Financial statement analysis is a major factor for the financial analysts and investors in order to measure the financial performance of the companies as well as to know about their financial health[1]. In the process of financial statement analysis, the analysis of cash flow of the companies plays a crucial part as it provides the investors with the knowledge about the cash inflow and outflow of the companies along with their reasons. In the 2016 annual report of Adelaide Brighton Limited, the Statement of Cash Flows can be seen. In the cash flow statement of every business organizations, two of the major activities are cash flow from investing activities and cash flow from financing activities that play crucial part in determining the financial position of the companies. Cash flow from investing activities shows the amount of cash inflows and outflows due to various investing activities like loss or gain from investments, purchase or buy of assets and others[2].

Table: Cash Flow from Investing Activities

(Souce:[3])

As per 2016 cash flow statement of Adelaide Brighton Limited, the company spent money for the payment of property, plant, equipment and intangibles. Another major head for cash outflow in investing activities of Adelaide Brighton Limited is payments of loans to joint venture entities. However, there are two heads in the investing activities of Adelaide Brighton Limited where there is inflow of cash; they are sale from property, plant and equipment (PPE) and income from repayment of loan. In this context, it needs to be mentioned that two of the largest investing activities are payment for PPE that is $86.5 million and sales of PPE that is $23.2 million[4].

Table 2: Cash Flow from Financing Activities

(Source:[5])

Cash flow from financing activities shows companies raise capital from issue of shares. From the 2016 cash flow statement of Adelaide Brighton Limited, it can be seen that the company raised capital of $4 million from the issue of shares. On the other hand, Adelaide Brighton Limited has also made payment of $21 million to its borrowings. However, the highest item is of 178.5 million that is the payment of dividends to the shareholders. And the second highest item is of $21 million that is payment of borrowings[6].

From the above analysis, it can be said that Adelaide Brighton Limited has taken right investing and financing strategies as per the current business environment. The above analysis shows the fact that Adelaide Brighton limited depends less on the long term borrowings for raising capital[7]. It is evident from the above analysis as the company has taken less amount of loan in 2016. In addition, it can be seen hat Adelaide Brighton Limited has spent large amount by providing dividends to their shareholders. It implies that the company depends largely on equity financing for raising capital for their businesses. Thus, in the capital structure of Adelaide Brighton Limited, the proportion of share capital is more than term borrowings. There are several advantages of equity financing. First, it reduces the interest expenses of the company and it leads to reduced financial risks. Second, the company has to pay dividends only in case of profits[8]. Thus, it can be said that Adelaide Brighton Limited has adopted the correct investing and financing strategy.

Bibliography

“Financial Statement 2016”. Adbri.Com.Au/, 2017. https://adbri.com.au/-/adbri/lib/pdfs/2016/reports/ABL%202016%20AR%20-%20Financials%20FINAL.pdf.

Brown, Reilly. “Analysis of investments & management of portfolios.” (2012).

Higgins, Robert C. Analysis for financial management. McGraw-Hill/Irwin, 2012.

Maravas, Alexander, and John-Paris Pantouvakis. “Project cash flow analysis in the presence of uncertainty in activity duration and cost.” International Journal of Project Management 30, no. 3 (2012): 374-384.

Zack, Gerard M. “Financial Statement Analysis.” Financial Statement Fraud: Strategies for Detection and Investigation(2013): 209-213.