Corporate Accounting: Financial Analysis of Telstra Corporation Limited and TPG Telecom Limited

The report evaluates financial assertions of two firms for three years. The companies that are chosen for this assessment are Telstra Corporation Limited and TPG Telecom Limited. The report evaluates diverse components that are revealed in the yearly account for instance Income tax expenditures. The current report evaluates flow of cash statement thoroughly for both the firms in a bid to analyse streams of cash of the corporation during the period.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
University Name
Student Name
Authors’ Note

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CORPORATE ACCOUNTING
Executive Summary
The primary intention of the study is to evaluate financial assertions of two firms for three
years. The current report presents the companies that are chosen for this assessment are
Telstra Corporation Limited and TPG Telecom Limited. The report evaluates diverse
components that are revealed in the yearly account for instance Income tax expenditures. The
current report evaluates flow of cash statement thoroughly for both the firms in a bid to
analyse streams of cash of the corporation during the period. The analysis undertakes a
relative analysis of statement of stream of cash between Telstra Corporation Limited and
TPG Telecom Limited. The evaluation also entails computation of effective rate of tax and
tax rates (Cash as well as Book) and presents an elucidation of tax expends and tax
framework of both the firms.

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Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................4
Owner’s Equity..........................................................................................................................4
Capital Structure Position of Both the Companies....................................................................6
Comparative Evaluation of Three different Components of Statement of Cash Flow........10
Insight of Cash flow Statement............................................................................................11
Analysis of Other Comprehensive Income Statement.............................................................11
Reporting of Comprehensive Items.....................................................................................12
Comparative Analysis of Comprehensive Items..................................................................12
Accounting for the purpose of Income Tax.........................................................................13
Effective Rate of Tax...........................................................................................................13
Deferred Tax Assets and Liabilities.....................................................................................14
Cash Tax Amount and Rate of Both Company....................................................................15
Distinction Between Cash Tax Rate and Book Tax Rate....................................................16
References................................................................................................................................17

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Introduction
The primary aim of this report is to analyze financial assertions of two different firms that
operate in the same industry and has related operations levels. In essence, the two different
firms that are chosen for this report are Telstra Corporation Limited and TPG Telecom
Limited that are both engaged in telecommunication business. Essentially, the analysis takes
into account yearly reports of both the firm for the purpose of assessing different components
of financial assertions and also presents a comparative evaluation between the two firms and
this has a superior reporting of these components of annual reports.
Telstra is a leading telecommunications as well as technology company in the nation
Australia, providing a wide range of communications services and competing in different
markets of telecommunications. In the nation Australia, it is important to offer 17.7 million
mobile services in the retail market, 4.9 million fixed voice services in the retail segment and
3.6 million fixed broadband services in the retail section.
TPG Telecom Limited refers to an Australian telecommunications as well as IT firm that
concentrates in consumer as well as business internet services with mobile telephone
services. During the period August of the year 2015, TPG Telecom Limited is the second
internet service provider in the nation Australia and functions as the prime operator of mobile
virtual network. The company TPG delivers five different ranges of products as well as
services counting mobile phone service, internet accessibility, software in accounting,
networking as well as OEM services.
The primary emphasis of the report can help in analysis of yearly reports of both the firms for
a period of past three successive years beginning from the period 2017. The appraisal also
reflects examination and relative study of the components that are reflected in the yearly
reports of the company. There are certain important areas that are regarded in the yearly

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statements of both the firms are cash flow declarations, equity capital utilized, treatments and
revelations of tax. Furthermore, the appraisal shall contain enumerations concerning effectual
rate of tax as well as other tax enumerations.
Discussion
Owner’s Equity
The equity of the firm reflects equity capital and retained earnings of the firm that is utilized
for funding the actions of the firm (Wahlen et al. 2014). The yearly account of the period
2017 is regarded for both the firms for evaluating equity of owner of the particular business.
According to the yearly statement of the period 2017 for Telstra Corporation Limited, the
equity of the owner is reflected in the balance sheet statement. The equity of the owner of
Telstra Corporation Limited comprises of equity, firm’s retained earnings as well as other
reserves. The equity of the firm indicates towards the share capital that the firm has acquired
by means of public issuance of shares. The figure for equity of the firm for the year 2017 is
observed to be $ 14560 million that has decreased from $15907 million recorded during the
year 2016 (DeFusco et al. 2015). In essence, retained earnings registered for the firm
represent particular a division of profits that are kept to one side either for the purpose of
reinvestment of the same in the operations of the corporation or for the purpose of satisfying
specific obligations of the enterprise. Particularly, the retained earnings of the enterprise
during the financial year 2017 have considerably decreased in comparison to previous year
analysis and the same is observed to be $ 10225 million in 2017 as compared to the year ago
figure of $10642 million in 2016. As a result, it can be hereby mentioned that there is a
general downward moving trajectory for the retained earnings of the firm that reflects
decrease in overall retained earnings of the enterprise. Basically, this might be owing to the
decrease in profitability of the firm from continuing as well as discontinuing operations.

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Also, the reserves of the firm are registered to be negative which reflects accumulated losses
of the firm as compared to the figure registered during the previous year.
. The equity share capital of the firm has also decreased to the level of $ 4421 million
recorded in financial year 2017 from $5167 million registered during financial year 2016. As
suggested by Weygandt et al. (2015), the equity capital reflects the funds that are essentially
utilized by the enterprise for the purpose of satisfying various obligations. The figure on
reserves mentioned in the section of equity in the balance sheet statement of the firm is
observed to be negative that implies that the enterprise has accumulated losses (Nobes 2014).
The share capital indicated in the balance sheet statement of Telstra has significantly declined
as compared to the year ago period. In essence, this might be owing to the fact that enterprise
has a reduction in capital and the total number of shares in the enterprise has decreased by the
amount of reduction (Bekaert and Hodrick 2017). The retained earnings of the enterprise are
observed to be $ 10225 million. Based on the registered figures on retained earnings of the
enterprise that has decreased during FY 2017 it can be said that retained earnings of the
enterprise is affected by the decrease in net earnings as well as payment of dividends to the
company’s shareholders. Consequently, the items that exert impact on net earnings and push
it at higher or else lower level shall necessarily influence the retained earnings of the
corporation.
Again, various elements of equity of the owner of the firm TPG that is shown in the yearly
declaration of the enterprise for the financial year 2017 include equity share capital of the
enterprise, retained earnings and reserves. The equity share capital of TPG has considerably
improved to $1449.4 million in the financial year 2017 as compared to the year ago figure of
1051.8 million registered in financial year 2016. This may perhaps because of increase in
overall issuance of shares and improvement in overall operational framework of the firm.
However, the reserves of the company TPG is registered to be negative and that stands at

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$(18.1) million in 2017 in comparison to previous period’s figure of $41.2 million in 2016,
reflecting accumulates loss of the firm. However, the retained earnings of the firm has
enhanced considerably from $681 million in 2016 to around $963.3 million. This is said to be
influenced by the net income registered during the period and payments for dividends of the
enterprise.
Capital Structure Position of Both the Companies
The gross position of debt of the firm Telstra Corporation Limited during the financial year
2017 was registered to be $16,218 million (Telstra.com.au 2018). The debt position
comprises of the borrowings of the firm recorded to be $17,284 million along with net
derivative assets of the firm that stands at $1,066 million. In the regard, it can be said that
Gross debt of the enterprise is somewhat alike to that of the period 2016 ($16,009 million).
This occurs as a consequence of enhancement in debt by $2,215 million during the period
that was being chiefly offset by debt maturities worth $ 2,207 million. Thus, it can be said
that net debt of the firm Telstra has increased by approximately $2821 million compared to
the prior year. In essence, this specific movement is primarily due enhancement in gross debt
of around $209 million and a decline in overall cash as well as cash equivalents of
approximately $2612 million (Telstra.com.au 2018). The gearing ratio of the firm is reported
to be 51.2% and is observed to have increased from 49.3% recorded during the financial year
2016. This reflects greater use of debt in place of equity for financing operations of the
enterprise. Nevertheless, the company is within the comfort zone of the credit metrics.
In the case of the firm TPG, the balance sheet of the firm for the year 2017 reflects that the
net borrowings as well as loans of the firm is registered to be $872.4 million and this figure is
net of costs of borrowing (prepaid). Analysis of the balance sheet statement of the firm
reveals that the gross borrowings of the firm recorded to be $932.5 million comprises of bank

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debt worth $900 million as well as liabilities of lease worth $32.5 million. Considering bank
debt and balance of cash, the net debt of the firm stands at $853.7 million in the financial year
2017. However, the equity of the firm is recorded to be 2399.3 in 2017 and is said to have
enhanced in the period 2017 as compared to the year ago period of 2016. Thus, this firm TPG
is said to have a low gearing ratio reflecting proportionately less debt financing as compared
to debt financing.
Thus, the examination of the debt as well as equity capital that is utilised by both the firm
reveals the fact that Telstra is more dependent on debt financing whereas the management of
TPG is more dependent on equity capital in contrast since the enterprise is striving to
decrease the level of debt capital that is utilized by the enterprise.
Analysis of the statement of Cash Flow
The cash flow announcement reflects overall position of cash of the business
enterprise elucidates comprehensively both inflow as well as outflow of cash for the business.
The cash flow from operating activities of the firm TPG is said to have enhanced to $722.7
million in 2017 as compared to recorded figures of the previous period that stands at $620.4
million in 2016 and roughly $381 million in 2015. The increase in cash inflow from operating
actions is mainly due to increase in generations of cash from diverse operations of the firm
and enhancement in receipts of the firm. Again, there is a net outflow of cash for investing
actions of the firm. However, outflow of cash for different investing actions of the firm is
said to have decreased to the level of (457.1) million during the period 2017 as compared to
the previous period’s figure of (1488.6) million in 2016 and approximately $(265) million in
the year 2015. The decrease in outflows mainly owes to increase in disposal of investments of
the firm TPG. Again, analysis of statement of cash flow shows that there is a net outflow of
cash for financing actions of the firm TPG during the period 2017. However, there has been

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inflow of cash from financing operations of the firm during the previous periods. The outflow
of cash for financing actions of the firm mainly due to increase in issuance of shares, interest
payments as well as higher payments of dividends to all the shareholders of the firm.
2017 2016 2015
Net Cash From Operating Activities 722.7 620.4 381.9
Net cash Used in Investing Activities -457.1 -1488.6 -265.6
Net Cash from financing activities -258.6 884 116.9
2017 2016 2015
-2000
-1500
-1000
-500
0
500
1000
1500
Net Flow of cash
Axis Title
On the other hand, the cash flow from operations of the firm Telstra is recorded to be
$7775 million in the year 2017 as compared to the year ago period’s figure of $8133 million
in 2016. This reflects a significant decline in inflow of cash from operations signifying
decrease in operational efficiency of the firm. However, cash outflow from investing

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activities of the firm Telstra is observed to have increased significantly to $ (4279) million in
2017 in comparison to $(2207) million in 2016. However, cash outflow was significantly
high in the year 2015 and was registered to be $(5692) (Telstra.com.au 2018). This was
mainly due to increase in disbursements of the firm for different intangible assets and
significant increase in capital expends of the corporation. Essentially, total expenditure of the
firm counting investments also increased considerably. Again, an increase in outflow of cash
can be observed for the financing activities of the firm. The outflow of cash for financing
activities is recorded to be $(6104) million in 2017 while the same was registered to be $3777
million in the year 2016. However, the same was registered to be $(6882) million in the year
2015. This increase in outward streams of cash for financing actions of the firm in the year
2017 as compared to previous period is mainly owing to repayments for different borrowings
of the firm and repayment of finance leases.
2017 2016 2015
Net cash provided by operating activities 2.6 7,775 8,133 8,311
Net cash used in investing activities -4,279 -2,207 -5,692
Net cash used in financing activities -6,104 -3,777 -6,882
2017 2016 2015
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
Cash Flow Analysis- Telstra
Corporation Limited
Net cash provided by operating activities 2.6
Net cash used in investing activities
Net cash used in financing activities

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Comparative Evaluation of Three different Components of Statement of
Cash Flow
The cash flow statement of both the companies which are shown in annual reports of
the business are effectively prepared considering the format showing cash from operating
activities, cash from investing activities and cash from financing activities. The cash from
operating activities of the business is shown to be $ 722.7 million in the financial year 2017
whereas the same was recorded to be $620.4 million in the financial year 2016. This
replicates the fact that flow of cash from diverse operations of the enterprise has enhanced
appreciably. The stream of cash from various operational activities of the firm during the year
2015 is observed to be $ 381 million approximately (Telstra.com.au 2018). Based on the
registered data it can be said that the corporation’s operational efficiency has enhanced
immensely and that can be considered to be favourable financial condition of the firm. On the
other hand, the cash flow from operating activities of the firm Telstra is said to have declined
in comparison to the previous period that is 2016.
Again, outflow of cash for different investing actions of the TPG is said to have
decreased to the level of $(457.1) million during the period 2017 as compared to the previous
period’s figure of $(1488.6) million in 2016. This is mainly due to drop in outflows mainly
due to enhancement in disposal of investments of the corporation TPG. Conversely, On the
other hand, for the business concern Telstra, cash outflow from investing activities of the firm
Telstra is observed to have augmented appreciably. It is primarily because of enhancement in
disbursement of the corporation for intangible assets and considerable enhancement in capital
expenditure of the firm.
In case of financing activities, TPG is said to have registered an outflow of cash in the
year 2017 as compared to the previous periods when there were inward stream of cash from

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financing operations in place of outflows. However, in case of Telstra as well, there was an
increase in outward flow of cash for various financing actions of the enterprise for the period
2017.
Insight of Cash flow Statement
The flow of cash from operational functions of the both the firms are observed to be
more for the firm Telstra than TPG. However, the same was recorded to have increased in
comparison to year ago figure for TPG whereas the same declined for Telstra over the time
horizon. Analysis of streams of cash for both the firms reveals that both the enterprises have
considered considerable cash movements associated to purchases of particularly property,
plant as well as equipment along with repayment of diverse loans of the enterprise (Lin et al.
2015). Also, net cash from different investing actions that is created by both the firms is
registered to be negative reflecting (Mohanram et al. 2018). Again, cash generated from
financing actions of the firms entails repayments of loans as well as dividends that are
primarily disbursed by the firm. The net cash generated by the firm TPG is observed to be
greater than the firm Telstra Corporation Limited. TPG has registered a positive inflow of net
cash while the same the same is said to be negative for the firm Telstra during the financial
year 2017.
Analysis of Other Comprehensive Income Statement
As suggested by DeFusco et al. (2015), the statement of comprehensive income
indicates the one that is not reflected in firm’s profit/loss statement. There are different items
that are included and classified to profit/loss necessarily net of tax. This includes variations
in foreign exchange translations, overall loss on particularly hedges of flow of cash, net
alteration in fair value as well as financial assets that are in essence available for sale. For the
company TPG, the overall comprehensive income is registered to be $355.9 million in 2017

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in comparison to $349.9 million registered in the year 2016. On the other hand, the
comprehensive income that is in actual fact attributable to different holders of equity of the
firm Telstra stands at $3881 million in 2017 in comparison to $5627 million recorded during
2016 (Telstra.com.au 2018). This decrease in comprehensive income of the firm Telstra is
mainly due to increase in reserve of foreign currency translation.
Reporting of Comprehensive Items
The items are usually revealed independently and are not necessarily counted in the
profit and loss assertion. This is owing to the fact that the items are of unusual nature and is
not necessarily associated to daily functionalities of the business (Weygandt et al. 2015).
Fundamentally, different items that are essentially reported normally reveal all the actions of
the business particularly during the year and as these specific items cannot be presented in
firm’s profit/loss announcement, this has the need to be presented as Comprehensive
Statement of Income.
Comparative Analysis of Comprehensive Items
As per the annual reports of TPG, the primary sources that have comprehensive
income of the business are gains from exchange on essentially translation of foreign
operations. Essentially, the comprehensive income of the firm is registered to be $ 355.9
million for the period 2017. Analysis of the comprehensive income statement of the firm
shows that the firm has encountered higher differences in mainly foreign exchange
translations and suffered net loss on hedge of stream of cash (Giles et al. 2014). Analysis of
the comprehensive statement of income of Telstra as well reveals the fact that the firm has
actuarial (loss)/gain on particularly defined benefit plans that are necessarily attributable to
different equity holders. However, the comprehensive income for the firm Telstra is

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registered to be $5627 million in 2017 in comparison to $4788 million in 2016
(Telstra.com.au 2018).
For both the cases, it can be hereby stated that in case if these specific items are
incorporated in the profit/loss assertion, then overall net profit of the corporation shall either
enhance or push down overall earnings of business (Ishibashi et al. 2016). It can be hereby
mentioned that overall performance of enterprises need not be founded on comprehensive
aspects that are reflected unconnectedly in the yearly reports of the company. This is mainly
because these items are unusual in nature and might perhaps not be recurring. Also, the
specific items that are represented in firm’s comprehensive income declaration are usually
extraordinary in nature. Thus, the items need not be incorporated in the process of decision-
making process of the firm.
Accounting for the purpose of Income Tax
The income tax expense of the firm reflected for Tesltra is recorded to be $1768
million during the year 2017 and is observed to have increased from previous period’s figure
registered to be $ 1746 during the year 2016.
The income tax expenses of TPG reflected in the yearly report of the firm for the year
2017 is registered to be $ (179.8) million in comparison to the year ago figure of $(129.5)
million in the year 2016.
Effective Rate of Tax
$ $
Particulars TPG Telecom
Limited
Telstra Corporation
Limited

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Income Tax
Expense
1790,00,000 17730,00,000
Earnings Before
Tax
5955,00,000 56470,00,000
Effective Tax
Rate
30.06% 31.40%
The effective rate of tax indicates towards average rate of tax at which firm’s profits
are taxed (Nobes 2014). The table above presents enumeration of the effective tax rate
computation. The effective rate of tax for the firm TPG and Telstra is calculated to be is
30.06%and 31.4%. Thus, it is hereby mentioned that the effective rate of tax of Telstra is
better than TPG and the same is calculated to higher than the other.
Deferred Tax Assets and Liabilities
Deferred tax assets as well as liabilities are an important item of financial assertions
firms that are necessarily registered at the closing period of accounts books. Essentially, these
are said to have influences on overall earnings tax reflected in the profit/loss statement
(Kothari et al. 2015). The deferred tax assets of TPG are reflected to be $56.5 million in 2017
and is said to have increased in comparison to prior period. Again, deferred tax liabilities of
the business is shown to be $ 10.1 million for the FY 2017 and is observed to have
significantly declined as compared to year ago figure.
Conversely, the deferred tax assets of Telstra for the financial year 2017 is observed
to be $ 44 million for the FY 2017and is said to have dropped from $54 million registered a
year ago (). Again, deferred tax liabilities recorded for the firm for the period 2017 stands at
to be $ 1539 million and it is said to have enhanced from 1,493 recorded in previous year.

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The cause behind deferred tax assets otherwise deferred tax liabilities is mainly
temporary divergence and permanent variation between profit and the firm’s tax profit
(Bekaert and Hodrick 2017). Again, yet another cause are tax liabilities/ assets that are
necessarily carried forward from earlier year.
Cash Tax Amount and Rate of Both Company
$ $
Particulars TPG Telecom
Limited
Telstra Corporation
Limited
Income Tax Provison $
117,00,000.00
$ 24,00,000.00
Add: Increase in DTL $
526,00,000.00
$ 460,00,000.00
Less: Increase in DTA $
32,00,000.00
-$ 100,00,000.00
Add: Taxes on Finance
Costs
$
152,70,000.00
$ 1773,00,000.00
Cash Tax amount $
763,70,000.00
$ 2357,00,000.00
EBIT $
5955,00,000.00
$ 62380,00,000.00
Cash Tax Rate 12.82% 3.78%
The cash tax rate calculated for the firm TPG Telecom is higher than Telstra as shown
in the table presented above. In essence, the cash tax rate is said to be 12.82% for TPG and
3.78% for Telstra Corporation for the period 2017.

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Distinction Between Cash Tax Rate and Book Tax Rate
The main difference between cash tax rate and that of book tax rate is primarily based
on time period of enumeration (Zietlow et al. 2018). Cash tax rate is essentially approximated
on present year basis whilst book tax rate is approximated based on current as well as future
period. In essence, for the purpose of enumeration of rate of cash tax, enhancement in
deferred tax liabilities/ tax assets can be taken into account and firm’s burden of interest that
lead to savings of tax can be added back.

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Nobes, C., 2014. International classification of financial reporting. Routledge.

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phones, business phones. [online] Available at: https://www.telstra.com.au/ [Accessed 21
Sep. 2018].
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