Finance Assignment: Accounting for Managers
Added on 2020-05-28
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Running head: ACCOUNTING AND FINANCE FOR MANAGERSAccounting and Finance for ManagersName of the Student:Name of the University:Author’s Note:Course ID:
1ACCOUNTING AND FINANCE FOR MANAGERSExecutive Summary:The current report aims to evaluate the financial statement analysis of Telstra Corporationwith the help of financial ratios, horizontal and vertical analyses. Telstra Corporation is one ofthe leading telecommunication companies in Australia building and operatingtelecommunication networks, mobiles, internet access, markets voice, paid television and otherentertainment products and services. It has been found that the growth in expenses has outrun thegrowth of total income and hence, it could be stated that the organisation has to incur additionalcost to carry its business operations, while the revenue has not increased in tandem. Moreover,the ratios computed denote that Telstra Corporation is struggling to maintain its competitiveadvantage in the market. Hence, the management of the organisation needs to adopt correctivemeasures to recover from such situation.
2ACCOUNTING AND FINANCE FOR MANAGERSTable of Contents1. Introduction:................................................................................................................................32. Income statement:........................................................................................................................33. Balance sheet statement:..............................................................................................................64. Cash flow statement:....................................................................................................................85. Financial ratio analysis:.............................................................................................................105.1 Profitability ratios:...............................................................................................................105.2 Efficiency ratios:..................................................................................................................115.3 Liquidity ratios:...................................................................................................................145.4 Capital structure ratios:........................................................................................................166. Conclusion:................................................................................................................................17References and Bibliographies:.....................................................................................................19Appendices:...................................................................................................................................21
3ACCOUNTING AND FINANCE FOR MANAGERS1. Introduction:The current report aims to evaluate the financial statement analysis of Telstra Corporationwith the help of financial ratios, horizontal and vertical analyses. Telstra Corporation is one ofthe leading telecommunication companies in Australia building and operatingtelecommunication networks, mobiles, internet access, markets voice, paid television and otherentertainment products and services. After the deregulation of the telecommunications industryin the beginning 1990s, the organisation has succeeded in remaining the biggest provider oftelecommunications services despite the growing popularity of its competitor, Optus. Theorganisation has above 150 subsidiary businesses and it has managed to extend its market shareby discounting its mobile phone products as of 30th June 2016 (Telstra.com.au, 2018).Hence, thecurrent report would aim to evaluate its current performance by considering its financial reportsfor the past three years. 2. Income statement:According to Almamy, Aston & Ngwa (2016), the primary goal of a businessorganisation is to create wealth or profit and the profit made in a particular year is the basicconcern of most of the users of financial statements. The income statement helps in gauging theamount of profit that an organisation has earned in a year. Moreover, it enables the users toobtain an insight of the way the profit was earned. Profit or loss could be defined as thedifference between incomes earned and expenses incurred. A profit denotes rise in shareholders’equity, while a loss denotes fall in the same (Asquith & Weiss, 2016). The following important items have been extracted from the income statement of TelstraCorporation to evaluate its financial performance:
4ACCOUNTING AND FINANCE FOR MANAGERSComprehensive gain/loss:2014 (in million $)2015 (in million $)2016 (in million $)- 1,000 2,000 3,000 4,000 5,000 6,000 7,000 4,345 4,305 5,849 Total comprehensive gain/loss for financial periods ending 2014-2016Figure 1:Total comprehensive gain/loss for financial periods ending 2014-2016(Source: Telstra.com.au, 2018)According to the above figure, it could be observed that the net income of TelstraCorporation has decreased from $4,345 million in 2014 to $4,305 million in 2015; however, ithas increased to $5,849 million in 2016. In other words, the net income of the organisation hasdeclined by 0.92% in 2015; however, it has increased by 35.87% in 2016 (Refer to Appendices,Appendix 4). The possible reasons identified behind such increase in net income are the fall inlabour costs, purchase of other goods and services and rise in other expenditures. Hence, the goalof the organisation in maximising profit is achieved in 2016. Income, expenses and operating profit:
5ACCOUNTING AND FINANCE FOR MANAGERSTotal incomeTotal expensesOperating profit-8.00%-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%Income, Expenses and Operating Profit ComparisonPercent change in 2014-15Percent change in 2015-16Figure 2:Income, expenses and operating profit comparison for financial periods ending2014-2016(Source: Telstra.com.au, 2018)In a healthy business, the rise in total income per year needs to be greater in contrast topercentage increase in expenses including cost of revenue (Bansal, 2014).With the help ofhorizontal/trend analysis; it could be observed that total income has increased by 1.18% in 2015and by 1.66% in 2016. However, the total expenses have increased by 4.58% in 2015 and by4.53% in 2016. In addition, the operating profit has declined by 5.89% in 2015 and by 6.68% in2016 (Refer to Appendices, Appendix 5). This denotes that the growth in expenses has outrunthe growth of total income and hence, it could be stated that the organisation has to incuradditional cost to carry its business operations, while the revenue has not increased in tandem.Thus, it indicates unhealthy position of the business and its market share has not increased in2017. Selected factors as percentage of total income:
6ACCOUNTING AND FINANCE FOR MANAGERSLabourGoods and services purchasedOther expensesOperating profitNet profit0.00%5.00%10.00%15.00%20.00%25.00%30.00%Selected factors as percentage of total incomePercent in 2014Percent in 2015Percent in 2016Figure 3:Selected factors as percentage of total income for financial periods ending 2014-2016(Source: Telstra.com.au, 2018)With the help of vertical analysis, it could be seen that Telstra has incurred additionalcost in labour, goods and services and other expenses. The labour expenses have varied from18.50% to 19%, while the expenses related to goods and services have varied from 25.50% to27% over the years 2014-2016 (Refer to Appendices, Appendix 6). In addition, the otherexpenses have remained within 15% to 16%; however, they have been on the increasing scale.As a result, the operating profit of the organisation has declined over the years and the trend isinherent in case of net profit as well. Thus, from the income statement analysis, it could be statedthat the financial performance of Telstra Corporation has declined in 2016. 3. Balance sheet statement:In the words of Altman et al., (2017), the balance sheet statement, also called thestatement of financial position, helps in depicting the financial condition of an organisation at a
7ACCOUNTING AND FINANCE FOR MANAGERSparticular point of time. It depicts all the resources that an organisation controls and its overallobligations. Percentage change in total assets, total liabilities and total equity:Percent change in 2014Percent change in 2015Percent change in 2016-2.00%0.00%2.00%4.00%6.00%8.00%10.00%12.00%Percentage change in total assets, total liabilities and total equityTotal assetsTotal liabilitiesTotal equityFigure 4:Percentage change in total assets, total liabilities and total equity for financialperiods ending 2014-2016(Source: Telstra.com.au, 2018)According to the above figure, it could be observed that the total asset base has increasedby 2.16% in 2014 and it has increased further to 2.76% in 2015 and it has increased further by7.02% in 2017 (Refer to Appendices, Appendix 6). This is because of the rise in the current assetbase, especially in cash and cash equivalents. On the other hand, the trend is similar in case oftotal liabilities and equity as well, which denotes that Telstra has utilised its cash base forclearing its obligations. Selected factors as a percentage of total assets:
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