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Accounting For Business Decisions - Caltex Australia Limited

Discuss about the Accounting For Business Decisions of Caltex Australia Limited.

 

Answer:

Introduction:

The report mainly helps in evaluating the overall financial stability of Caltex Australia Limited. In addition, the study effectively evaluates the significant change in balance sheet, income statement and cash flow statement of the company from 2014 to 2015. Moreover, the novice provides detailed explanation about the changing revenues and cost affecting the overall profitability of the company. Caltex Australia Limited has been operating in Australia for more than 100 years providing the citizens with sufficient supply of fuels, which might be needed in their daily operations. Moreover, the company has around 3000 employees currently working all over Australia to support its supply process. The company has been operating in LPG gases, petrol, diesel, and jet fuels.

A. Statement of Financial Position:

a) Total current assets

Particulars

2015

2014

% Change

Total current assets

 2,005,239

 2,099,336

-4.482%

Cash and cash equivalents

263,764

53,122

396.525%

Receivables

681,542

  837,672

-18.639%

Inventories

969,885

1,118,084

-13.255%

Current tax assets

51,167

 56,704

-9.765%

Other

 38,881

 33,754

15.189%

Table 1


: Showing the components of Total current assets

(Source: caltex.com.au 2016)

The overall total current assets of the company mainly declined from 2014 to 2015 indicating a slow growth in asset accumulation. Moreover, cash and cash equivalents of Caltex Australia Limited mainly increased 396.25%, which helps in increasing its overall current assets. However, all the other current assets components mainly decreased from 2014 to 2015 indicating lower growth in accumulating current assets. Paci (2012) stated that investor with the help of current asset evaluation is able to determine the overall ability to pay its short-term obligations. On the other hand, Peng (2015) criticises that companies use inflated balance sheet to project financial strong performance, which in turn helps in attracting potential investors and increase its investment capacity. In addition, the overall decline in percentage of inventories mainly help in depicting higher sales conducted by the company in the current fiscal year.

 

b) Total non-current assets

Particulars

2015

2014

% Change

Total non-current assets

3,099,502

3,029,198

2.321%

Receivables

2,824

3,246

-13.001%

Investments accounted for using the equity method

9,412

24,181

-61.077%

Intangibles

182,626

188,188

-2.956%

Property, plant and equipment

2,602,865

2,363,672

10.120%

Deferred tax assets

298,158

442,183

-32.571%

Employee benefits

1,411

6,719

-79.000%

Other

2,206

1,009

118.632%

Table 2: Showing the components of Total non-current assets

(Source: caltex.com.au 2016)

With the help of figure 2, the overall total non-current assets of Caltex Australia Limited mainly raised 2.321% from 2014 to 2015. In addition, the components of non-current assets mainly declined in 2015 indicating a low accumulation of assets conducted by the company. Moreover, the overall total assets of the company also declined from 2014 to 2015, which mainly reduces the company ability to support its future activities. Hirtle et al. (2015) criticises that declined in total assets mainly portrays an increase in cash reserves of the company. Moreover, the cash reserves of Caltex Australia Limited increased around 396.525% and other income in non-current assets increased 118.632% indicating a sale in assets conducted by the company.

c) Total current liabilities

Particulars

2015

2014

% Change

Total current liabilities

1,217,749

1,503,900

-19.027%

Payables

966,806

1,175,515

-17.755%

Interest bearing liabilities

122

110

10.909%

Current tax liabilities

30,478

-  

100.000%

Employee benefits

109,993

163,200

-32.602%

Provisions

110,350

165,075

-33.152%

Table 3: Showing the components of Total current liabilities

(Source: caltex.com.au 2016)

In addition, the overall figure 3 mainly helps in depicting the overall decrease in total current liabilities by 19.027% from 2014 to 2015. In addition, the decline in current liabilities mainly helps the company in improving its overall profitability in the end. Moreover, expenditure on provisions, employee’s benefits, and payables mainly declined in 2015, which in turn might help in stabling the overall financial strength of the company. Adrian and Shin (2014) cited that investors evaluate the decrease in liabilities a positive attribute, which might help in increasing overall price to book ratio of the company. On the other hand, () argued that some companies use unethical measures to boost the financial strength and lure in potential investors. 

 

d) Total non-current liabilities

Particulars

2015

2014

% Change

Total non-current liabilities

1,099,187

1,092,043

0.654%

Payable

9,743

7,642

27.493%

Interest bearing liabilities

695,238

692,169

0.443%

Employee benefits

50,669

59,253

-14.487%

Provisions

343,537

332,979

3.171%

Table 4: Showing the components of Total non-current liabilities

(Source: caltex.com.au 2016)

Moreover, the overall figure 4 mainly helps in evaluating the overall increase in 0.654% in non-current liabilities of Caltex Australia Limited from 2014 to 2015. In addition, the company mainly decreased its expenditure in employee benefit schemes from 2014 to 2015. However, other components of non-current liabilities mainly increased, which mainly raised the overall non-current liabilities of the company. This increased liability might eventually decrease the overall ability of the company to pay its short-term debts and in turn reduce its overall net book value. In this context, Jimenez and Ongena (2012) stated that decrease in total asset mainly reduces the overall current ratio of the company, which in turn projects its lower financial stability. On the other hand, Koo (2013) criticises that current ratio does not help in predicting the adequate financial stability of the company as it includes inventories in their valuation.

e) Total stockholder’s equity

Particulars

2015

2014

% Change

Total stockholder’s equity

2,787,805

2,532,591

10.077%

Table 5: Showing Change in Total stockholder’s equity

(Source: caltex.com.au 2016)

In addition, the overall change in stockholders equity from 2014 to 2015 is around 10.077%, which mainly indicates the rise in retained profits conducted by the company. Moreover, the reason for increase in total stockholder equity is due to exponential growth in retained earnings and decrease in reserves conducted by the company during 2015 fiscal year. Jimenezet al. (2012) stated that increased retained earnings mainly help investors to evaluate the higher dividend, which could be paid by the company in the current fiscal year. Moreover, the exponential rise in retained profits is mainly due the low cost expenditure conducted by the company during 2015 as compared to previous fiscal year. On the other hand, Keyset al. (2014) mentioned that decrease in expenditure might negatively affect in total production, which in turn might reduce the revenue generation capacity of the company.

B. Stockholders’ Equity:

a) Review the stockholders' equity section and listing the stockholders' equity account balances and number of outstanding shares:

Moreover, the overall stockholders equity share mainly showed a positive change in 2015 compared to 2014. This mainly indicates the overall retained profits generated by the company during the fiscal year. Furthermore, there was no change in declared outstanding shares issued by the company, which could only indicate that the company did not initiate IPO in 2015. Gambacorta et al. (2014) stated that increase in equity share mainly helps investor to evaluate the dividend, which could be provided by the company at the end of the fiscal year. Furthermore, the components of the total stockholders equity are issued capital, treasurer stock, reserves, retained profits and non-controlling interest. However, there was no change in issued capital but in treasure stock and reserves there was substantial increase from 2014. In addition, the rise in retained earnings and non-controlling stocks mainly helps the company to raise the overall total shareholders’ equity from 2014 to 2015. On the other hand, Chuiet al. (2014) criticises that some companies use loopholes in accounting standard to inflate their balances sheet, and portray a higher retained income, which might eventually increase its overall share price.

 

C. Statement of Profit & Loss:

a) Total (operating) revenues:

The company experienced an increment of over 2300% in the revenue collections during the current year over and above that of last year. This displays the fact that the company has been able to consolidate large market share from its immediate competitors. The diversification of the company through entering the LPG segment along with expansion of hydro electricity projects has enabled the company towards attracting new sets of consumers. Further, Bai et al. (2014) stated that companies are able to capitalise upon large operating costs incurred by its competitors by maintaining lower level of breakeven point. The policies in terms of product pricing have contributed towards the rise in levels of revenue. Therefore, through product pricing strategy along with sales management the company has succeeded towards improving its revenue levels.

b) Cost of Goods Sold:

The reduction in cost of goods sold during the current year can be attributed to several factors primary among them being cost control measures undertaken at each level of operations, streamlining of supply chain through management of logistical issues. As per Bartov and Mohanram (2014), development of customised logistical solution reduces both the transportation costs and supply chain bottlenecks of a company. In addition, through analysis of real time data along with demand forecasting the company has been able to minimise the variance in both direct costs and procurement overheads leading to an overall decrease in the level of costs. Further, the company has reduced the level of periodical costs through changes in amortisation schemes along with transferring its promotional activities online from the initial print media outlets.

c) Total expenses (before income taxes):

Particulars

2015

2014

% Change

Total expenses (before income taxes)

19,321,777

24,210,743

-20.193%

Net foreign exchange losses

26,616

21,730

22.485%

Selling and distribution expenses

1,039,239

1,097,882

-5.341%

General and administration expenses

 135,309

241,913

-44.067%

Finance costs

 82,202

 119,604

-31.272%

Table 6: Showing the components of Total expenses before income tax

(Source: caltex.com.au 2016)

Caltex Australia Limited displayed a decrease of over 20% in its total expenses prior to tax leading to the inference that issues pertaining to cost management are adequately dealt with. Moreover, use of predictive analysis of energy sector using real time information, undertaking leasing activities at a favourable rate and stringent internal audit has contributed towards lowering of level of expenses (Papa et al. 2015).

d) Any non-operating gains and losses:

As Caltex has undertaken several expansionary measures over the past year, the company saw its overall gains from non-operating activities rise by over 25 times. The introduction of smart fuels in niche markets along with capitalising on the favourable exchange rates the company has increases profits of margins of Caltex exponentially. Moreover, through offering third party logistical services and marine transportation facilities Caltex has capitalised upon non-operating activities to generate higher amount of revenues.  Further, through facilitating sale of third party automotive parts in the company’s flagship stores Caltex has improvised upon its profit generation avenues (Bauman and Shaw 2016).

e) Earnings per common share:

Through expansion of product line Caltex has managed to capture sizeable amount of Australian energy market.  Moreover, the company followed a policy of buying back its share over the past year along with capital procurement policies that entailed external sources of funding. As stated by Delgado et al. (2012) implementation of policies intended to increase shareholder and investor’s confidence through higher level of profit margin. Thus, the company was able to borrow at a favourable rate of return leading to decrease in dependence upon share issues for financing requirements. Further, Bhandari and Iyer (2013) states that even though a high EPS is desirable it can also represent spike in hidden agency costs along with increasing probability of principal-agent issues in the near future.

 

D. Statement of Cash Flow:

a) Net cash inflow from operating activities

In addition, the overall inflow of the company mainly increased from 2013 to 2015, indicating an effective rise in overall revenue from customers. This increased cash flow mainly helps in boosting liquidity of the company. In addition, the overall net cash inflow also increased due the continuous decline in payments to suppliers conducted by the company from 2013 to 2015. This decline in payments mainly resulted in lower cost of production conducted by the company during theses fiscal years. However, the interest received, income tax paid and finance cost paid by the company declined in 2015, indicating an effective rise in cash accumulation. Miaoet al. (2016) argued that increased cash accumulation mainly portrays lack of objective and leadership skills deployed in an organisation in continuously taking investment risks. (Refer to appendix)

b) Net cash outflow from financing activities

The net cash outflow mainly decreased from 2014 to 2015, while is still increased as compared to 2013 transactions. Moreover, the repayment of borrowing mainly increased from 2013, indicating a rise in loans taken by the company. In addition, proceeding from borrowings and dividend paid mainly increased in 2015 relatively as compared to 2014 and 2013. Dimitrijevic (2015) stated that companies by increasing income and decreasing expenses are able to raise their overall liquidity, which might help in supporting their future endeavours. (Refer to appendix)

c) Net cash outflow from investing activities

However, the overall net cash outflow of the company has been slightly declining from 2013 to 2015, indicating a slow investing activities conducted by the company. Moreover, the expenditure conducted by the company on ‘purchase of assets and liabilities through business combinations’ majorly declined from 2015, helping the company to boost its overall liquidity. Furthermore, the decline in major investing activities and increase in sale of property has been mainly witnessed during 2015. Farshadfar and Monem (2013) argued that increased sales of property mainly reduce the overall ability of the company to generated higher productivity to support its future activities. (Refer to appendix)

d) Net increase in cash during the year

In addition, the overall net increase in cash during 2015 mainly indicates higher liquidity position of the company. Furthermore, during 2014 due to low revenue generation the company overall liquidity position was hampered. Callet al. (2013) stated that companies with the help of high liquidity are able to make adequate investments in projects, which might raise its overall future profits. In addition, the overall increase in cash mainly helps Caltex Australia Limited to maintain the required flow of working capital, which might eventually increase its overall productivity. (Refer to appendix)

Conclusion and Recommendations:

The overall study mainly helps in evaluating the current financial position of Caltex Australia Limited for 2015. In addition, the report also helps in evaluating the overall change in expenses and income obtained by Caltex Australia Limited from previous fiscal year. Moreover, the novice effectively depicts the significant changes in balance sheet, income statement, and cash flow statement of Caltex Australia Limited from 2014 to 2015. Moreover, the study depicts the main reason for change in substantial revenue and profits of the company in 2015 compared to 2014. Being in the energy sector the revenue of the company did not rise from decreasing oil barrel prices rather it increased by decreasing inventories loss and raising profits from other income.

However, after decrypting the overall balance sheet of Caltex Australia Limited it could be evaluated that the company needs to deploy zero based budgeting system in their operations to further reduce its overall expenditure. In addition, the company could also employee financial experts, which might help in reducing the overall losses incurred in exchange rate. Moreover, the company could effective increase in sales of products by raising its demand in Australia and other countries. Moreover, the expansion of Caltex Australia Limited might evidently help in increasing its activities in new horizons and attain higher profitability from operations.

 

Reference:

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Bai, C., Dhavale, D. and Sarkis, J., 2014. Integrating Fuzzy C-Means and TOPSIS for performance evaluation: An application and comparative analysis. Expert Systems with Applications, 41(9), pp.4186-4196.

Bartov, E. and Mohanram, P.S., 2014. Does income statement placement matter to investors? The case of gains/losses from early debt extinguishment. The Accounting Review, 89(6), pp.2021-2055.

Bauman, M.P. and Shaw, K.W., 2016. Harmonizing pension accounting: Income statement effects of applying IAS19R to US firms. Research in Accounting Regulation, 28(1), pp.1-10.

Bhandari, S.B. and Iyer, R., 2013. Predicting business failure using cash flow statement based measures. Managerial Finance, 39(7), pp.667-676.

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Delgado, R.A., Barcena, L.S. and Manzanedo, M.Á., 2012. An Empirical Analysis of the Most Influential Components of an Income Statement. InIndustrial Engineering: Innovative Networks (pp. 79-84). Springer London.

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