Interpretation of the Financial Data - Telstra - Assignment Example

Contents Telstra 3 Electronically published Article reporting company’s profit 3 Answers to the Questions relating to financial ments of the company 5 Income statement of the company 5 Statement of financial position of the company 5 Statement of Cash flows 7 Notes to the financial statements 7 Accounting is about communicating 8 APPENDIces 9 aPPENDIX 1 9 aPPENDIX 2 10 10 Appendix 3 11 Appendix 4 12 Appendix 5 13 Works Cited 14 Telstra Following are the details related to the company Telstra regarding the basic information which I have chosen to examine: Name of the company: Telstra Corporation Limited ASX code: TLS Office address: Level 41 - Telstra Centre, 242 Exhibition Street, MELBOURNE, VIC, AUSTRALIA, 3000 Company website address: http://www.telstra.com.au/ The GICs industry group: Telecommunication Services Electronically published Article reporting company’s profit An article published by Business Day on the website smh.com.au dated August 11, 2011 reported the company’s profit for the latest financial year. The article was titled as “Telstra shares rally most in 3 years despite profit drop”. The article has been summarized with extracts of important and relevant information regarding the company. The article highlights that the company has posted their greatest advance since the beginning of 2008 as the company had announced an annual profit better than the market analysts expected. The company had shown a decline in the profits by almost 17% as the Net income for the year end was $3.23 billion, decreasing from an annual profit of $3.88 billion last year. However the profit was still beyond the expectations of the market and the analysts. The analysts were expecting an annual profit of around $3 billion but the company had surpassed their expectations by posting a profit higher by $200 million for the year. These results saw the Telstra shares rise by 16 cents which makes 5.7 per cent and climbed to $2.99 after the declaration of the profit which was a great result compared to other companies of the industry as well as the market. (Day) Telstra kept their payout in line with previous year as they declared a final dividend of 14 cents for their shareholders, enchanting the annual payout to 28 cents. The revenues of the company increased by 0.7% but there was a decline in the profit for the year. It was a noteworthy fact for the business of the company that the government of Australian and the company have agreed a deal of around $11 billion which will give the government a right to use Telstras fixed line phone assets for the government’s National Broadband Network (NBN), which is the prime infrastructure development plan in decades for the country. The company also expected some more layoff of their employees during the current financial year as the company looks to continue cutting costs. The company in the meeting has also emphasized on the increase in sales of the company as well as the aspects that certain customers from other networks have also switched towards their network during the year which has contributed towards the increase in sales and would also result in future sales. The chief executive mentioned it as one of the best ever years in the history of the company when it comes to attracting the customers towards the company. The company was also considering an acquisition project once it had finished on the deal of fixed-line asset with the government; however the foremost priority of the company was to compel development and expansion through the use of existing assets of the company. Therefore, the board of directors of the company are looking forward to start exploring and examining the capital management opportunities sometime later to the year 2011. Answers to the Questions relating to financial statements of the company Following are the answers to the questions asked regarding the financial statements of the company. Income statement of the company Ans 1) The largest expense on the Income Statement for the year ended June 30, 2011 was “Goods and services purchased” which amounted to $6,183 million for the year. Ans 2) The main revenue account on the Income statement of the company is titled as “Revenue (excluding finance income)” which appears as the first item on the financial statements of the company. The revenue account of the company indicates an amount of $25,093 million for the year which is excluding other income, as it appears as a separate head on the financial statements of the company. (Refer Appendix 1) Statement of financial position of the company Ans 1) The account title used by the company on the statement of financial position to report any land, buildings and equipment it posses is titled as “Property, plant and equipment” and the item appears in the category of Non-Current assets of the company’s statement of financial position. (Refer Appendix 2) Ans 2) The given ratios of the company are calculated as follows: Return on Equity ratio: Return on Equity ratio = Net Income = 3,250 = 26.92% Shareholders Equity 12,074 The return on equity for the company stands at a healthy 26.92% for the year indicating that the company has offered a healthy return to the shareholders of the company and has put to use the equity in a profitable manner. ROE profit driver analysis: Return on Equity (DuPont) = Net Profit X Sales X Assets Sales Assets Equity = 3,250 X 25,093 X 37,913 25,093 37,913 12,074 = 0.1295 X 0.6618 X 3.14 = 26.92% The analysis shows that the company has maintained a good assets turnover throughout the year as the company has generated over 66% return through their assets as well as a 13% Net profit for the year. The proportion of the Assets over Equity is the main driver for the company in assessing its return as the company’s equity is backed by huge amount of assets which the company has put to use in a profitable manner as is also indicated by the Assets turnover. Statement of Cash flows Ans 1) The Company has dividends in both the years, that is to say in both the 2011 as well as 2010. The figure of dividend paid by the company can be indicated from the “Cash flow from financing activities” in the Cash flows statement of the company. The company paid $3,475 million and $3,474 million during the years 2011 and 2010 respectively to its equity shareholders by way of dividend. (Telstra) Ans 2) The largest use of cash during the year in the investing activities has been done by the company in purchase of property, plant and equipment where the company has purchased $2,342 million worth of property, plant and equipment during the year. Ans 3) The largest source of cash of the company for the year in the financing activity section was from “Sale of shares in controlled entities” where the company managed to generate $288 million by way of flotation of shares. (Refer Appendix 3) Notes to the financial statements Description regarding the mentioned notes is provided according to specifications: An accounting method/policy applied in the company’s statements: Note 2.10 “Property, plant and equipment” indicates the method of depreciation applied to the property, plant and equipments of the company and the note sheds light on the basis of recognition of the fixed assets as well as the method applied for the purpose of depreciation along with their useful lives. (Refer Appendix 4) Additional detail about a number given in the financial statements: Note 6 to the financial statements gives additional details regarding the Revenue of the company and provides a breakup of the revenue from different sources as well as apportionment of other costs directly associated with the revenue. (Refer Appendix 5) Amount paid to auditors for audit services: The amount paid to the auditors is indicated in the note 8 to the financial statements where the remuneration to the of the company, Ernst & Young is given for the audit of the financial statements as well as other associated services. (Refer Appendix 5) Accounting is about communicating Accounting and especially the preparation of the financial statements is due to reason of communication of the financial information to the users of the financial statements, such as the shareholders, investors and lenders etc. As the financial statements of Telstra explain and shed light on the various aspects of the accounting followed by the company, it communicates to the users the information which is relevant to them such as the Income, lending, liquidity and other financial aspects. It shows the policies which the company has adopted in order to meet the true and fair view requirement of presentation. Among many users, one of the important user of the financial statements are the Lenders of the company which take huge interest in the financial data of the company as they have lent a sum to the company as well as the prospective lenders who have interest in the viability of the company. The lenders can use the data such as the liquidity, profitability and revenue of the company in order determine whether the company will be able to repay the debt on time or not. APPENDIces aPPENDIX 1 aPPENDIX 2 Appendix 3 Appendix 4 Appendix 5 Works Cited Day, Business. The Sydney Morning Herald. 11 August 2011. . Telstra. "Annual Report." 2011. Read More