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Sheng Siong Cash Flows from Operating Activities

Q&A › Category: Dividend Stocks › Sheng Siong Cash Flows from Operating Activities
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DANIEL ONG asked 1 month ago
Hi Rusmin, You mentioned in your video during step 3 about adjustment of lease liabilities payment when calculating cash flows from operating activities for calculating debt servicing ratio. Pls help to explain the following questions with reference to Sheng Siong 2023 Financial Results: Cash flows from operating activities: $177,070
Payment of lease liabilities: ($34,171)
  1. Does that mean we need to adjust the cash flows from operating activities to be $177,070 - $34,171 = $142,899?
  2. Pls explain why do we need to adjust this lease liabilities payment which falls under Finance activities?
  3. Are there any other items which needs to be adjusted for cash flows from operating activities (such as Interest paid on lease liabilities, Dividends, etc) since will affect (1).
  4. In calculating Net Interest Expense for numerator of debt servicing ratio, should Interest paid on lease liabilities (this looks like a late lease payment penalty fee) be included although it\'s not a bank interest expense?
2 Answers
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Rusmin Ang Staff answered 1 month ago

Hi Daniel,

Let me answer your questions below:

1. Yes, have to adjust it since depreciation of lease liability is being added in the cashflow from ops.
2. The changes in IFRS 16 take into account off-balance sheet items such as long-term leases which the company has obligation to pay. The accountants think that IFRS16 will better reflect the true financial health of the company since old accounting method can't capture these off-balance sheet liability. You can read more about IFRS 16 on our website here. I think they are just complicating the issue.
3. If you notice the depreciation of lease liability is quite big, I think we just need to adjust here. Sometimes if the company has a lot of investment in the other companies and they get paid regular dividends, we can add it back as well. SIAEC is one of those examples where we can see Dividends received from associated companies is quite substantial.
4. Ignore the interest paid on lease liabilities. Just interest paid on loans.

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DANIEL ONG answered 1 month ago
Rusmin, Thank you for your quick response. Just to be clear with reference to SIA Engineering Annual Report 2022 page 110, the final adjusted net cash flows from operating activities will be 64609 - 30443 + 36734.
  1. So for previous year before IFRS 16 is implemented, we will not need to adjust net cash flows from operating activities since the lease payment is already included in the operating cash flows, right? 
Rusmin Ang Staff replied 1 month ago

Yes, that’s right for adjust cashflow. You’re getting good at the adjustment!

Depreciation of lease payment wasn’t there in the operating cash flow statement before IFRS 16. After the changes, the cashflow from operating activities become higher for the affected industries, i.e. retailers, etc. That’s why we made the adjustment by removing it from the operating cashflow.