Question

Analyze your company’s investing and financing activities for the most recent year as identified in the statement of cash flows, specifically identifying the two largest investing activities and the two largest financing activities. Evaluate the cash flow from operating activities of the firm (specifically analyze whether the company is performing better over the years, discuss whether cash flow from operating activities appears to be satisfactory given the current business environment and firms’ stage in the life cycle).

The company taken for the study is Wesfarmers

CASH FLOW STATEMENT For the year ended 30 June 2018 Consolidated 2018 2017 Note Cash flows from operating activities Receipts from customers Payments to suppliers and employees Net movement in finance advances and loans Dividends and distributions received from associates Interest received Borrowing costs Income tax paid Net cash flows from operating activities 75,354 (69,836) 74,042 (68,713) (47) 15 (195) (1,308) 4,080 83 (234) (951) 4,226 Cash flows from investing activities Payments for property, plant and equipment and intangibles Proceeds from sale of property, plant and equipment and intangibles Net proceeds from sale of businesses and associates Net investments in associates and joint arrangements Acquisition of subsidiaries, net of cash acquired Net redemption of loan notes Net cash flows used in investing activities 4 4 (1,815) 606 (1,681) 653 947 (24) 54 (53) 17 (658) Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Proceeds from exercise of in-substance options under the employee share plan Equity dividends paid Demerger transaction costs Net cash flows used in financing activities 688 (1,905) (2,528) (3,752) (330) (1,994) 12 (1,998) Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (3,771) 402 611 1,013 1,013 4

Answer 1

Going through the Cash Flow of Wesfarmers for the Year 2017 and 2018, the evaluation of the Operating Activities is that:

1) the turnover of the company is going up which is being depicted by the higher income tax paid by the company.

2) the collections from the customers has been improving year by year, thus the company is performing better.

3)as the collection of the company is in order, the company’s efficiency can also be judged through the payments to suppliers and employees which has improved.

4) company is getting higher and higher dividend and other passive income from other sources.

5) company has been paying of the debts and reducing the leverage, which could be questioned by the shareholders, as involvement of the debt is a policy to improve the shareholders wealth.

6) interest expenses has been reducing due to regular reduction in the Debt.

Thus, as per the Operating Activities evaluation, the company is on growth path with good financials.

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