Sharemarket Analysis - Case Study Example

Accounting - VBE1000SEMESTER 1 2017 SHAREMARKET ASSIGNMENT PART 1 Share Selection Name: Basim Teachers Name: Mechelle                        Class Group: 3 COMPANY NAME SHARE PRICE On Monday of week beginning Week 3 Monday 6th March NO. OF SHARES TOTAL INVESTMENT $(cannot exceed $5,000) Telstra 4.64 1077 4997.28 Telstra is one of the leading telecommunications company in Australia. The company commenced its operations in 1854 with a telegraph service. Today, Telstra offers a wide array of competitive communications services, not only in Australia, but in other parts of the world as well. They believe that as more people are connected to their services, they grab more opportunities which gives the breaks to the connected future for everyone and every day. Moreover, it considers the opportunity as connected businesses, governments, communities and individuals get connected. Further, it provides 17.4 million mobile services, 6.8 million fixed voice services and 3.5 million retail fixed broadband services. Besides, it builds easy to use technology and solutions, to be the largest and fastest national connecting network. In addition, Telstra seeks to serve the customers according to their needs, not just for the content. Telstra will outshine in the near future because of its excellent services and values. All these reasons made me to choose Telstra as it is a competitive and successful company from long time. Part 2 Report Component Section 1 - Company Research / Graphs / Investor Information [A] Description Products and Services Chief Executive Officer CEO’s Salary & Number of Shares Latest Dividend Paid Share Price High and Low Home & business broadband Landline & mobile telephony services TV services Andrew Penn $6,768,514 FY16 total pay including 986,763 shares $31.0 cent dividend per share for FY16 High – 5.83 Low – 4.00 Source; 2016 annual report [B] Tracking Period Telstra Closing Share Price for the tracking period of Monday 6th March to Friday 5th May Date Closing Prices 04-May-17 4.23 03-May-17 4.27 02-May-17 4.26 01-May-17 4.26 28 Apr. 2017 4.22 27 Apr. 2017 4.22 26 Apr. 2017 4.24 24 Apr. 2017 4.21 21 Apr. 2017 4.23 20 Apr. 2017 4.25 19 Apr. 2017 4.13 18 Apr. 2017 4 13 Apr. 2017 4.16 12 Apr. 2017 4.22 11 Apr. 2017 4.56 10 Apr. 2017 4.58 07 Apr. 2017 4.56 06 Apr. 2017 4.57 05 Apr. 2017 4.63 04 Apr. 2017 4.67 03 Apr. 2017 4.7 31 Mar. 2017 4.66 29 Mar. 2017 4.61 28 Mar. 2017 4.6 27 Mar. 2017 4.57 24 Mar. 2017 4.59 23 Mar. 2017 4.52 22 Mar. 2017 4.55 21 Mar. 2017 4.61 20 Mar. 2017 4.66 17 Mar. 2017 4.76 16 Mar. 2017 4.75 15 Mar. 2017 4.69 14 Mar. 2017 4.66 13 Mar. 2017 4.65 10 Mar. 2017 4.64 09 Mar. 2017 4.63 08 Mar. 2017 4.67 07 Mar. 2017 4.64 06 Mar. 2017 4.64 Source; Yahoo Finance - TLC 5th May 2016 and 30th March data have been omitted because they are 0’s ASX 200 Closing Values for the tracking period of Monday 6th March to Friday 5th May Date Closing Values 05-May-17 5,836.60 04-May-17 5,876.40 03-May-17 5,892.30 02-May-17 5,950.40 01-May-17 5,956.40 28 Apr. 2017 5,924.10 27 Apr. 2017 5,921.50 26 Apr. 2017 5,912.00 24 Apr. 2017 5,871.80 21 Apr. 2017 5,854.10 20 Apr. 2017 5,821.40 19 Apr. 2017 5,804.00 18 Apr. 2017 5,836.70 13 Apr. 2017 5,889.90 12 Apr. 2017 5,934.00 11 Apr. 2017 5,929.30 10 Apr. 2017 5,912.90 07 Apr. 2017 5,862.50 06 Apr. 2017 5,856.30 05 Apr. 2017 5,876.20 04 Apr. 2017 5,856.60 03 Apr. 2017 5,872.70 31 Mar. 2017 5,864.90 30 Mar. 2017 5,896.20 29 Mar. 2017 5,873.50 28 Mar. 2017 5,821.20 27 Mar. 2017 5,746.70 24 Mar. 2017 5,753.50 23 Mar. 2017 5,708.00 22 Mar. 2017 5,684.50 21 Mar. 2017 5,774.60 20 Mar. 2017 5,778.90 17 Mar. 2017 5,799.60 16 Mar. 2017 5,785.80 15 Mar. 2017 5,774.00 14 Mar. 2017 5,759.10 13 Mar. 2017 5,757.30 10 Mar. 2017 5,775.60 09 Mar. 2017 5,741.20 08 Mar. 2017 5,759.70 07 Mar. 2017 5,761.40 06 Mar. 2017 5,746.50 Source; Yahoo Finance – ASX 200 [C] Analysis of Performance As indicated by the graph in the previous section, the share price of Telstra has been plummeting. The company’s share price has received a beating following major announcements by a key rival, TPG Telecom. TPG announced its intention to enter the mobile market by investing up to spend $1.9 billion. Investors in Telstra have been thrown off by this development seeing as TPG will eat into Telstra’s market share. Competition may see customers opting for the new entrant and, therefore, will dent Telstra’s profit and may not be able to pay handsome dividends as it has been paying. The broadband services have also seen competition from the national broadband network. On the flip side, the overall ASX 200 index shows a rising value from $5746.50 at the opening of the tracking period to $5836.50 at the end of the tracking period. This represents a 1.6 per cent. The improvement in the index value emanates from a good business environment in Australia that drove up investor appetite in companies covered by the index. 2017 is considered a rather volatile year, investors could be putting in more money so as to take advantage when the opportunity arises. [D] Gain/Loss Analysis The trading closing share value 1077 * 4.23 = 4555.71. The trading opening share value was 4997.28. The difference is a loss of $441.57. [E] Recommendations Telstra is your regular blue-chip stock. It makes profits, and it’s too big to fail. However, looking at the financials, there seems to be no attractiveness in the performance of the company. The company’s revenue and current assets have remained rather steady over the past five years. Besides, the earnings have been volatile amid rising competition from other companies, mainly Optus, TPG Telecom and Vodafone. The company’s bad situation is worsened by the falling share price. Therefore, I would recommend one to hold the share. A risk averse investor may opt to buy hoping that shares may well revamp in the future. Section 2 – Identification of Key Financial Data and Ratio Analysis [A] Identification of Key Financial Data Revenue / Sales $25.911 billion Interest Expense $796 million EBIT(Earnings before Interest and Income Tax) $6.31 billion Net Profit Before Tax $5.6 billion Net Profit After Tax $5.849 billion Current Assets $9.34 billion Total Assets $43.286 billion Current Liabilities $9.188 billion Total Liabilities $27.379 billion Total Equity $15.907 billion Source; 2016 annual report [B] Ratio Analysis Profitability Profitability ratios evaluate a company’s earnings performance relative to the investment or revenue. The ratios assess the capacity of the management as well as the company’s actions in bringing in returns. In this part, we will consider the net profit margin as the main measure of profitability. Ratio Telstra TPG Telecom 2016 2015 2014 2016 Net profit margin 22.37 16.37 17.02 15.90 Telstra shows more profitability in 2016 at 22.37 per cent net profit margin, an improved performance compared to 2015 and 2014. It also outshined its rival, TPG Telecom that reported a net profit margin of 15.9 per cent in 2016. Activity Activity ratios measure the efficiency with which a company deploys its resources to generate revenue. Key among the ratios to consider is the asset turnover ratio. Ratio Telstra TPG Telecom 2016 2015 2014 2016 Asset turnover 0.62 0.65 0.65 0.88 Telstra has maintained a relatively stable activity performance based on how efficiently it has utilised its assets. However, TPG Telecom seems to be more efficient in utilising its assets to generate revenue with an asset turnover of 0.88 in 2016 compared to 0.62 for Telstra in 2016. Liquidity Liquidity ratios mainly assess the ability of a company to honour its short-term debt obligations (Steven, 2012).The main liquidity ratios considered in this section is the current ratio. Ratio Telstra TPG Telecom 2016 2015 2014 2016 Current ratio 1.10 0.91 1.20 0.72 Telstra shows that it can pay its short-term debts using the current assets with improved current ratio of 1.1 in 2016 up from 0.91 in 2015. However, TPG Telecom is in a worse situation with a current ratio of 0.72 showing that it cannot pay its short-term debts using the current assets only. Capital Structure As much as a company’s current operational performance is important, it should be able to meet up its long-term obligations. This can be evaluated using capital structure ratios. In this section, we consider the debt/equity ratio that measures the ratio between the company’s debt capital and equity capital. Ratio Telstra TPG Telecom 2016 2015 2014 2016 Debt/Equity 0.92 1.0 0.98 1.53 Telstra shows that it has lower debt compared to capital in both 2016 and 2014, in 2015 there were almost equal. This shows a good financial stability over its rival, TPG Telecom that seems to have more debt than equity capital. References ASX 200 historical closing values, Viewed May 03 2017, https://au.finance.yahoo.com/quote/%5EAXJO/history?p=%5EAXJO Atrill, P. McLaney, E. Harvey, D. and Jenner, M. 2010, Accounting: An Introduction, 4th edn, Pearson. Hoggett, J.L. Edwards, C. Medlin, and Tilling, M. 2012, Financial Accounting, 8th edn, John Wiley & Sons. Newman, R. (2017). Why the Telstra Corporation Ltd share price has been smacked today, Viewed May 03 2017, http://www.fool.com.au/2017/04/12/why-the-telstra-corporation-ltd-share-price-has-been-smacked-today/ Ronngard, H. (2017). Telstra Share Price May Look Cheap, But Is It a Trap? Viewed May 03 2017, https://www.moneymorning.com.au/20170511/telstra-share-price-may-look-cheap-trap-asxu.html Telstra historical prices, Viewed May 03 2017, https://au.finance.yahoo.com/quote/TLS.AX/history?p=TLS.AX Appendix Ration calculations Net profit margin = = 5849/25911 x 100 = 22.4% Total asset turnover = = 25911/43286 = 0.6x Current ratio = = 9340/9188 = 1.02 Debt/equity = = 0.92 Read More