Direct method for operating cash flow of AGL

For the direct method, the analysis will be concentrated on two items: the receipts from customers and payments to the suppliers.

Receipts from customers

Cash inflows from customers refer to the difference between net sales and increase in trade and other receivables. The change in accounts receivable is shown as follows:

It can be found that the net increases in receivables through continuing operations are higher than decreases in receivables because of the collections form customers by $24.8m, which should be subtracted from revenues to calculate the cash flows from customers. Compared with the increasing change in accounts receivables of 2009, 2010’s falls significantly along with much higher revenues. This demonstrates more efficient performances of AGL related to the management and policy of cash flows, such as its credit sales or similar business on credit.

Payments to the suppliers

Changes in inventory and changes in accounts payable would contribute to the payments to the suppliers as following:

As shown in the reconciliation, AGL’s inventories increase by approximately $43m from 2009. Adding this amount with the cost of goods sales, the result would be the amount including the cash payments for the purchases of inventory and purchases on account. For AGL, cost of goods refers to sale of traditional energy and new sustainable energy. In this analysis, it is assumed to be $3068.5m, half of the expenses displayed in the income statement since the exact item of cost of goods has not been provided in the report. To further estimate the cash outflows, it is essential to analyse addition information in regards to the accounts payable. From the account of trades and other payable in AGL’s statement of financial position, the accounts payable indicates an increase by $59m, which means that increases to the credit purchases were greater than reductions to the accounts payable. For the increasing tendency of liability, the Broadening of business may be one reason. Moreover, cash may be distributed to the other aspects, such as the exploration of new energy so that the cash is reduced for the repayments of purchases on account.