Statement of Financial Position

Describe about the Accounting for Business Decisions for SME Rating .

The current piece of research is conducted with the purpose of understanding and analyzing the financial structure of the company in order to undertake better business decisions. For the following purpose the analysis of the financial structure of AGL ENERGY Ltd. The stated Ltd Company is one of the leading operational company based in the country of Australia. This company is one of the publicly listed firms engaged in the business of providing services and products associated with energy in the economy of Australia. The researcher has conducted the analysis of the following company with the view of developing suitable recommendation for the areas in which the company lacks behind.

Statement of Financial Position

BALANCE SHEET of AGL ENERGY LTD (AGLNF)
Fiscal year ends in June Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	2012	2013	2014	2015	2016
Cash and cash equivalents	1813	281	456	259	252
Short-term investments	179	187	114	156	267
Total cash	1992	468	570	415	519
Receivables	1621	1844	1743	1894	1975
Inventories	185	133	191	396	414
Prepaid expenses	39	45	32	40	39
Other current assets	294	346	716	714	640
Total current assets	4132	2836	3252	3459	3587
Gross property, plant and equipment	7166	7295	7541	9289	9157
Accumulated Depreciation	-842	-1120	-1305	-1657	-2628
Net property, plant and equipment	6324	6176	6236	7632	6529
Equity and other investments	462	372	390	614	217
Goodwill	2640	2640	2758	2792	2791
Intangible assets	532	510	490	474	441
Deferred income taxes	611	729	631	682	953
Other long-term assets	38	104	218	180	86
Total non-current assets	10606	10530	10723	12374	11017
Total assets	14738	13366	13975	15833	14604
Short-term debt	614	44	45	442	22
Capital leases	2	1		1
Accounts payable	1153	1280	1106	669	903
Deferred income taxes	11	155	49	86	102
Deferred revenues	250
Other current liabilities	579	712	807	1175	1526
Total current liabilities	2610	2192	2007	2373	2553
Non-current liabilities
Long-term debt	3682	3048	3653	3422	3067
Capital leases	14	15	16	17	19
Deferred taxes liabilities	349	99	50
Other long-term liabilities	951	672	661	1206	1039
Total non-current liabilities	4996	3835	4380	4645	4125
Total liabilities	7606	6027	6387	7018	6678
stockholders’ equity
Common stock	5227	5354	5437	6696	6696
Retained earnings	1884	1987	2249	2175	1243
Accumulated other comprehensive income	22	-2	-98	-56	-13
Total stockholders’ equity	7133	7339	7588	8815	7926
Total liabilities and stockholders’ equity	14738	13366	13975	15833	14604

In the above statement of balance sheet of AGL ENERGY Ltd, it can be observed that the total assets have fallen drastically from the year 2012 to 2014. In the view of Armstrong et al. (2016), at the end of 2014, the balance of the total current assets improved. On the other hand, the above statement shows that the total noncurrent assets of the company were the highest in the year 2015 and the lowest in 2013 on comparison between the stated five years. On the contrary, the total current liabilities had decreased consecutively through the last three years and then it started increasing in the year 2015 and 2016. According to Barsky and Catanach (2013), the total noncurrent liabilities have been in a state of alternative increase and decrease through all these given years.   

Percentage change in the BALANACE SHEET of AGL ENERGY Ltd
Fiscal year ends in June	2015	Changed Percentage	2016
Assets
Current assets
Cash
Cash and cash equivalents	259	-2.7	252
Short-term investments	156	71.2	267
Total cash	415	25.1	519
Receivables	1894	4.3	1975
Inventories	396	4.5	414
Prepaid expenses	40	-2.5	39
Other current assets	714	-10.4	640
Total current assets	3459	3.7	3587
Non-current assets
Property, plant and equipment
Gross property, plant and equipment	9289	-1.4	9157
Accumulated Depreciation	-1657	58.6	-2628
Net property, plant and equipment	7632	-14.5	6529
Equity and other investments	614	-64.7	217
Goodwill	2792	0.0	2791
Intangible assets	474	-7.0	441
Deferred income taxes	682	39.7	953
Other long-term assets	180	-52.2	86
Total non-current assets	12374	-11.0	11017
Total assets	15833	-7.8	14604
Liabilities and stockholders’ equity
Liabilities
Current liabilities
Short-term debt	442	-95.0	22
Capital leases	1	-100.0
Accounts payable	669	35.0	903
Deferred income taxes	86	18.6	102
Deferred revenues
Other current liabilities	1175	29.9	1526
Total current liabilities	2373	7.6	2553
Non-current liabilities
Long-term debt	3422	-10.4	3067
Capital leases	17	11.8	19
Deferred taxes liabilities
Other long-term liabilities	1206	-13.8	1039
Total non-current liabilities	4645	-11.2	4125
Total liabilities	7018	-4.8	6678
stockholders’ equity
Common stock	6696	0.0	6696
Retained earnings	2175	-42.9	1243
Accumulated other comprehensive income	-56	-76.8	-13
Total stockholders’ equity	8815	-10.1	7926
Total liabilities and stockholders’ equity	15833	-7.8	14604

The researcher has calculated the percentage difference of the items in the balance sheet of AGL ENERGY LTD for the year 2015 and 2016. The total current assets of the company have increased by a percentage of 3.7. As opinioned by Biao (2013), this increase in the quantity of assets of the company has occurred due to purchase of new assets by the company. It may also result from the accommodation of the stock of goods for sale. The total non currents assets of the company have decreased by 11 per cent in 2016 in comparison to the previous year. As stated by Habib and Hossain (2013), the reason for this decrease in the total assets may have occurred due to sale of the assets for funding the business or to extract the scrap value of the same. In addition to this, the current liabilities have also increased in the year 2016 by a percentage of 7.6. On the other hand the total noncurrent liabilities of the company have decreased by 11.2 per cent.

As stated, the increase in the total current assets of the company is less than the increase in the current liability of the same. In the opinion of Beck et al. (2013), this explains the inability of the company in meeting its current contingencies. On the contrary, the total noncurrent assets of the company have decreased while the total current assets have increased. In the words of Cour-Thimann and Winkler (2012), the decrease in the total noncurrent assets of the company highlights the impotency of the company to write off the future contingencies and liabilities.       

Percentage change in the BALANACE SHEET of AGL ENERGY Ltd

As opinioned by Cull et al. (2013), an increase in the current liabilities is not in favor of the company given the current assets are not sufficient to meet the liabilities, the company will require to make its purchases on credit so as to retain the limited assets. In the words of Rensburg and Botha (2014), this in turn will generate more liability for the company. Here, the noncurrent liabilities of the company have decreased indicating that the company has nit indulged in long term borrowings. It should also be noted that the noncurrent assets of the company has also decreased. According to Joshi et al. (2013), there is a subsequent possibility that the company might have sold its total noncurrent assets to write off the total noncurrent assets leading to a decrease in both.

In this context Stubbs et al. (2013),  stated that the short term financial condition of the company is not in favor of the company, its shareholders as well as investors. As it has been seen that the assets do not compensate the liabilities due to which it has to borrow from the creditors. In the words of Biddle (2015), this further creates imbalance in the current ratio of the company as a result of which the creditors along with the investors may refrain from providing goods on credit and making further investments that may have an adverse effect on the work proceedings of the company.  

Stockholders’ Equity

As stated by Crawford and Power (2015), the net value of any particular company is demonstrated by the shareholders’ equity of the same. This is one of the measures that help the analysts to understand the financial condition of the company. In this context, the shareholders’ equity of AGL ENERGY Ltd has been stated in the above mentioned balance sheet of the company. Here, the common stock of the company remained unchanged in the year 2016 in comparison to the previous year. On the contrary the retained earnings of AGL ENERGY Ltd have decreased to a percentage of 42.9 in the current year on drawing a comparison with the preceding year. In addition to that, the retained earnings of the company have also decreased justifying the decrease in the total noncurrent liabilities as it is evident that the company used its retained earnings to pay off the liabilities. It may also be witnessed from the above given balanced sheet of the company that the total shareholders’ equity of AGL ENERGY Ltd has decreased by 10.1 per cent. As it has been analyzed that the current liabilities of the company is more than its current assets along with that the total assets not increasing in proportion to the increase in total liabilities. In the words of Altman et al. (2013), this influences the shareholder’s equity of the firm as the shareholder’s fund of a particular company is computed by deducting the total assets of the company from the total liabilities of the same. Hence, the shareholders’ equity of the company displays a weak financial condition of the company.

As stated by Bonner et al. (2013), the outstanding shares of a company can be computed by dividing the net profit earned by the company after taxation with the earnings per share of the company. In accordance to the income statement of the company, the net income for the year 2015 is 218 whereas the earnings per share is 0.33. Hence, the outstanding share of AGL ENERGY Ltd for the year is  approx 606. Similarly, the outstanding share of the company shows a negative balance of approx 678.

INCOME STATEMENT of AGL ENERGY LTD (AGLNF)
Fiscal year ends in June	2012	2013	2014	2015	2016
Revenue	7454	9715	9543	10678	11150
Cost of revenue	5918	7451	7227	7856	8110
Gross profit	1536	2264	2316	2822	3040
Operating expenses
Other operating expenses	1339	1597	1337	2255	3321
Total operating expenses	1339	1597	1337	2255	3321
Operating income	197	666	979	567	-281
Interest Expense	84	245	243	250	236
Other income (expense)	50	42	24	20	43
Income before income taxes	163	464	760	337	-474
Provision for income taxes	48	75	190	119	-67
Net income from continuing operations	115	389	570	218	-407
Other					-1
Net income	115	389	570	218	-408
Net income available to common shareholders	115	389	570	218	-408
Earnings per share
Basic	0.23	0.7	1.02	0.33	-0.6
Diluted	0.23	0.7	1.02	0.33	-0.6
Weighted average shares outstanding
Basic	482	550	558	654	675
Diluted	482	551	558	654	675

 

Percentage change in the INCOME STATEMENT of AGL ENERGY Ltd
Fiscal year ends in June	2015	Changed Percentage	2016
Revenue	10678	4.420303428	11150
Cost of revenue	7856	3.233197556	8110
Gross profit	2822	7.725017718	3040
Operating expenses
Other operating expenses	2255	47.27272727	3321
Total operating expenses	2255	47.27272727	3321
Operating income	567	-149.5590829	-281
Interest Expense	250	-5.6	236
Other income (expense)	20	115	43
Income before income taxes	337	-240.652819	-474
Provision for income taxes	119	-156.302521	-67
Net income from continuing operations	218	-286.6972477	-407
Other			-1
Net income	218	-287.1559633	-408
Net income available to common shareholders	218	-287.1559633	-408
Earnings per share
Basic	0.33	-281.8181818	-0.6
Diluted	0.33	-281.8181818	-0.6
Weighted average shares outstanding
Basic	654	3.211009174	675
Diluted	654	3.211009174	675
EBITDA	966	-76.5010352	227

In the words of Freeman et al. (2014), the income statement of the company refers to the financial statement of a particular company that displays the financial condition of the same over a particular period of time. The following income statement of AGL ENERGY LTD shows the various aspects of income and expense of the company during the year 2015 and 2016. For the better understanding of the differences of the income statement between these two years, the researcher has computed a percentage difference between the two.

The revenue or income generated in the income statement shows an increase of approx 4 per cent in the year 2016 in comparison to the preceding year. Besides that, the total expense of the company has also increased considerably to a percentage of approx 47 per cent. According to Wang (2014), this demonstrates that the company has made more investments in its operations with the purpose of generating more revenue. However, the percentage increase in revenue is less than the percentage increase in the operating costs incurred by the company. In addition to this, the company has not mentioned any non operating income or loss incurred by the company in its income statement.

In addition to the above, the earnings per share of the company have decreased by around 281 per cent. As opinioned by Kraft (2014), the basic fall in the earnings of the common share may be assumed to be the inefficiency of the company in managing its operating and other expenses that have resulted in a negative balance of the net income due to which the revenue generated by the company has gone down. In the view of Christensen and Nikolaev (2013), due to negative net balance of the company, the earnings on each share have also had a negative impact on account of which the shareholders of the company suffered a loss. Thus, it may be concluded that the operations of the company in accordance to the income statement have been inefficient for the company as it led to a reduction in the generation of revenue and earnings per share of AGL ENERGY Ltd.

CASH FLOW of AGL ENERGY LTD (AGLNF)
Fiscal year ends in June	2012	2013	2014	2015	2016
Cash Flows From Operating Activities
Other non-cash items	466	602	699	1044	1186
Net cash provided by operating activities	466	602	699	1044	1186
Cash Flows From Investing Activities
Investments in property, plant, and equipment	-722	-530	-670	-772	-539
Property, plant, and equipment reductions	138	1	2	6	8
Acquisitions, net	218	-33	-112	-1380	640
Purchases of investments	-89	-72	-126	-83	-30
Sales/Maturities of investments	0	165		56
Purchases of intangibles	-43	-44	-25
Sales of intangibles	5
Other investing activities	-38	-38	162	-2	2
Net cash used for investing activities	-531	-550	-769	-2175	81
Cash Flows From Financing Activities
Debt issued	1730	285	2075	2647	550
Debt repayment	-1299	-1544	-1547	-2580	-1371
Common stock issued	884		2	1218	1
Repurchases of treasury stock	-4	-6	-6	-7	-8
Cash dividends paid	-186	-214	-269	-344	-446
Other financing activities		-105		-10
Net cash provided by (used for) financing activities	1125	-1584	255	924	-1274
Net change in cash	1060	-1532	185	-207	-7
Cash at beginning of period	753	1813	281	466	259
Cash at end of period	1813	281	466	259	252
Free Cash Flow
Operating cash flow	466	602	699	1044	1186
Capital expenditure	-803	-611	-723	-806	-545
Free cash flow	-337	-9	-24	238	641
Supplemental schedule of cash flow data
Cash paid for income taxes	-181	-71	-191	-147	-166
Cash paid for interest	-122	-257	-217	-216	-186

In the following cash flow of AGL ENERGY Ltd, the company displays an increase in expense of operating activities of the company to be the highest in 2015. On the other hand, the net investing activities of the company are showing the highest negative balance in 2015 compared to the given five years. In addition to that the net financing activities of the company have also been the highest in 2015 than the rest of the stated years.

On comparing the cash flow statement of the last two years that is 2015 and 2016, it can be analyzed that the cash flow from in 2015 is comparatively lower than the cash flow of 2016. According to Blankespoor et al. (2013), the reason for this may be the increase in the flow of operating and financing activities of AGL ENERGY Ltd.  In addition to this, the difference in cash in the beginning and end of the financial year id more in 2015 than in 2016.  In the words of Kothari and Lester (2012), this shows that the company used more of its liquid assets in 2015 to pay for its liabilities and expenses.

Conclusion

The analysis of the financial structure of AGL ENERGY Ltd has helped the researcher in developing a better understanding of the internal workings of the company and the impact of the same on the overall financial structure of the company. In addition to this, the research done may also help the managers and shareholders of the company to analyze the areas that require their attention and a major development. This in turn may benefit the shareholders, investors and the company as whole. Besides, on analyzing the researcher has also developed the skill of providing suitable recommendations for the problem areas.

In context of the analysis of the balance sheet, income statement and the cash flow statement of AGL ENERGY LTD the researcher has made a number of recommendations for the benefit of the company. Here, the company may lay its focus on the integrated marketing and communication programe that involves the use of different media platforms for the purpose of advertisement. An increased amount of advertisement may influence the sales positively and help the company to generate more revenue.

Further, the company can also implement the cost optimization strategy that helps in reducing and controlling the operational and manufacturing costs of the business proceedings. Besides, it may also help the company in getting rid of the non value adding costs that increase the expenditure of the company and do not generate any benefit to the company.

In addition to this, AGL ENERGY Ltd may also initiate the early repayment of debt that may save the money of the company in later years to spend on other productive departments of the company that may help it to increase the revenue and lure the investors. Another possible way of increasing the income and regulating the expenses of the company can be targeting the sales and cost of the company for a given period in the duration of the financial year per say a month. The company may then analyze each month the costs incurred and the sales generated and the revenue earned thereon. This in turn may facilitate the company in a better understanding of the areas that are in need of development and the areas that are functioning with full potentiality. All these strategies combined may help AGL ENERGY Ltd to overcome the major drawbacks of the company and achieve the organizational goals.

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