Corporate Accounting Assessment

Executive Summary of Issues in Cash Flow Statement

The financial statement is one of the major sources of information for the shareholders as it helps in providing a detailed knowledge of the financial aspects. Investors refer to the financial statements before the investment activities. The report is based upon the critical evaluation of cash flow statement and the income statement. The analysis of the both these give a proper understanding of the performance of the company. Further, the second part of the report deals with BHP, Santos and Funtastic whereby their financial statements are analysed. The report discusses various facts and figures of these companies such as cash flow from operations, trend in the working capital, capital expenditure etc.



Part A..

Critical evaluation of cash flow and income statement

The advantage of the income statement and statement of cash flows to the investors.


BHP Ltd, Santos Ltd, and Funtastic Ltd.

Sources of cash of each firm..

The trend in Cash flow from continuing operating activities.

iii. Comparison and contrast

Generation of cash from operations.

Coverage of Dividend payment from Cash from Operations.

Investment of excess cash.

vii. Working capital

viii. Dividend trend for the companies.

Trend of Borrowing.

BHP Limited- Trend in Working Capital Accounts.

Critical evaluation.

Best for Lending purpose.



Introduction to Issues in Cash Flow Statement

The assignment aims to evaluate the cash flow statement and income statements that form a major part of the financial statements. The Cash Flow statement provides cash related information to the CFOs, financial controllers, and managers for financing, investing, and operating activities. This statement is highly useful for evaluating and presenting information concerning the cash payments and cash receipts for learning about the profitability, liquidity, and risks faced by the company. Using this information, the management of the company can facilitate financing needs and plan for the future. Similarly, the income statement helps in knowing the profit or loss earned by the company and the expenses made.

Issues in Cash Flow Statement - Part A

Critical Evaluation of Cash Flow and Income Statement

The statement of cash flows also acts as a basis for predicting the profits that can be earned by the company in the nearing time and even highlights the type and amount of funds that the company shall require for the expansion of its long-term assets and delegating its regular business operations. Investors use cash flow statements for learning about the financial strengths and weaknesses of a company concerning its liquidity, risks, ability to retain cash for a longer period, and profit-making ability (Peirson et al 2015).

As discussed earlier, there are three activities namely operating, financing, and investing reported in the cash flow statement of an organization. The operating section of a cash flow statement signifies the cash generated from the regular business operations of an organization. This type of cash inflow is different from the profits generated by a company. The operating cash flow section allows the financial CFO and controller to evaluate whether the company can generate sufficient cash flows from its regular business operations for fulfilling its requirements or not. The investing section of a cash flow statement signifies the cash inflows/ outflows resulting out of the sale/purchase of long term assets like buildings, land, etc. Generally, there are more entries concerning cash outflows in the investing section as most companies prefer making investments for a longer period to smoothen and enhance its regular business operations and confirm the chances of its future growth and expansion (Lail et al, 2017). The financing section of a cash flow statement depicts the cash inflows from financing activities such as the issue of equity shares, sale of bonds, etc, and cash outflows to the investors and shareholders via the interest paid to bondholders, payment of dividends, and buyback of shares.

The income statement is a financial statement that records the revenues earned and the expenses incurred by an organization during a specific financial year. The difference between the revenues and expenses reported by an organization in its income statement for a particular financial year is regarded as net profits/ net loss. In other words, the result of the income statement is net profits/losses, and therefore, this is why this statement is also known as profit and loss statement (Fedorkova, 2018). The components of the income statement are the cost of goods sold, revenues, operating expenses like depreciation, selling and administration expenses, research and development expenses, gross profit/loss, operating income, other income like investment income, other expenses, like taxes, interest expense, non-recurring events, and net profits/losses.

The income statement is used to calculate the net profits/losses earned by the company during a specific financial period. The afore-mentioned statement is one of the most crucial financial statements issued by an organization as the information it offers is of great utility for assessing the financial wellbeing of that organization in question (Abhishek & Divyashree 2019). The readers of the financial reports highly rely on the income statement of an organization for learning about its history, present, and future financial health and accordingly make significant investment-oriented decisions. The income statement of an organization helps the readers of the financial statements in determining the profits or losses incurred by that organization during a particular financial period and enable them to make decisions about investing in the shares of the organization in question (Foreman 2013).

The Advantage of The Income Statement and Statement of Cash Flows to The Investors

Investment-making decisions are complicated in nature. The conversion of the readers of the financial statements to the investors of the company is a very difficult task. The readers of the financial reports of an organization find it very challenging in evaluating the financial health of an organization and accordingly make constructive decisions about making an investment in the shares of that organization in question. The income statement and statement of cash flows are the most important statements often sought after by the readers of the financial statements for learning about the pattern of cash inflows/outflows, cash retaining ability, liquidity, profitability, and risks faced by an organization (Foreman 2013). The above-mentioned information is very substantial for the potential and existing investors in deciding about ploughing their hard-earned money into the stakes of a company.

Using the cash flow statement, then investors can easily learn about the cash performance of a company i.e. its cash inflows and cash outflows for operating, financing, and investing activities (Potter et al, 2019). It even enables the potential and existing investors for comparing the statement of cash flows of a company for two financial years and forecast its earnings and chances of survival and expansion in the future. The cash flow statement is used by the potential and existing investors for learning about the current and future financial wellbeing of the company so that they can take substantial investment-related decisions. The investors can also ascertain the information about the liquidity and long-term solvency of a company.

The income statement or profit and loss statement are used by the investors for learning about the profitability of the company during a particular financial period. Investors would always prefer investing in a company that seems financially sound both in the present and the future (Mersland & Urgeghe 2013). Therefore, the use of income statement allows the investors to determine the current and future profit earning ability of a company and accordingly decide upon investing in the shares of that company. The use of income statements allows the investors to learn about the profitability and financial health of a company and make a well-informed decision.

Issues in Cash Flow Statement - Part B BHP Ltd, Santos Ltd, and Funtastic Ltd

i. Sources of Cash of Each Firm 

BHP Billiton Limited

The important sources of cash inflows for BHP Limited as reflected in its statement of cash flows are dividend, proceeds from the sale of assets, divestment, and operating profits. The company majorly spent its cash in activities like dividend payment, exploration expense, interest payment, acquisition of fixed assets, payment of income-tax, and loan repayment (BHP 2019).

Santos Limited

The important sources of cash inflows for Santos Limited as reflected in its statement of cash flows are interest received, dividend earned, sales, and borrowing activities. Santos Limited majorly spent its cash in activities like payment of employee salaries, clearance of suppliers’ dues, royalty, loan repayment, and investment-oriented activities such as exploration related expenses, and purchase of assets like oil and gas (Santos Limited 2019).

Funtastic Limited

The major sources of cash inflows for Funtastic Limited are customers’ receipts, external borrowings, and issuance of shares. Funtastic Limited spent its cash in areas like employee salaries, issue of shares, payment of suppliers’ dues, and clearance of commercial bills.

ii. The Trend in Cash Flow from Continuing Operating Activities 

BHP Limited – The cash flows reported by BHP Limited for the year 2017 was US$15876 million (BHP Billiton 2019). The afore-named company reported a rise in the cash flows for the year 2018 as compared to the year 2017. US$17560 million was reported by BHP for the year 2018. However, the cash flow from continuing operating activities was adversely affected in 2019 and the same was reduced by US$163 million (BHP Billiton 2019). 

Santos Limited – The cash flow from continuing operating activities reported by Santos Limited reflects a positive trend as the same got enhanced year after year. The cash flows reflected by the company for 2017 are US$1248 million, for 2018 is US$1578 million, and for 2019 is US$2046 million (Santos Limited 2019).

Funtastic Limited- The cash flow from continuing operating activities shows a negative trend as the same has been rising since the year 2017. The negative cash flows for Funtastic Limited for 2017, 2018, and 2019 are (US$10182000) million, (US$2750000) million, and (US$8030000) million respectively.

iii. Comparison and Contrast 

BHP’s net profits after tax and cash flow from continuing operating activities reflected a strong contrast as the accountants differently treated certain items like depreciation and amortization and impairment-related expenses (BHP Billiton 2019). These expenses were required to be necessarily adjusted for the calculation of operational cash flows. The accountants even enhanced and deducted assets and liabilities for understanding its rise and fall pattern. Once all these adjustments are made, the cash flow from continuing operating activities is accordingly calculated.

iv. Generation of Cash from Operations

In the case of BHP Billiton, it is observed that the company has successfully managed to obtain a sufficient amount of cash flows from the year 2017. The overall annual cash inflows from operations and cash outflows for the year 2017 stood at US$17871 million and US$7820 million respectively (BHP Billiton 2019).

Santos Limited reported decent cash inflows from 2017 to 2019. Santos somehow just managed to pay its capital expenditures as the operational cash flows secured by the company were quite lower then what was expected. The capital expenditure and operational cash flows of the afore-named company for 2018 were at (US$2373 million) and (US$1578 million) respectively.

Funtastic Limited failed to generate a sufficient amount of operating cash flows in comparison to its overall capital expenditures from 2017 to 2019. The total capital expenditure and operational cash flows were at (US$151000) and (US$803000) respectively (Funtastic Limited 2019).

v. Coverage of Dividend Payment from Cash from Operations

BHP Billiton was able to make the dividend payment for all the three years i.e. 2017, 2018, and 2019 (BHP Billiton 2019). The company generated a sufficient amount of cash from operations in not just in 2017 but also in 2018. The payment of dividends was done right after the payment of capital expenditures was cleared (BHP Billiton 2019). Even though BHP Billiton was unable to secure a decent amount of operating cash flows in the year 2019 but still it has managed to successfully meet the expectations owing to the proceeds received as a result of the divestment of its US shore. 

Santos Ltd. generated positive cash flows from operating activities and has successfully announced and cleared the dividend payments for the years 2017, 2018, and 2019 (Santos Ltd. 2019).

Funtastic Limited was unable to announce and clear dividend payments at it failed to generate positive cash flows for the years 2017, 2018, and 2019 (Funtastic Limited 2019).

vi. Investment of Excess Cash 

BHP majorly uses its excess cash flows for purchasing long-term assets, payment of dividends, and repayment of the debts. BHP divested the US onshore for supporting the buy-back of its shares using operational cash flows.

Santos Limited generated a decent amount of operating cash flows in the year 2017 as well as 2019 and was fully able to take care of its capital expenditures. The company failed to generate operating cash flows in 2018 and therefore, it used surplus cash for honouring its capital expenditures in this particular year (Santos Limited 2019).

Funtastic Limited failed to generate positive cash flows in the years 2017, 2018, and 2019 and therefore, the company honoured its capital expenditures via securing external borrowings and issue of equity shares (Funtastic Limited 2019).

 vii. Working Capital 

BHP’s working capital indicated a decline in 2018 and 2019 and this decline was around US$211 million (BHP 2019). This amount was used for computing the cash flow from continuing operating activities by making required adjustments to the net profits after taxes earned by the company.

viii. Dividend Trend for The Companies

BHP Billiton reflects a positive dividend trend as it was able to pay dividends from 2017 to 2019. The company paid US$2921 million as a dividend in 2017, US$5220 million in 2018, and US$11395 million in 2019 (BHP 2019).

Santos Limited failed to make dividend payments in 2017 but has successfully paid the same as US$73 million and US$251 million in 2018 and 2019.

Funtastic Limited was unable to pay dividends from 2017 to 2019 as it failed to generate revenues during that period.

ix. Trend of Borrowing

Net Borrowings are calculated by deducting long term and short term debts from the total proceeds from borrowing activities.

BHP Limited

7114-5537= 1577

1577 is the net borrowings for the year 2017

4188-3660= 528

528 is the net borrowings for the year 2018

2604-2354= 250

250 is the net borrowings for the year 2019

(BHP 2019)

is very clear that BHP relies lesser on external borrowings as the level of net borrowings undertaken by the company has profoundly lowered down. The company has successfully paid most of its debts and considers external borrowings as a last resort for securing funds.

Santos Limited

783-2442= (1659)

 (1659) are the net borrowings for the year 2017

1193-220= 973

973 is the net borrowings for the year 2018

592-1474 = (882)

 (882) is the net borrowings for year 2019

(Santos Limited 2019)

Santos Limited prefers using a combination of external and internal sources of fund. A variation is observed in the net borrowings trend in 2017, 2018, and 2019.

Funtastic Limited

3.647-3.559= (0.088)

(0.088) is the net borrowings for year 2017

2.630-1.917= 0.713

0.713 is the net borrowings for year 2018

0.562-0.562= 5.104

5.104 is the net borrowings for year 2019

Funtastic Limited strongly relies on external borrowings as it is unable to derive strong cash inflows. (Funtastic Limited 2019)

x. BHP Limited- Trend in Working Capital Accounts

Working capital




Trade receivables
















There are significant changes observed in the trade receivables, inventories, payables, and provisions, and the same is projected in the above table (BHP 2019)

2. Critical Evaluation 

BHP Billiton is successfully generating strong cash flows from its continuing operating activities and it does not rely on external borrowings. Therefore, it has the option to obtain huge debts in the future without any hindrance. Santos Limited, on the other hand, performs differently. It prefers a mix of debt and equity. This mix offers the company a more balanced structure and hence it can perform better. Funtastic is unable to generate cash flows and therefore, it relies more on debt. 

3. Best for Lending Purpose 

BHP Billiton and Santos Limited are considered best for lending purpose as it relies less on external borrowings and is fully capable of generating sufficient cash flows from operating activities. The afore-named companies are financially stable and have a proper market capitalization rate. Therefore, the repayment of the loan is guaranteed without any doubt.

Conclusion on Issues in Cash Flow Statement

This report offers a critical evaluation of the statement of cash flows and the profit and loss statement or income statement. This report highlights the importance of the above-mentioned financial statements from the investors’ point of view. The investors make use of the statement of cash flows and income statement and learn about the profitability, liquidity, cash retention ability, future growth, historical performances, long-term solvency, and risks faced by the company in the present and in the nearing time. This valuable information enables investors to make important investment-related decisions wisely. The investors can prefer ploughing their hard-earned money in the shares of BHP Billiton and Santos Limited. Investing in Funtastic Limited is not advisable at all.

References for Issues in Cash Flow Statement

Abhishek, N., & Divyashree, M. S 2019, International financial reporting standards - A tool for harmonising the financial reporting. International Journal of Financial Management, vol. 9, no.1, pp. 41-47

BHP Billiton 2019, BHP 2019 Annual report & accounts, viewed 12 September 2020

Fedorkova, K. 2018, ‘Company Decline, Crisis Management, Financial Management, Financial Analysis’, Marketing and Branding Research, vol. 5, no. 1, pp. 8-22.

Foreman, P 2013, Accounting history: Publication list 2012, Accounting History, vol. 18, no. 2, pp. 281-284.

Funtastic 2019, Funtastic 2019 Annual report & accounts, viewed 12 September 2020

Kim, S 2013, Accounting quality, corporate acquisition, and financing decisions, The University of North Carolina,

Lail, B., MacGregor, J, Marcum, J & Stuebs, M 2017, ‘Virtuous professionalism in accountants to avoid fraud and to restore financial reporting’, Journal of Business Ethics, vol. 140, no. 4, pp. 687–704.

Mersland, R., & Urgeghe, L 2013, ‘International Debt Financing and Performance of Microfinance Institutions’, Strategic Change vol. 22, p. 36-47

 Peirson, G, Brown, R, Easton, S, Howard, P & Pinder, S 2015,  Finance, 12th ed. North Ryde: McGraw-Hill Australia.

Potter, B., Pinnuck, M., Tanewski, G., & Wright, S 2019, Keeping it private: financial reporting by large proprietary companies in australia. Accounting & Finance vol. 59, vol. 1, pp. 87–113.

Santos Limited 2019, Santos Annual report & accounts, viewed 12 September 2020

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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