Telstra Corp Ltd - Assignment Example

Executive summary Telstra Corporation Limited is Australia's major telecommunication and a Media corporation, the business currently is wholly privatized individual and has been undergoing a transformation agenda to grow to be more sales and marketing Outsourced service. The company has long history in Australia starting together with Australian post as a government division. At present, the company is entirely Private Corporation as well as has been drastic changes in its administration in an effort on expanding the business growth. Description of business activities The business deals in creating and operating telecommunications system as well as markets voice, mobile, internet right of entry, and pay TV .The company has a long past in Australia, commencing together with Australia Post as a state section. Nevertheless, the company is facing competition from Optus since 1990.Optus is Australia’s second; largest telecommunication corporation (Damodaran, 2012). A number of growing providers are posing threat to Telstra limited in terms of growth and performance. The company upholds ownership of the fixed line telephone network and also the pay television as well as data cable network foxtel. Other business providing fixe line services ought to deal with Telstra as a result, apart from Optus, transact as well as other business that have installed their own infrastructure. In early 2010, the company announced a $1billion fighting funds to be employed in a concentrated effort to control the market portion in major sections. The effort deems to have benefit with strong revenue growth realized in February 2011. The customer service revival is part of the company new plans. The business announced its objectives as that of providing good customer services to be significant to everything that the business involves itself in. Ratios Profitability Profitability 2014 2015 Net Margin % (Net profit/sales) (11291/25119)=0.45 (10,902/25845)=0.42 Return on Equity=(Net income/equity) (11291/39360=0.29 (10,902/40445)=0.27 The net profit margin and the return on equity are decline from the year 2014. This is an indication that the company is making low sales turnover and consequently, it is unable to repay its equity debt due to adequate funds from retained earnings. ▪ Asset efficiency Asset efficiency 2014 2015 Debtors turnover (Sales/debtors) (11291/4172)=2.7 (10,902/4721)=2.3 Inventory turnover (COGS/M. inventory) 6485/362=17.91 (6870/491)=14 From the above ratio analysis, it can be observed that both the debtors turnover and inventory turnover is declining. This implies that the company business situation is depicting a decline in value of revenue and consequently a threat to business performance of the company. ▪ Liquidity Liquidity 2014 2015 Current ratio(Current/current liability) (11291/4172)=2.7 (10,902/4721)=2.3 Working capital 9Current asset-current liability) 10438/8684=1.2 (6970/8129)=0.86 ▪ Capital structure Capital structure 2014 2015 Debt to equity ratio (25538/39360)=0.65 (26342/40445)=0.65 Financial leverage 10438/8684=1.2 (6970/8129)=0.86 From the above data analysis, it can be observed that the debt to equity ratio is remains constant which is an indication that the company source fiancé didn’t change in each financial period, However, the financial leverage declined from 2014 which implies that the risk of the company source of capital finance is risky since, the company will be at risk of meeting its long-term and shot obligation as and when they fall due. ▪ Market performance Market performance 2014 2015 Price earnings ratio(common stock price/Net income per share) 16 21.9 Dividend yield 8.3 3.9 The price earnings ratio and the dividend yield is decline as well and consequently it implies that the company’s shareholders will not be paid dividend since, there is a not sufficient fund as observed by the decline in net profit margin which has an impact on dividend yield. The decline in price earnings ratio is an indication that the company stock price is losing value in the stock market which is due to a decline in the company’s performance as observed from the decline in net profit margin (Eugene Brigham, 2011). Advice to investors The stock summary of Telstra depicts a decreasing trend and consequently the business situation is optimistic. in this regards, the company is deem inappropriate for investment since the prospective analysis as per the price earnings ratio above depict a declining trend since the year 2014.The company’s share are worth $119 per share in the year 2014 and thus an investor should not consider buying the company stock at a price below the closing stock price of $119 per share since the business will be undervalued and consequently the stock price is going to increase implying a shareholder swill earn positive return form investment. The company net profit margin and return on equity is decline but is strong and higher above the industries; market and consequently investors will be attracted into the company’s stock price but it is risk since, the stock price may be overvalued (James M. Wahlen, 2010). It therefore implies that the Telstra limited as an effective product and a service differentiation plan as well as the strong cash flow and liquid position, thus the company is having sufficient cash to meet it daily operation and obligation as, and when they fall due for payment as much as the net profit margin and price earning ratio is declining. Even thought the P/E ratio do not account for the fierce competition from other online shopping mall, the market is overreacting and consequently ,the market general pessimistic anticipation for both Telstra limited and the market retail sector performance creates an opportunity for investors and shareholders to advantage form. Telstra advantage will permit it to have superior economic development against its competitors. The market stock price for Telstra limited as per the above data analysis provide a value of 117 (Sap 500) while the company’s stock price is $ 6.89 at a closing price of $119..The interpretation for the result is that tetra company’s stock price are undervalued and this an investor should not buy the company’s stock since they are going to fall (James M. Wahlen, 2010). An investor should consider buying overvalued stock price in order to capitalize on the proceeds from returns since, it is anticipated that an overvalued stock is going to fall when they vying available for sell in the stock exchange (Eugene Brigham). The above analysis was concluded after considering the business situation and making forecast ion the anticipated company’s performance, care should be taken in making an investment decision since external factors might affect the stock price in the near future. Conclusion and Recommendation It can therefore be observed that the initial performance of Telstra limited is improved as much as the impact of growing competition from both local and foreign companies are threatening business performance in as observed by slight decline in reported net report of 2015 as compared to those of 2014.the liquidity position of the company is enhanced which is an indication that the working capital can finance the company daily operation as well as meet its financial commitment as and when they fall due (Jan Viebig, 2008). An investor should therefore consider investing in Telstra limited once; they are assured of returns from investment as observed from the return on equity ratio above. Care should be taken since, as much as the company is depicting a growing trend in amount of reported net profit, it is as well as declining which pause a risk due to the fact that it is hard to anticipate future financial situation of the company given the declining tendency in 2015. As a result, an investment opportunity in Telstra limited is made on assumption basis that the company’s reported net profit is going to improve in the next financial period due to improved working capital and return on equity. Reference list Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining. New york: Cengage Learing. Eugene Brigham, ‎. H. (2011). Fundamentals of Financial Management, Concise Edition. New york. James M. Wahlen, ‎. P. (2010). Financial Reporting, Financial Statement Analysis and . London: John willey''s & Sons. Jan Viebig, ‎. P. (2008). Equity Valuation: Models from Leading Investment Banks. Jerald E. Pinto, ‎. H. (2010). Equity Asset Valuation - Page 55. London: John Wiley;s & Sons. John D. Stowe, ‎. R. (2008). Equity Asset Valuation Workbook. McKinsey & Company Inc., ‎. K. (2010). Valuation: Measuring and Managing the Value of Companies. Stimes, P. C. (2011). Equity Valuation, Risk and Investment: A Practitioner's . Read More