Telstra Corporation Financial Analysis - Case Study Example

Telstra Corporation Financial Report Name Course Date Tutor Telstra Corporation Financial Report Introduction Telstra happens to be one of the foremost telecommunications corporations in Australia. It gives the clients a very integrated experience across mobiles, fixed lines, broadband and information as well as television services. Telstra also manages one of the best internet service providers with an offering of retail internet access at the national level. This is combined with a range of online as well as mobile services. Telstra’s major strengths as an integrated telecommunications company is their vast coverage using the infrastructure of the network. The systems infrastructure underpins termination for a lot of the domestic and international telephony traffic. Executive summary This is going to be an analysis of the business activities and financial profitability over specified years which include 2014 and 2015. The company business activities involve increasing property portfolios which include the patent rights both at the local and regional basis. The company plays the role of licensor and licensee for intellectual property that included licenses of digital content. The financial ratios will include liquidity, solvency and profitability. These are methods which analyses asset situation and ability to leverage debt and profit situations. They are significant in giving overall health report of the corporation and will be utilized in the statement to potential investors. Business activities Telstra recently confirmed it would be first in line to roll out an everything-fits-all hybrid modem quite soon. It would mean assembly of fixed and mobile systems and these would propagate continuous connections within the familiar situation. The executive director, Stuart Bird in charge of the fixed products and services claimed the Frontier Gateway is going to make the process of waiting for fixed broadband connection irrelevant for Telstra clientele. He claimed the company knows the wait for a fixed broadband connection is annoying. Telstra coming product is going to draw on power from the national connection system for households up as the fixed systems are set up. The clients who may be setting up new connection should have the ability to access online content quicker. If the fixed service is not there, and then the Frontier is going to go to the mobile version for keeping the household connected. The supervising personnel of the broadcast services of the company claimed that through the usage of the Global Media network, clients could provide for content across the globe in a manner to assume whether it needed to have a time critical sports event for the producers aiming to provide media programs in between the facilities. As such, the reliability within the network system is significant concerning live broadcasting and this is why Telstra created the Global Media Network in a physically diverse dual place that would allow for diversion of traffic for an interruption on one network angle. The Global Media Network happens to be constructed upon the global infrastructure of the company which combines the increasing capabilities of the submarine fiber network that has links to satellites and teleports. These cover a number of regions and strategic areas including the west and Asia. As well as higher quality Wi-Fi within the home area, the company is trying an expansion of the library for the Telstra network considering the addition of Yupp TV and Ted Talks (Telstra, 2016). As with the continual rise of the streaming at home, clients have experienced over 26.1 million hours of content online through the television network. A lot more have been streamed within the last winter months as the population opted to stay indoors. Telstra finance front The company is planning to give back 1.5 billion dollars back to the shareholders which are from the returns gotten from the sales attained from Auto home, the Chinese car sales platform (Mehra, 2016). Telstra claimed deniability concerning the capital returns but stated it was considering a number of options. The company is going to state particulars during the end of financial year results in August with some payments starting within the first half of the financial year of 2017. During February, the company claimed the sale of about 47 percent of the company to Ping, a financial services firm in a deal that accumulated to 1.6 billion dollars. The deal got the company resulting in a profit of $1.8 billion. There was also 6.5 percent in shares left over and a board seat on Auto home. Telstra has thought to announce the dividends to the shareholders because it could still have the money to be used for business operations such as acquisitions (Mehra, 2016). Soon after, the company stated it would give the shareholders the pertinent news after the transaction. Telstra is looking for an opportunity to expand within the Asian mobile sector considering the dominance domestically is being attacked by rivals Vodafone Hutchinson and Optus. According to the chief financial officer Warwick Bray claimed Telstra was trying to consider lifting of the returns to make certain of the policy of paying the dividends. Now transitions for the National Broadband Network would effect a long term impact on the returns of Telstra considering the loss of the wholesale revenues (Mehra, 2016). The estimated EBITDA could be lower by $2 to $3 billion. It is expected that the effect is going to stabilize over the course of time. Vertical analysis Telstra 2014 to 2015 In order to perform the vertical analysis, the total revenue for each year was chosen as the base in order to compare with other components within the same year. This is the proportional analysis of a financial statement where each item is listed as a percentage of another. According to the statistics, the total revenue seems to have been primarily contributed by the sales revenue. It indicated that total revenue came from the operating activities. On the other hand, the portion of sales revenue has declined but only slight from 25,845 million to 25,119 million dollars. This is a percentage change of 2.9 percent over the two years (Amigobulls, 2014). In practice, the adjustment in operation has given the company an opportunity to control some of the business risks. At the same time, the total operating expense for each year has ranged from 0.57 to 0.59 in comparison to the revenue generated. This is because of higher labor costs and higher costs related to the purchases. The total expense over 2015 and 2014 has been considered as steady when there were not significant changes. The fluctuations of both the expense and revenue are considered, the earnings before and after interest and taxation did not seen a lot of changes. As such, the revenue based profit has been consistent somewhat and it reflects the profit making abilities of the corporation (Xin, 2015). Horizontal analysis In the trend depicted on the balance sheet, the current assets of the company seem to drop rapidly from 10, 438 to 6, 970 million dollars. This is resulting from the reduction in the cash and equivalents which spend purchase for more than 1 billion dollars in cash (Amigobulls, 2014). Considering the state of the global crisis, the acquisition of small telecom and IT companies was one of the efficient ways for Telstra to diversify the business and increase the market share while responding to competition within the telecom industry. This strategy brought a lot of benefits to the corporation. It has not only assisted it to maintain a growth rate of 1.2 percent in the sales revenue, but it has also increased the sales revenue by a considerable amount. That is why the total assets see an increase in both of the years with 28,992 and 33475 million dollars from 2014 to 2015. There has also been an increase in the non-current liabilities but a decrease in the current liabilities from 8684 to 8129 million dollars from 2014 to 2015 (Telstra, 2015). This makes for stable forms of the total liabilities as a trend. Liquidity Current ratios = current assets/ current liabilities For 2014 10438/ 8684 = 1.201 For 2015 6790/8129 = 0.835 The current ratio is an indication of the ability of a corporation to pay the current liabilities from the current assets and it is used to measure the liquid assets at the behest of the corporation. The current ratios below 1 show a depreciating liquidity of the company. Ratios between one and two show a good state of liquidity for the corporation. Above we can see the current ratio for 2014 is better than 2015 meaning a declining liquidity of Telstra (Telstra, 2015). Solvency This is a ratio which shows the degrees of financial leverage which are being used by the corporation and it are inclusive of both the short term and long term debts. A rising debt to equity ratio is an indication of higher interest expenses. The formula is Debt to equity = Total debt / Total equity For 2014 15.82/13.96 1.13 For 2015 15.63/14.51 1.07 As we can see there is decreasing leverage by use of debts from the company which is an indication of lesser need for interest rates and stabilization of the debt situation. Profitability ratios There are a number of profitability ratios available, but we shall consider the return on assets because it is indicative of the company’s growth position and pertinent to this analysis. The ROA measures how efficiently the company is able to produce profits from the management of its assets in a given financial period. For 2014 Return on assets ratio = net income/ average total assets 26.29/ 39.36 = 0.667 For 2015 26.607/40.45 = 0.657 From the ratios above we can see there is a depreciating return on assets from 2014 to the year 2015 which means that the company is not efficiently managing the assets to make profits even in 2014 and the situation has worsened over the next year. Advice to potential investors The investors that would approach the Telstra story from a one sided view of the current ratios would not have the full picture of what is going on. From the analysis done in the above text, it is possible to view the company as declining because the cash and equivalents have been declining over the past few years. However, this is a symptom of something else. Telstra has been acquiring different assets which are increasing the noncurrent liabilities and decreasing current assets which are why liquidity is dropping. However, the growth rate is increasing steadily and the solvency of the company is improving as the financing is moving away from being debt based which means share prices will increase in value. Investors should consider the company a positive choice for investment at the present. Conclusion Telstra has been one of the telecommunications giants for some time and the activities it is doing seem geared to propel it even greater heights. The upsets in the financial analysis are probably fully expected by management and they are protracted to yield to significant benefits within the coming years. Diversification and upgrade of services are going to yield even more revenue and growth for the company in the forthcoming years, and for its shareholders. References Amigobulls. (2014). Telstra Annual Income Statement. Retrieved from http://amigobulls.com/stocks/TLSYY/income-statement/annual Mehra, P. (2016). Telstra to return $1.5bn to shareholders. The Sydney Morning Herald. Retrieved from http://www.smh.com.au//breaking-news-business/telstra-to-return-15bn-to-shareholders-20160502-4ec8i.html Telstra. (2016). Telstra to launch new home Wi-Fi technology and new entertainment-packed internet bundles: Media Release. Retrieved from http://www.telstra.com.au/aboutus/media/media-releases/Telstra%20to%20launch%20new%20home%20Wi-Fi%20technology%20and%20new%20entertainment-packed%20internet%20bundles Telstra. (2015). Telstra Annual Report 2015. Interactive Investor Phy Limited. Retrieved from https://telstra2015ar.interactiveinvestorreports.com/full-year-results-and-operations- review/ Xin, W. (2015). Telstra Financial Analysis Report Fy2009 – Fy2013. Journal of Finance and Accounting. Volume 3, Issue 5, Pages:150-158 Read More