The scenario of this report is based on evaluation of profit data and cash flow in the context of Ausdrill Ltd. This kind of practices will assist an organisation to take appropriate financial decision.
- Construct cash flow and profit data in order to evaluate which data is more relevant to facilitate financial decisions in Ausdrill Ltd.
INTRODUCTION
Financial statements play major role in assessing performance of company for the financial year in effective manner. Present report deals with important and relevant data in relation to cash flow and income statements which helps in facilitating decision-making with much ease. Ausdrill Company which is engaged in metal mining services is taken in this aspect. The annual report is analysed and relevant data is discussed. Thus, financials are crucial for decision-making in effective way.
Profit and cash flow data relevant and objective to facilitate financial decisions
The profitability and liquidity aspect of company are one of the important part of assessing financial health of company. These two aspects laid emphasis on overall financial performance of firm in the best possible manner. Earning capacity of organisation can be assessed by seeking income statements which highlights profitability position in effectual manner. On the other hand, cash flow statement is required to evaluate whether sufficient cash is available to meet the operational tasks of firm and as such, it clarifies liquidity position in effective way (Hernandez, 2018). In relation to this, Ausdrill Company listed on Australian Securities Exchange is engaged in drill and blast and exploration organisation. It is metal mining service provider having varied number of subsidiaries in the mining sector.
The objective to facilitate in making financial decision is required by the external stakeholders which have interest in overall performance of the company. The investors' assess profitability aspect as it clarifies them whether adequate earnings are attained by funds provided by them. Moreover, investors are able to make well-structured decision whether they should continue to provide funds to company or not. On the other hand, creditors assess firm's solvency position so that they may evaluate whether organisation will be able to make timely payment to them or not and thus, financial decision is made by external parties. This is essentially required in order to take better and effective decisions which eventually maximises their earnings in the best possible manner (Balakrishnan, Blouin and Guay, 2018). Thus, profitability and liquidity position of company is helpful data for evaluating financial health quite effectually.
Read this sample: Unit 5 Financial Accounting Assignment
There are numerous data that is relevant in making financial decisions in effective manner. Among them, sales revenue is one of the crucial aspect of analysing profitability of company. The revenue are cash inflows which are effectively generated from production and delivering goods to customers and as such, it is major part of operations of the firm. In simpler words, when goods are sold in the market and money received thereof is termed as sales revenue. After attaining sales, COGS (Cost of Goods Sold) is deducted from it to arrive at gross profit with much ease. It can be analysed from the income statement of Ausdrill Company that revenue from continuing operations in 2016 was 744,635 which increased to 778,719 in the financial year 2017. This clearly shows that revenue has maximised up to a high extent in recent period which means that sales of company has increased quite effectually.
The revenue recognition is implied for outlining main activities of organisation. In the revenue, there are various segments from where revenue is being attained (Chen, Collins, Kravet and Mergenthaler, 2018). These are contract services in which sales are recognised of units produced on monthly basis as per the contracts made by the company. Another one is mining supplies and manufactured items. It is taken as sales are recognised and recorded when items are sold to customers as per their orders. Next segment of sales is other revenue. Thus, collectively revenue is being increased in 2017 financial year. Another important aspect of data which facilitates decision-making is net income. It is arrived when all the operating and non-operating expenses are deducted and as such, left over amount is net income or profit. In order to increase net income, it is required that business should initiate control over expenditures so that overall profitability can be increased up to a high extent.
It can be interpreted from the income statement of Ausdrill Company that net income was 58150 in 2016 which decreased to 31201 in 2017. It clearly shows that firm is not able to control upon expenses as it profit for the year has been gone down with a huge margin. Furthermore, all operating and non-operating expenditures are increased which should be reduced in order to gain more profits in the best possible manner. Thus, net income help to facilitate financial decision-making as profitability is being effectively assessed with it. On the other hand, EPS (Earnings Per Share) is relevant data which help to ascertain how much quantum of earnings are made by the company. Furthermore, it can be analysed whether desired dividends are being paid by organisation or not at the end of financial year to the shareholders' on the investment made (Abdoh and Varela, 2018). In simpler words, EPS clarifies regarding earnings of company in effective manner.
EPS is required to be assessed as investors can take financial decisions regarding profitability position and as such, they can easily evaluate performance of company which is based profit and outstanding shares of company for a particular financial year. It can be evaluated from the annual report of Ausdrill Company that Diluted EPS attributable to equity shareholders was 18.2 in cents in 2016 which decreased up to a high extent in 2017 year as it came down to 9.7. It implies that EPS has reduced by half from the previous year which is not good for the company as desired dividends are not paid to shareholders. This can result into reduce loyalty of investors and they may withdraw further investment.
The main reason behind low EPS is that net profit was 31201 in 2017 while it was 58150 in previous year. It is required to earn well so that adequate dividends may be imparted to them with much ease. On the other hand, ROE (Return on Equity) is again important factor to check on profitability aspect of company in the best possible manner. It has been calculated from financial statements that ROE was 10.03 % in 2016 while it reduced to 5.05 % in the financial year 2017. It clearly shows that company is not effectively utilising shareholders' investment to produce profits (Shang, Kuzmenko and Uryasev, 2018). Thus, all these data are relevant to assess profitability position of Ausdrill Company and helps in facilitating financial decision-making in effective manner.
The cash flow statement is another important part of financials of the company which helps in clarifying whether company has adequate cash position or not. In relation to this, mainly there are three activities in cash flows such as operating, investing and financing activities. These activities help to ascertain whether company has enough cash balance at the end of year or not. It can be said that operating activities which means that whether cash has been acquired or used in normal operations of Ausdrill Organisation such as selling of items and accounts payable and related activities. On the other hand, investing activities are those when is invested in capital expenditures such as purchases and sale of land, machinery. Purchasing reduces cash and selling of fixed assets or investments increases cash. While, financing activities are those when money is paid or received from bank loans and related activities. When such liabilities are taken, cash availability increases and when the same are paid, then cash decreases (Abel, 2018).
The stakeholders are required to assess cash position of company as from this, they can attain better dividends as when adequate cash balance is left over after deducting expenditures, then they are paid dividends in effective manner. It is clarified from the fact that when abundant cash is available then, higher returns may be provided to shareholders (The cash flow and its importance in the decision-making process. 2018). It can be interpreted from the cash flow statement of Ausdrill Organisation that cash flows from operating activities was 91006 in 2016 and it increased to 94613 in 2017 which means that inflows are obtained in both years and is good for the company. On the other hand, there has been cash outflow from investing activities in 2017 amounting to 101127. It means that cash is used for purchasing PPE (Property, Plant and Equipment) which has decreased cash. While, there is again outflow from financing activities as borrowings is increased. Thus, overall beginning balance was 181857 and ending was 166710 which means that cash is reduced as more spending are done by company in 2017 financial year.
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