Cash Flow statement analysis
The subject of this report will be critical analysis of different financial statements of any Australian company with ASX listing. For this purpose, the chosen company is Baby Bunting Group Ltd of Victoria. The company is enlisted in ASX in 2015 with its ASX code BBN and GICS Industry Group – retailing. (ASX, 2018) This report will emphasize on comparison of audited financial report of the company for three years from 2015 to 2017. Main areas of concentration will be cash flow statement, other comprehensive income statement and accounting of corporate income tax with critical analysis of its different heads to highlight significant changes for last three years in those domains. (Bunting, 2016) Cash flow statement will be analyzed with the identification of the reason for such changes. Moreover, a comparative analysis of cash flow statement with its broad category headings like operating activities, investing activities and financing activities will be done with proper evaluation for the specified period. Other comprehensive income statement will be analyzed in respect of its components with their nature and the reason behind those components not being featured in income statement. For corporate income tax, an analysis of tax expense of the company for considered three years as per financial statement with its similarity as per corporate tax rate, discussion on deferred tax treatment as per balance sheet, the amount of tax paid and the amount showed in different financial statements along with other critical aspects of income tax accounting of the company. This report will end up with some obdervations to make this report complete in all aspect.
Cash flow statement analysis of Baby Bunting Group Ltd extracted from the audited financial statement of 2015, 2016 and 2017 is given below:
|
Consolidated Statement of Cash Flows |
||||||
|
2017 |
2016 |
2015 |
variance |
variance |
||
|
Note |
$’000 |
$’000 |
$’000 |
2016>2015 |
2017>2016 |
|
|
Cash flows from operating activities |
||||||
|
Receipts from customers |
304,090 |
258,418 |
196,899 |
31.24 |
17.67 |
|
|
Payments to suppliers and employees |
-285,017 |
-242,851 |
-188,583 |
28.78 |
17.36 |
|
|
Income tax paid |
-5,513 |
-6,213 |
-2,673 |
132.44 |
(11.27) |
|
|
Interest received |
17 |
20 |
18 |
11.11 |
(15.00) |
|
|
Finance costs paid |
-406 |
-420 |
-880 |
(52.27) |
(3.33) |
|
|
Transaction costs for listing |
– |
-1,876 |
– |
|||
|
Net cash from operating activities |
23(a) |
13,171 |
7,078 |
4,781 |
48.04 |
86.08 |
|
Cash flows from investing activities |
||||||
|
Payments for plant and equipment and intangibles |
9,10 |
-7,352 |
-6,185 |
-6,047 |
2.28 |
18.87 |
|
Proceeds on sale of plant and equipment |
1 |
6 |
25 |
(76.00) |
(83.33) |
|
|
Net cash used in investing activities |
-7,351 |
-6,179 |
-6,022 |
2.61 |
18.97 |
|
|
Cash flows from financing activities |
||||||
|
Proceeds from issue of shares |
15,19 |
– |
28,717 |
1,532 |
1,774.48 |
|
|
Transaction costs for issue of shares |
– |
-1,754 |
– |
|||
|
Dividends paid |
16 |
-11,558 |
-16,117 |
– |
(28.29) |
|
|
Proceeds from/(Repayment of) borrowings |
4,800 |
-7,950 |
-100 |
7,850.00 |
(160.38) |
|
|
Net cash (used in)/provided by financing activities |
-6,758 |
2,896 |
1,432 |
102.23 |
(333.36) |
|
|
Net (decrease)/increase in cash and cash equivalents |
-938 |
3,795 |
191 |
1,886.91 |
(124.72) |
|
|
Cash and cash equivalents at beginning of the financial year |
7,363 |
3,568 |
3,377 |
5.66 |
106.36 |
|
|
Cash and cash equivalents at end of the financial year |
23(b) |
6,425 |
7,363 |
3,568 |
106.36 |
(12.74) |
Observations:
- Cash flow from operating activities is mainly constituted by items of operations. For this company, operation is retailing business. Hence cash inflows from operating activities are receipts from customers and interest received from deposits. Out of that cash, different operating expenses are paid. The operating expenses are under the heads of payment to supply chain associates and employees, income tax, finance cost and transaction cost for listing. All receipts are maintaining the trend with normal growth in revenue. For payments, also parity remains in payment to suppliers and employees and interest paid for borrowings termed as finance cost. Transaction cost for listing is featured in 2016.
- Cash flow from investing activities is constituted by procurement and sale of long-term assets including intangibles.
- Cash flows from financing activities are constituted by items like proceeds from issue of shares, respective transaction costs, payment of dividends and proceeds from borrowings. Out of them, proceeds from share issue and borrowings increase the cash; while payment of dividend and transaction costs for share issue decreases the same.
- Net impact of this financial information has constituted year-wise net cash flow of the company. Adding this to the opening cash balance, cash and cash equivalent of the company at the end of the year is being derived.
Given below the comparative analysis of cash flow from operating, investing and finance activities for 2015, 2016 and 2017 with variance:
|
2017 |
2016 |
2015 |
variance |
variance |
||
|
Note |
$’000 |
$’000 |
$’000 |
2016>2015 |
2017>2016 |
|
|
Net cash from operating activities |
23(a) |
13,171 |
7,078 |
4,781 |
48.04 |
86.08 |
|
Net cash used in investing activities |
-7,351 |
-6,179 |
-6,022 |
2.61 |
18.97 |
|
|
Net cash (used in)/provided by financing activities |
-6,758 |
2,896 |
1,432 |
102.23 |
(333.36) |
Evaluation:
- Cash flow from operating activities had shown steady increase with variance of 48% in 2016 in respect of 2015 (Bunting, 2015)and 86% in 2017 in respect of 2016.
- Cash invested in investing activities showed increase with variance of 3% in 2016 compared to 2015 and 19% in 2017 compared to 2016.
- Net cash generated from financing activities showed increase in 2016 in respect of 2015 by 102% while a decrease was observed in 2017 by 333% in 2017 compared to 2016.
The financial reporting of any company normally projects performance of a company through profit or loss and other comprehensive income statement. As per IAS 1, Presentation of Financial Statements profit or loss is defined as the net effect of total income less respective expenses without items of other comprehensive income or OCI. (Coach, 2017) Other comprehensive income is comprised of components of income and allied expenses with the consideration of reclassification adjustments and not identified in profit or loss as per requirement and permission of IFRS. (Tools, 2018) The definition of total comprehensive income is derived as ‘the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners’. (accaglobal, 2016)
Observations
Other comprehensive income is constituted by those gains, revenues, losses and expenses under GAAP (Tools, 2017) and IFRS which are not included in net income featured in the income statement and are treated in income statement after net income. Revenues, gains, expenses and losses feature in OCI with the condition of unrealized status. The example of such happening is sale of any investment. Hence the investments in financial instruments with the tendency to change its value of such instruments, the respective change in gain or losses can be treated under the head of OCI. These instruments can be realized with respective gains or losses when the same would be sold. Accounting treatment of post-sales of such instruments should come from OCI then to make it part of net income in income statement. (accountingtools, 2017)
Items normally treated as components of other comprehensive income are:
- Gains or losses due to foreign exchange translation
- Gains or losses from unrealized holding on investments classified as ready for sale
- Gains or losses related to pension plan
- Prior service costs or credits for pension
Normally OCI gives the concept of more comprehensive understanding of the financial status of the business entity although it makes the reader more confused with its complexity to the income statement.
In the case of Baby Bunting Group Ltd financial reports for the financial years 2015 to 2017, nothing has been featured as other comprehensive income and hence there is no scope of discussion related to this subject in this article. Given below the statement of profit or loss and other comprehensive income statement of the company for the specified period to justify the claim of non-existence of OCI in Baby Bunting financial report for the period:
|
Consolidated Statement of Profit or Loss and Other Comprehensive Income |
|||
|
2017 |
2016 |
2015 |
|
|
$’000 |
$’000 |
$’000 |
|
|
Revenue |
278,027 |
236,840 |
180,175 |
|
Cost of sales |
-182,735 |
-155,678 |
-118,314 |
|
Gross profit |
95,292 |
81,162 |
61,861 |
|
Other revenue |
17 |
21 |
45 |
|
Store expenses |
-56,762 |
-48,305 |
-37,833 |
|
Marketing expenses |
-4,919 |
-3,983 |
-3,054 |
|
Warehousing expenses |
-3,748 |
-3,540 |
-3,316 |
|
Administrative expenses |
-11,753 |
-10,895 |
-8,073 |
|
IPO transaction costs expensed |
– |
-1,876 |
– |
|
Finance costs |
-432 |
-397 |
-807 |
|
Change in fair value of interest rate swap |
205 |
||
|
Profit before tax |
17,695 |
12,187 |
9,028 |
|
Income tax expense |
-5,448 |
-3,853 |
-2,988 |
|
Profit after tax |
12,247 |
8,334 |
6,040 |
|
Other comprehensive income for the year |
– |
– |
– |
|
Total comprehensive income for the year |
12,247 |
8,334 |
6,040 |
|
Profit for the year attributable to: |
|||
|
Equity holders of Baby Bunting Group Limited |
12,247 |
8,334 |
6,040 |
|
Earnings per share |
|||
|
From continuing operations |
|||
|
Basic (cents per share) |
9.7 |
7 |
6.2 |
|
Diluted (cents per share) |
9.6 |
7 |
6.2 |
This subject will have different issues to discuss, which are being narrated below point-wise.
- As per the latest audited financial statements of Baby Bunting group Ltd, given below the tax expenses for 2015, 2016 and 2017 (Bunting, 2017)extracted from profit or loss and comprehensive income statement with variance of corporate income tax payment:
|
2017 |
2016 |
2015 |
variance |
variance |
|
|
$’000 |
$’000 |
$’000 |
2015>2016 |
2016>2017 |
|
|
Income tax expense |
-5,448 |
-3,853 |
-2,988 |
28.95 |
41.40 |
The payment status of corporate income of Baby Bunting Group Ltd is given below with the derivation of income tax payable figure:
|
2017 |
2016 |
2015 |
|
|
$’000 |
$’000 |
$’000 |
|
|
Profit before tax from continuing operations |
17,695 |
12,187 |
9,028 |
|
Income tax expense calculated at 30% (2015-2017:30%) |
-5,308 |
-3,656 |
-2,708 |
|
Non-deductible expenditure |
-140 |
-197 |
-280 |
|
Income tax expense recognized in profit or loss |
-5,448 |
-3,853 |
-2,988 |
- It is found that standard rate of corporate income tax payable by Australian corporate bodies on taxable profits under Australian tax law is calculated @ 30% on profit before tax from continuing operation for the period of 2015 to 2017.
- The impact of corporate income tax on non-deductible expenditure from income tax perspective had made changes in the corporate income tax payment for the period. In 2015, it is featured as 280 m$, followed by 197 m$ in 2016 and 140 m$ in 2017 as classified in the segment of income tax on non-deductible expenditure.
In the audited financial statement of Baby Bunting Group Ltd, following figures are derived and certified by auditor for three years under consideration- 2015, 2016 and 2017:
|
25-Jun-17 |
26-Jun-16 |
28-Jun-15 |
|
|
$’000 |
$’000 |
$’000 |
|
|
Deferred tax assets |
3,434 |
3,361 |
2,071 |
Occurrence of deferred tax as asset happens when book profit is less than the taxable profit of any business identity. (tax, 2018) In case of this company, the annual financial report emphasizes deferred tax with its recognition on temporary differences between the carrying amount of liabilities and assets featured in the consolidated financial statement with the respective tax bases used in computing taxable profit. Deferred tax liability is normally recognized for all temporary differences of taxable items, while deferred tax asset is normally recognized for all temporary difference, which is deductible. In case of this company, the components forming deferred tax as asset are given below for three years:
|
Recognised |
||||||||
|
in other |
Reclassified |
|||||||
|
Recognised |
compreh- |
Recognised |
from equity |
|||||
|
Opening |
in profit |
ensive |
directly in |
to profit |
Acquisitions |
Closing |
||
|
balance |
or loss |
income |
Equity |
or loss |
/disposals |
Other |
balance |
|
|
2015 – Consolidated |
($’000) |
($’000) |
($’000) |
($’000) |
($’000) |
($’000) |
($’000) |
($’000) |
|
Employee benefits |
435 |
144 |
– |
– |
– |
– |
– |
579 |
|
Non-deductible accruals |
133 |
77 |
– |
– |
– |
– |
– |
210 |
|
Non-assessable lay by |
||||||||
|
gross profit |
128 |
(275) |
– |
– |
– |
– |
– |
(147) |
|
Inventories |
385 |
74 |
– |
– |
– |
– |
– |
459 |
|
Gift vouchers |
184 |
57 |
– |
– |
– |
– |
– |
241 |
|
Operating lease provision |
644 |
85 |
– |
– |
– |
– |
– |
729 |
|
Interest rate swap |
61 |
(61) |
– |
– |
– |
– |
– |
– |
|
Total |
1,970 |
101 |
– |
– |
– |
– |
– |
2,071 |
|
Recognised |
Reclassified |
|||||||
|
Recognised |
in other |
Recognised |
from equity |
|||||
|
Opening |
in profit or |
comprehen- |
directly in |
to profit or |
Acquisitions |
Closing |
||
|
balance |
loss |
sive income |
equity |
loss |
/disposals |
Other |
balance |
|
|
2016 – Consolidated |
($’000) |
($’000) |
($’000) |
($’000) |
($’000) |
($’000) |
($’000) |
($’000) |
|
Employee benefits |
579 |
179 |
– |
– |
– |
– |
– |
758 |
|
Non-deductible |
||||||||
|
accruals |
210 |
57 |
– |
– |
– |
– |
– |
267 |
|
Non-assessable layby |
||||||||
|
gross profit |
(147) |
(14) |
– |
– |
– |
– |
– |
(161) |
|
Inventories |
459 |
17 |
– |
– |
– |
– |
– |
476 |
|
Gift vouchers |
241 |
58 |
– |
– |
– |
– |
– |
299 |
|
Operating lease |
||||||||
|
provision |
729 |
122 |
– |
– |
– |
– |
– |
851 |
|
Interest rate swap |
– |
– |
– |
– |
– |
– |
– |
– |
|
IPO transaction costs |
||||||||
|
– listing |
– |
450 |
– |
– |
– |
– |
– |
450 |
|
IPO transaction costs – |
||||||||
|
issuance of new shares |
– |
– |
– |
421 |
– |
– |
– |
421 |
|
Total |
2,071 |
869 |
– |
421 |
– |
– |
– |
3,361 |
|
2017 – Consolidated |
||||||||
|
Employee benefits |
758 |
135 |
– |
– |
– |
– |
– |
893 |
|
Non-deductible |
||||||||
|
accruals |
267 |
107 |
– |
– |
– |
– |
– |
374 |
|
Non-assessable layby |
||||||||
|
gross profit |
(161) |
41 |
– |
– |
– |
– |
– |
(120) |
|
Inventories |
476 |
26 |
– |
– |
– |
– |
– |
502 |
|
Gift vouchers |
299 |
(95) |
– |
– |
– |
– |
– |
204 |
|
Operating lease |
||||||||
|
provision |
851 |
77 |
– |
– |
– |
– |
– |
928 |
|
Interest rate swap |
– |
– |
– |
– |
– |
– |
– |
– |
|
IPO transaction costs |
||||||||
|
– listing |
450 |
(113) |
– |
– |
– |
– |
– |
337 |
|
IPO transaction costs – |
||||||||
|
issuance of new shares |
421 |
(105) |
– |
– |
– |
– |
– |
316 |
|
Total |
3,361 |
73 |
– |
– |
– |
– |
– |
3,434 |
Comparative analysis of broad categories cash flow
Current tax payable of the company for the financial period 2015 to 2017 is appended below as extracted from the audited financial report of the company:
|
2017 |
2016 |
2015 |
|
|
$’000 |
$’000 |
$’000 |
|
|
Current tax liability |
851 |
844 |
2,439 |
Basic reason for current tax payable showed in current tax liability not matched with Income tax expense is due to tax payable to be paid in subsequent month of the next financial year. As the tax liability generates through the operation process and it is normal trend or practice to pay the tax of last month of the financial year in the subsequent month of next financial year, the provision for such expenses are made to make the financial report justified and logical with prudence.
The difference between income tax expense as per profit or loss and other comprehensive income statement and payment made as per cash flow statement for three years of Baby Bunting Group Ltd is given below:
|
2017 |
2016 |
2015 |
|
|
$’000 |
$’000 |
$’000 |
|
|
Income tax expense as per income statement |
5,448 |
3,853 |
2988 |
|
Income tax paid as per cash flow |
5,513 |
6,213 |
2673 |
|
difference |
-65 |
– 2360 |
315 |
Reasons for such differences are:
- Difference in taxable profit and book profit to generate deferred tax asset
- Paid provision of tax liability for last year
Baby Bunting Group Ltd is dealing in the retailing segment of business. The company is in simple format of retailing products from its outlets. The basic business operation is depending upon procurement and selling of saleable goods. Income tax is mainly connected with the profit of the company. It is found from the analysis of three years’ financial statement that the company has generated deferred tax through their financial information management. Moreover tax liability is shown in current liability depicting that the company has normal trend of keeping income tax payable in their books. Most critical finding is related to derivation of deferred tax with identification of its components. It is also observed that consideration of non-deductible expenses inflate income tax payable for the company. Another area of confusion prevails in the area of payment of income tax through cash flow and the income tax booked in profit or loss and other comprehensive income statement. A new insight in the form of more clarity or prudence is required for treatment of income tax in the financial statement to make it easy to understand by the respective stakeholder
References:
accaglobal, 2016. CONCEPTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME. [Online] Available at: https://www.accaglobal.com/in/en/student/exam-support-resources/professional-exams-study-resources/p2/technical-articles/pl-oci.html [Accessed 23 May 2018].
accountingtools, 2017. Other Comprehensive income. [Online] Available at: https://www.accountingtools.com/articles/what-is-other-comprehensive-income.html [Accessed 23 May 2018].
ASX, 2018. Baby Bunting Group Ltd. [Online] Available at: https://www.asx.com.au/asx/share-price-research/company/BBN [Accessed 23 May 2018].
Bunting, B., 2015. Annual Report. Annual Financial Report.
Bunting, B., 2016. Baby Bunting Annual report 2016. [Online] Available at: https://www.babybuntingcorporate.com.au/wp-content/uploads/2016/01/BabyBunting-Annual-Report-2016.pdf [Accessed 23 May 2018].
Bunting, B., 2017. Annual Report. [Online] Available at: https://www.babybuntingcorporate.com.au/wp-content/uploads/2017/08/Appendix-4E-and-FY17-Annual-Report-final.pdf [Accessed 23 May 2018].
Coach, A., 2017. What is other comprehensive income? [Online] Available at: https://www.accountingcoach.com/blog/what-is-other-comprehensive-income [Accessed 23 May 2018].
tax, C., 2018. Deferred Tax Asset and Deferred Tax Liability. [Online] Available at: https://cleartax.in/s/deferred-tax-asset-deferred-tax-liability-dta-dtl [Accessed 23 May 2018].
Tools, A., 2017. What is GAAP? [Online] Available at: https://www.accountingtools.com/articles/what-is-gaap.html [Accessed 23 May 2018].
Tools, A., 2018. What os IFRS? [Online] Available at: https://www.accountingtools.com/articles/what-is-ifrs.html [Accessed 23 May 2018]
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