Fundamentals of Corporate Finance

Question: Discuss about the Fundamentals of Corporate Finance. Answer: As per the most recent statement of cash flows, the following information can be derived (Aura Energy, 2015). The net cash inflow from operating activities in FY2015 amounts to -$ 2,493,886. The net cash inflow from financing activities in FY2015 amounts to $ 2,879.083 The net cash inflow from investing activities in FY2015 amounts to -$ 3,285. Net increase/(decrease) in cash = Sum of all the above cash flows = -2,493,886 + 2,879.083 - 3,285 = $ 381,912 Cash position of the company Aura Energy Based on the cash flow statement for the last two years, it can be inferred that while cash position at the end of FY2014 was critical but there has been an improvement in the cash position at the end of FY2015. This is apparent from the fact that net increase in cash at the end of FY2014 was -$1,457,089 as compared to the net increase in cash at the end of FY2015 which stood at $ 381,912. However, having said that considering the quantum of cash outflow at the operating, the cash position of the company still needs further improvement so as to reach a comfortable position (Aura Energy, 2015). This can be understood from the following. The current cash balance at the end of FY2015 stands at $ 943,011 and it is significant lesser than the operational cash outflow in each of the years FY2014 and FY2015. Thus, this implies that with the current cash balance also, the company would need to arrange for additional financing sources. From the cash flow statement corresponding to FY2014 and FY2015, it is apparent in the year FY2014, $ 234,943 was raised through equity financing while in the year FY2015, $ 3,065, 806 was raised through equity financing (Aura Energy, 2015). As a result, equity financing cannot be continued as the company does not seem to generate any profit at the moment. Thus, equity financing cannot be pursued in this manner and has to be used sparingly. Besides, debt financing also seems improbable as the company lacks any fixed assets to provide comfort to the lenders and also the entity is not profit making at the moment and it seems this trend is going to continue in the near future (Parrino et. al., 2 014). As a result, it is imperative that the company in the near future should make robust efforts to minimise the negative operational cash inflows and gradually look to bring out a successful product before the company experiences severe cash crunch and thereby might have to wind up. Hence, to prevent this, it is imperative that the company should look for sustainable long term financing in case the project gestation period is longer (Aura Energy, 2015). References Aura Energy 2015, Annual Report-FY2015, Available online from https://www.auraenergy.com.au/investor/Reports/Annual%20Reports/Annual%20Report%202015%20.pdf (Accessed on May 20, 2016) Parrino, R, Kidwell, D, Yong, A, Morkel-Kingsbury, D Murray, EK 2014, Fundamentals of Corporate Finance, 2nd Australasian edn, John Wiley and Sons, Milton