Accounting for Business Place in the Market

Question: Discuss about the Accounting for Business for Place in the Market. Answer: Introduction AGL energy Ltd that started its operation in 1837 is currently one of the pioneers in the field of Energy Company. The company has a strong line of action and taken an action to limit the greenhouse gas emission and provides secure, as well as affordable energy to the customers. It has a huge experience of 175 years. It serve the customers through the entire eastern Australia and meet the requirement of customers in terms of energy needs, that includes gas, solar power, electricity and various other services (AGL Energy Ltd, 2015). When it comes to portfolio, it has a diverse power generation portfolio that contains base and intermediate generation plants spreading to generation of thermal, as well as sources of energy that is renewable like wind, hydro, solar, biomass, etc. With the due passage of time, it has cemented its place in the market and created a strong goodwill by serving more than 3.6 million customers. Statement of Financial Position Total Current Assets Total Current Assets Current assets 2015 2014 Cash and cash equivalents 259 456 Trade and other receivables 1894 1902 Inventories 396 191 Other financial assets 156 114 Other assets 262 318 Assets classified as held for sale 492 430 Total 3459 3411 Percentage difference 50.34 49.65 Current assets are those assets, converted into cash within a period of one year. It includes, cash, bank, sundry debtors etc (Christensen, 2011). From the above analysis, it can be observe that the current assets of AGL Energy Ltd in 2014 reported at 49.65% while it was 50.34% in the year 2015. This portrays that the current assets increased by 0.69% because of enhancement in the financial assets of the company that includes inventory holdings (AGL Energy Ltd, 2015). Such increase indicates that AGL has enough resources to repay off its debt obligations in the future and it has positive cash flows to develop (Northington, 2011). Total non-current assets Total non-current assets Non-current assets 2015 2014 Property, plant 6958 5694 Intangible assets 682 631 Investments 91 32 Trade and other receivables 44 46 Inventories 32 28 Other financial assets 596 484 Deferred tax 682 631 Assets evaluation 130 372 Other assets 31 18 Total 12374 10723 Percentage 54.63 45.36 Non-current assets cannot be converted into unrestricted cash within a period of one year of the date of balance sheet and from the above analysis, it can be observed that the non-current assets of AGL stood at 45.36% while in 2015 it increased by 9.27% and reported at 54.63%. It clearly signifies that the company had invested resources in intangible assets, inventories, fixed assets and other investments. Hence, it can be ascertain that AGL had made such investments taking into account the long-term prospects (Parrino et. al, 2012). In other words, AGL had opted for such investments that it estimates to keep for more than a year. Total current liabilities Current liabilities 2015 2014 Trade and other payables 1377 1417 Financial liabilities 269 477 Borrowings 443 45 Provisions 191 101 current tax liabilities 86 49 Directly associated liabilities 0 77 Total 2373 2166 52.28 47.71 Current Liabilities are the debt obligations of a company that must be paid within twelve months from the balance sheet date (Brigham Ehrhardt, 2011). From the above analysis, it can be seen that AGL Energy has increased its provisions and borrowings at a very high rate. On one hand, the provisions have increased from 101 in 2014 to 191 in 2015 while borrowings have largely increased from 45 in 2014 to 443 in 2015 (AGL Energy Ltd, 2015). As a result, it has more enough debt obligations to be paid off. Moreover, the current liabilities of AGL reported at 47.71% in 2014 and it increased to 52.28% in the year 2015. Total non-current liabilities Non- Current liabilities 2015 2014 Borrowings 3439 3669 Provisions 456 106 Other Financial liabilities 387 280 Other liabilities 363 275 Deferred tax liabilities 0 50 Total 4645 4380 Percentage 51.47 48.53 Non-current liabilities are the long-term financial obligations that are not due within the current accounting year. It is observe from the above analysis that AGL Energy ltd had not paid the borrowed funds (Graham Smart, 2012). Therefore, in the current year that resulted in the increase of non-current liabilities. If the deferred tax liabilities could not be paid, then such increment in non-current liabilities would be more. Moreover, the non-current liabilities stood at 48.53% in the year 2014 while it increased to 51.47% in the year 2015. Stockholder Equity Total stockholder equity 2015 2014 Contributed equity 6696 5437 Reserves (65) (99) Retained earnings 2175 2249 Non-controlling interest 9 1 Total 8815 7588 Percentage 53.74 46.25 From the above analysis, it is observe that the stockholders equity of AGL Energy reported at 46.25% in the year 2014 but it increased to 53.74% in 2015. This indicates that there is an increase in the capital or earnings of the company. It can be seen that the non-controlling interests of the company enhanced from 1 in 2014 to 9 in 2015 that led to the increase in stockholder equity (AGL Energy Ltd, 2015). This signifies good news especially for the shareholders as now they can entrust their faith upon the company and its activities (Williams, 2012). B. Stockholders Equity Total stockholder equity 2015 2014 Contributed equity 6696 5437 Reserves (65) (99) Retained earnings 2175 2249 Non-controlling interest 9 1 Total 8815 7588 Percentage 53.74 46.25 Stockholders equity is that portion of the balance sheet that portrays the receipt of capital from the investors in exchange for the paid-up capital (stock), retained earnings and donated capital. It is popular as shareholders equity (Horngren, 2013). The reason behind the increase in the contributed equity portion of the company in the year 2015 is that the company issued $83 million ordinary shares in 2014 but in the year 2015, the issue of ordinary shares increased to $1275 million. Such further issue of ordinary shares have facilitated in the increase of contributed equity of the company. Furthermore, the decrease in the retained earnings of the company also facilitated in the decrease of stockholders equity, otherwise it would have increased more (AGL Energy Ltd, 2015). The increase in non-controlling interests of the company from $1 million in the year 2014 to $9 million in the year 2015 has also facilitated in enhancing the contributed equity of the company from $5437m in 2014 to $6696m in 2015. Moreover, the stockholders equity of the company stood at 46.25% in 2014 while it increased to 53.74% in 2015. Statement of Profit Loss Total Operating revenue Total operating revenues 2015 2014 Revenue 10678 10445 Operating revenues generated from the day-to-day activities of a company that means revenue posted from the sale of goods and services of the company. From the above figures, it is observe that AGL Energy Ltd had incurred a loss as its operating revenues have declined from 10445 in 2014 to 10678 in the year 2015 (AGL Energy Ltd, 2015). Such loss further indicates that the core operations of AGL are not so profitable and an immediate change is required to either decrease costs or increase revenues. If AGL consistently incurs operating losses, then it will have to encounter bankruptcy in future. Cost of goods sold (in $m) COGS 2015 2014 cost of goods sold 61 73 Cost of goods sold (COGS) are the direct expenses attributable to the companys production of goods sold. These costs fall into the basic sub-categories of direct material, labour, and overheads. From the above figures, it is observed that the COGS of AGL Energy Ltd reported at $73m in the year 2014 but it decreased to $61m in the year 2015 that indicates lower gross profit margin obtained by the company in comparison with the previous year (Needles Powers, 2013). Total expenses before income tax total expenses before income tax 2015 2014 Finance income 20 24 Finance cost -250 -243 Depreciation -379 -326 TOTAL -609 -545 From the above figures, it can be observe that the total expenses before income tax of AGL Energy Ltd was significantly high in the year 2014 and reported at negative of 545 but in the year 2015, it further increased to negative of 609. The reason behind such increase is that the financial income of the company reduced from 24 in 2014 to 20 in the year 2015 and even the finance costs being negative in numbers increased from 243 in the year 2014 to 250 in the year 2015. Increment in such expenses will create various difficulties for the company and it will not be able to carry out its business activities in a smooth and efficient manner (Deegan, 2011). Any non-operating gain or losses NO Earnings per common share Earnings per share 2015 2014 EPS 33.3 98.2 Earnings per share defined as the portion of companys profits allocated to every outstanding share of the common stock, thereby serving as a clear indicator of the profitability of the company (Brigham Daves, 20012). From the above figures, it is observed that the Earnings per share of AGL Energy declined from 98.2 cents in the year 2014 to 33.3 cents in the year 2015. This indicates that the company has not been able to align with the expectations of the investors and it did not provide heightened concentration on proper capital allocation, efficiency, and productivity (Spiceland et. al, 2011). Such a decline in earnings per share can signal to the investors that the company is in major trouble, thereby leading to decline in the companys stock prices also. It is observe that even after an increase in the weighted average number of ordinary shares of AGL Energy, the company failed to deliver an appropriate EPS. The company based on such weighted ordinary shares that were 580,276,015 in the year 2014 calculates the above-mentioned EPS figures and it enhanced to 653,725,754 in the year 2015. Statement of Cash flow Net Cash inflow/outflow from operating activities Cash flow from operating activities 2015 2014 Receipts from customers 11587 11791 Payments to suppliers and employees -10236 -10733 Dividends received 32 26 Finance income received 24 23 Finance costs paid -216 -217 Income taxes paid -147 -191 Cash generated from operating activities 1044 699 percentage 59.89673 40.10327 From the above figures, it is observe that the net cash provided by operating activities of AGL Energy increased from $699m in the year 2014 to $1044m in the year 2015. Although cash utilized in operating activities in both years, yet there is an increase in the receipt of dividends, receipt of finance income and decrease in the payment of finance costs in 2015. The percentage increase in net cash provided by operating activities depict that the company has maintained an efficient and strong business (Davies Crawford, 2012). In the year 2014, the percentage stood at 40.10% but it increased to 59.90% in the year 2015. Net Cash inflow/outflow from investing activities Cash flows from investing activities 2015 2014 Payments for property, plant and equipment -744 -624 Payments for exploration and evaluation assets -34 -28 Payments for oil and gas assets -28 -46 Payments for investments in associates and joint ventures -80 0 Payments for intangible assets 0 -25 Payments for businesses and subsidiaries, net of cash acquired acquisitions in current period -1348 -79 acquisitions in prior periods -32 -33 Government grants received 32 190 Proceeds from sale of property, plant and equipment 6 2 Loans advanced to related parties -3 -126 Proceeds from repayment of related party loans 56 0 Net cash used in operating activities -2175 -769 From the above figures, it is observe that the net cash used in investing activities was in negative figures for both the years. In the year 2014, the net cash used in investing activities was negative of $769m but in the year 2015, it further increased to $2175m. The reasons behind such increase in use of net cash in investing activities are because of increased payment towards Plant, Property and Equipment, evaluation and exploration assets, investments in joint ventures and associates, less receipt of government grants, and acquired subsidiaries and businesses. This increase in net cash for investing activities portray that the company will face future problems while managing funds and it may fail to obtain a better stand in the market. In terms of percentage, the net cash used in investing activities reported at 26.12% but it enhanced to 73.88% in the year 2015. Net Cash inflow/outflow from financing activities Cash flows from financing activities 2015 2014 Proceeds from issue of shares, net of transaction costs 1210 1 Proceeds from issue of shares to non-controlling interests 8 1 Purchase of shares on-market for equity based remuneration -7 -6 Proceeds from borrowings 2647 2075 Repayment of borrowings -2580 -1547 Payments for settlement of derivative financial instruments -10 0 Dividends paid -344 -269 Net cash [provided by financing activities 924 255 From the above figures, it is observe that the net cash provided by financing activities of AGL increased from $255m in the year 2014 to $924m in 2015. The reasons behind such massive increase in cash provided by financing activities are the proceeds from share issue, proceeds from share issue to non-controlling interests, and proceeds from borrowings. The percentage of net cash provided by financing activities reported at 21.63% in 2014 but it increased to 78.37% in the year 2015 that is a very strong indicator for the company in terms of performance and managing of resources for future scenarios (Merchant, 2012). Net increase or decrease in cash during the year 2015 2014 Net (decrease)/increase in cash and cash equivalents 466 281 In both the years, cash utilized but in 2015, huge amount of cash expended for the investing activities of the company in comparison to 2014. The cash and cash equivalent at the end of 2014 reported at $466m that decreased to $259m in the year 2015. This clearly indicates that the company will pay cash issues in the upcoming future if it consistently maintains such results (Brealey et. al, 2011). Variations of strategies made so that costs decreased and revenues increased. In terms of percentage, the cash, and cash equivalent in 2014 stood at 64.27% while in 2015, it decreased to 35.72%. Conclusion The above findings are deriving through the figures provided in the annual report. Hence, the authenticity of the findings is sure. The findings give a complete picture that AGL Energy Limited has strong fundamentals that is observe from the balance sheet and the income statement. Therefore, from the report, it can be ascertain that the company is heading strong and the percentage calculation stress that 2015 has been fruitful. Further, the findings also indicate that financial number from the statements is enough to provide recommendation. Moreover, this method is accurate and devoid of any flaws. Even a common person can easily understand the percentage variation. Recommendations As per the findings and conclusion, AGL Energy is a safe bet and hence, can be selected for investment. It has explored new mechanisms and energy being one of the best areas for further landmark; it is bound to get additional benefit. However, just the worry figure is the earnings per share that has dropped. Apart from it all other factor indicate that the company has posted a strong figure and hence, ideal for investment purpose. References AGL Energy Ltd 2016, AGL Energy Ltd Annual Report 2015, viewed 15 September 2016, https://www.agl.com.au/residential Brealey, R., Myers, S. and Allen, F 2011, Principles of corporate finance, New York: McGraw-Hill/Irwin. Brigham, E. Daves, P 2012, Intermediate Financial Management , USA: Cengage Brigham, E.F. Ehrhardt, M.C 2011, Financial Management: Theory and Practice, USA: Cengage Learning. Christensen, J 2011, Good analytical research, European Accounting Review, vol. 20, no. 1, pp. 41-51 Davies, T. Crawford, I 2012, Financial accounting, Harlow, England: Pearson. Deegan, C. M 2011, In Financial accounting theory, North Ryde, N.S.W: McGraw-Hill. Graham, J. Smart, S 2012, Introduction to corporate finance, Australia: South-Western Cengage Learning. Horngren, C 2013, Financial accounting, Frenchs Forest, N.S.W: Pearson Australia Group. Merchant, K. A 2012, Making Management Accounting Research More Useful, Pacific Accounting Review, vol. 24, no.3, pp. 1-34. Needles, B.E. Powers, M 2013, Principles of Financial Accounting, Financial Accounting Series: Cengage Learning. Northington, S 2011, Finance, New York, NY: Ferguson's. Parrino, R., Kidwell, D. Bates, T 2012, Fundamentals of corporate finance, Hoboken, NJ: Wiley Spiceland, J., Thomas, W. Herrmann, D 2011, Financial accounting, New York: McGraw-Hill/Irwin,University Press Williams, J 2012, Financial accounting, New York: McGraw-Hill/Irwin.