysis of companies
|
Companies |
2017 |
2016 |
2015 |
|
|
Caltex Limited |
Net operating cash inflows |
$ 735,032.00 |
$ 928,202.00 |
$ 884,666.00 |
|
Whitehaven Coal |
Net operating cash inflows |
$ 607,644.00 |
$ 171,933.00 |
$ 213,373.00 |
|
Caltex Limited |
Net investing cash outflows |
-$ 93,652.00 |
-$ 93,072.00 |
-$ 436,381.00 |
|
Whitehaven Coal |
Net investing cash outflows |
-$ 800,348.00 |
-$ 357,283.00 |
-$ 411,105.00 |
|
Caltex Limited |
Net financing cash outflows |
-$ 135,020.00 |
-$ 589,826.00 |
-$ 262,919.00 |
|
Whitehaven Coal |
Net financing cash outflows |
-$ 528,307.00 |
-$ 79,801.00 |
$ 222,234.00 |
In terms of operating activities, Caltex is performing better than Whitehaven Limited in all the years because it has generated higher cash in-flows for the business. In terms of investing activities, Whitehaven is performing better than Caltex in all the three years as it has made lesser outflow of cash from the business in such activities. In terms of financing activities, Caltex performed better than Whitehaven in 2017 by allowing flow of lesser cash out of the business. But in 2016 and 2015, Whitehaven had performed better as it had resulted in less cash flows than Caltex in 2016 and in 2015, it has managed its financing activities in such as a way which has resulted in cash inflow for the business (Caltex, 2015)
Caltex Limited
|
Other comprehensive income |
|
|
Items not to be recycled to profit or loss |
Caltex Limited |
|
Actuarial gain/(loss) on defined benefit plans |
$ 3,519.00 |
|
Tax on items not to be reclassified to profit or loss |
-$ 1,056.00 |
|
Total value of Items not to be recycled to profit or loss in further periods |
$ 2,463.00 |
|
Items to be not recycled |
|
|
Foreign currency translation differences |
-$ 29,577.00 |
|
Valuation gain/loss |
|
|
Fair value changes of net investment hedges |
$ 1,045.00 |
|
Effective portion of changes in fair value of cash flow hedges |
-$ 45,221.00 |
|
Net change in fair value of cash flow hedges reclassified to profit or loss |
$ 45,294.00 |
|
Tax on items to be reclassified to profit or loss |
-$ 2.00 |
|
Total value of Items to be recycled to profit or loss in further periods |
-$ 28,461.00 |
|
Total comprehensive income/loss |
-$ 25,998.00 |
Whitehaven Petroleum
|
Items to be recycled |
|
|
Net movement on cash flow hedges |
$ 2,618.00 |
|
Tax on items to be reclassified to profit or loss |
-$ 785.00 |
|
Total value of Items to be recycled to profit or loss in further periods |
$ 1,833.00 |
|
Total comprehensive income/loss |
$ 1,833.00 |
Part vii
These items have not been included in the income statement for the reason that such gains have not yet been realised by the company and also they do not belong to the core business operations of both the companies.
Part viii
Comparative analysis
|
Other comprehensive income |
||
|
Items not to be recycled to profit or loss |
Caltex Limited |
Whitehaven Coal |
|
Actuarial gain/(loss) on defined benefit plans |
$ 3,519.00 |
$ – |
|
Tax on items not to be reclassified to profit or loss |
-$ 1,056.00 |
$ – |
|
Total value of Items not to be recycled to profit or loss in further periods |
$ 2,463.00 |
$ – |
|
Items to be recycled |
||
|
Foreign currency translation differences |
-$ 29,577.00 |
$ – |
|
Valuation gain/loss |
$ – |
|
|
Fair value changes of net investment hedges |
$ 1,045.00 |
|
|
Effective portion of changes in fair value of cash flow hedges |
-$ 45,221.00 |
$ – |
|
Net change in fair value of cash flow hedges reclassified to profit or loss |
$ 45,294.00 |
$ 2,618.00 |
|
Tax on items to be reclassified to profit or loss |
-$ 2.00 |
-$ 785.00 |
|
Total value of Items to be recycled to profit or loss in further periods |
-$ 28,461.00 |
$ 1,833.00 |
|
Total comprehensive income/loss |
-$ 25,998.00 |
$ 1,833.00 |
The profit attributable to the shareholders would not be affected if the items of other comprehensive statement are included in the income statement.
Part ix
Yes other comprehensive income must be considered while making the performance evaluation of companies as it gives fair insights of significant transactions entered into by the company apart from core business operations during the given period of time.
Part x
|
2017 |
Caltex Limited |
Whitehaven Coal |
|
Tax Expense |
$ 242,694.00 |
$ 70,059.00 |
Part xi
|
Caltex Limited |
Whitehaven Coal |
|
|
Tax Expense |
$ 242,694.00 |
$ 70,059.00 |
|
Profit before tax |
$ 863,446.00 |
$ 475,426.00 |
|
Effective Tax Rate |
28.11% |
14.74% |
Part xii
Deferred tax assets are those assets that are created to account for the excessive tax payments made by the company on the basis of its calculation of federal taxation rules (Laux, 2013). When book profits are lower than the profits as per income tax and the difference in the amount of taxed calculated under both the framework is not permanent, then DTAs are created (Schrand and Wong, 2003). The DTA in case of Caltex are recognised under the balance sheet liability approach. The reasons for the recognition of DTAs in respect of Caltex are due to the variation in the carrying values of assets under financial approach and taxation framework of Australia. . In case of Whitehaven, the DTA totalled to $ 356 million but out of this balance $ 305.3 million were from the carried forward tax losses as well as tax credits. In case of Caltex, out of $ 298,158000 $ 238,083000 is from the carried forward tax losses as well as tax credits (Whitehaven, 2017).
Part xiii
There has been increase in the DTAs of Caltex Limited but in case of White haven Cao there has been decrease in the DTA balance in 2017 as compared to 2016
Increase/ Decrease in DTA
|
Caltex Limited |
Whitehaven Coal |
|
|
Opening Balance |
$ 238,083.00 |
$ 103,573.00 |
|
Recognised in income |
-$ 13,671.00 |
$ 1,298.00 |
|
Recognised in equity |
-$ 1,058.00 |
-$ 785.00 |
|
Utilisation of DTA on current year losses |
-$ 148,029.00 |
|
|
Recognition of losses |
$ 76,672.00 |
|
|
Acquired in business combination |
$ 20,719.00 |
|
|
Closing Balance |
$ 244,073.00 |
$ 32,729.00 |
|
Net Increase/(Decrease) |
$ 5,990.00 |
-$ 70,844.00 |
Part xiv
Calculation of cash tax
|
Caltex Limited |
Whitehaven Coal |
|
|
Book Tax |
$ 242,694.00 |
$ 70,059.00 |
|
Less: Increase in DTA |
$ 5,990.00 |
-$ 69,597.00 |
|
Current income taxes |
$ 236,704.00 |
$ 139,656.00 |
|
Add: Tax Shield on Finance Cost |
$ 20,070.00 |
$ 14,985.90 |
|
Unlevered Cash Taxes |
$ 256,774.00 |
$ 154,641.90 |
Part xv
Cash Tax Rate Calculation
|
Unlevered Cash Taxes |
$ 256,774.00 |
$ 154,641.90 |
|
EBITA |
$ 930,497.00 |
$ 525,379.00 |
|
Cash Tax Rate |
27.60% |
29.43% |
Note: Whitehaven has the higher cash tax rate in comparison to Caltex Limited.
Part xvi
Cash tax is the amount of tax paid by the company to the government on the basis of tax provisions. However, book tax is the tax that is calculated on the basis of financial reporting framework. The reason of deviation in the cash tax rate and book tax rate is due to the different accounting treatment for the same items in different regulations i.e. accounting regulations and taxation regulations (Guenther & Sansing, 2000)
References:
AASB GOV. 2005. Available at: https://www.aasb.gov.au/admin/file/content102/c3/Background_to_AASB_adoption_of_IASB_standards_by_2005.pdf Accessed on: 28.09.2018
Whitehaven Coal. 2015. Annual Report: 2015. Available at: https://www.whitehavencoal.com.au/wp-content/uploads/2015/10/Annual-Report_29Sep2015.pdf Accessed on: 29.09.2018
Whitehaven Coal. 2017. Annual Report: 2017. Available at: https://www.whitehavencoal.com.au/wp-content/uploads/2017/09/WVN_223766_Annual-Report-2017_FA4-web.pdf Accessed on: 29.09.2018
Caltex Australia. 2015. Annual Report: 2015. Available at: https://www.caltex.com.au/our-company/investor-centre/annual-reports-and-reviews Accessed on: 29.09.2018
Caltex Australia. 2017. Annual Report: 2017. Available at: https://www.caltex.com.au/our-company/investor-centre/annual-reports-and-reviews Accessed on: 29.09.2018
Bloomberg, 2018. Company Overview of Caltex Australia Limited. Available: https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=877088 Accessed on 220.9.2018.
Bloomberg, 2018. Company Overview of Whitehaven Coal Limited. Available: https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=23713877Accessed on 29.9.2018.
Schrand, C.M. and Wong, M.F., 2003. Earnings management using the valuation allowance for deferred tax assets under SFAS No. 109. Contemporary Accounting Research, 20(3), pp.579-611.
Guenther, D.A. and Sansing, R.C., 2000. Valuation of the firm in the presence of temporary book-tax differences: The role of deferred tax assets and liabilities. The Accounting Review, 75(1), pp.1-12.
Laux, R.C., 2013. The association between deferred tax assets and liabilities and future tax payments. The Accounting Review, 88(4), pp.1357-1383
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