Company Performance Analysis for Telstra Corporation Limited

This report provides a performance evaluation of Telstra Corporation Limited using various tools and techniques such as financial analysis, non-current asset analysis, scenario analysis, and recommendations. The report includes a detailed analysis of the company's liquidity and capital structure, non-current asset analysis, and scenario analysis to identify the best and worst-case scenarios. The report also provides recommendations for the company's share or bond issuance.

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Subject Finance for business
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Date: Staff Name Signature
Subject: Finance for Business
Subject Code: HI5002
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Shanal kapadia Emv24464
Mukta Regmi OED2358
jasmeet kaur GRO3009
Samia Saleem DMA 3578
siji balla Ktm2021
Melbourne - 185 Spring Street, Melbourne Australia 3000, Telephone: [phone], Facsimile: [phone]
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Holmes Commercial Colleges (Melbourne) Ltd ABN 50 005 085 585 Email: [e-mail] Website: www.holmes.edu.au
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Abstract
Telstra Corporation Limited is involved in the telecommunication services and the main product
which is provided by it has been taken into account. In the report, there is the performance
evaluation which is made for the company and in that several tools and techniques have been
taken into account. There is the identification of the changes in the liquidity and capital structure
and on the basis that the decisions will be taken so that the improvement can be made possible.
The depreciation for the non-current assets is made on the straight-line method and the same has
been considered in the report. There is the identification of the best and worst-case scenarios and
in that selling price of the product is considered to be the sensitive element and that the decisions
will be affected. The share price will be evaluated and for that, there is the identification of the
same and the movements are represented with the help of graphs. The trend in the PE ratio is
also considered and there is the proper evaluation which is made for all of them.
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Table of Contents
Abstract............................................................................................................................................3
Introduction......................................................................................................................................5
Financial analysis.............................................................................................................................5
Service provided by the company................................................................................................5
Performance ratios.......................................................................................................................5
Non-current asset analysis...........................................................................................................8
Scenario analysis.........................................................................................................................9
Share or bond issuance..............................................................................................................10
PE ratio and share price movement...........................................................................................11
Recommendations..........................................................................................................................13
Conclusion.....................................................................................................................................13
References......................................................................................................................................14
Appendix........................................................................................................................................16
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Introduction
The decision making in the business is performed with the help of the inclusion of all the
information which is available with the company. In this, there is the consideration of the
financial aspects also and for that financial analysis is undertaken. This helps in performance
analysis and there will be proper results which will be obtained. The given analysis is made on
the Telstra Corporation limited and in that the ratio analysis will be performed for the company.
The non-current assets analysis will be made in which all the details including the depreciation
method will be covered. The sensitivity of the various options will be considered and there will
be the inclusion of the best and worst-case scenarios. The share issue will be considered and in
that, all of the details in relation to the issue which is made will be taken into account. The price
to earnings ratios will be derived and with that, the change in the share price will be also be
ascertained.
Financial analysis
Service provided by the company
Telstra Corporation Limited is the company which is involved in technology and
telecommunication sector and involves all the products and services in relation to the same. The
company deals in various mobile phones and they are provided to the consumers by identifying
their needs and requirements. Various options are given to them and the price which will be best
suited to them will be taken into account. All the other services in relation to the mobile phones
are also provided such as the SIM plans (Telstra Corporation limited, 2019). They are also
provided on the basis of the need and the change is made in them according to the needs by
upgrading them to an efficient level. This helps the company in maintaining the position in the
market as it provides all the services on a combined basis which makes it easy for the consumers.
As this service is not provided by others so the company attains the additional benefit over
others.
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Performance ratios
The performance analysis involves various aspects and they need to be taken into account to
improve the results which are obtained from the business. There will be consideration of the
information which is available and with that, the other areas will also be covered (Gonzalez et
al., 2012). There will be the use of the ratios in which the comparison will be made among the
various elements and they will help in determining the correct and appropriate position of the
business. In this technique, the consideration will be given to the level of the liquidity which is
maintained and with that the evaluation of the capital structure which is maintained will also be
incorporated.
Capital structure ratios
The business is required to manage the funds in such a manner that there is the best capital
structure which is formulated. In that, the ratio of the debt and capital shall be balanced so that
business can deal with the outcomes which will be derived. The ratios will be calculated and in
that, all of the assets which are included will be considered together with the liabilities and
equity which is present in the company (Kaur and Dhaliwal, 2014). The company is required to
meet with the expenses which are incurred in respect of the funds and so they shall be arranged
in such a manner that least amount is spent by the company.
Particulars Formula 2017 2018 2019
Debt ratio Total liabilities/total
assets
0.65 0.65 0.66
Debt to equity Total liabilities/total
equity
1.89 1.86 1.93
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2017 2018 2019
0.00
0.50
1.00
1.50
2.00
2.50
0.65 0.65 0.66
Debt ratio
Linear (Debt ratio)
Debt to equity
Linear (Debt to equity)
The changes which are taking place in the debt and equity of the company has been analyzed
with the help of the calculated ratios. In that, it is determined that there is a slight increase in the
ratios which is identified (Telstra Corporation limited, 2018). This is due to the several
fluctuations which are taking place and they are affecting the position of the company. The debt
balance of the company is high in comparison to the equity and there shall be a reduction in the
same as the cost of the company is also affected in an adverse manner by this increase.
Liquidity ratios
The company is required to manage all of its assets and liabilities in such manner that they are
able to meet with the on the required time. The liquidity is the aspect by which the ability of the
company will be determined in relation to the meeting of the liabilities. This will be considering
the current assets and liabilities which are involved (Shriwastava, 2013). It is identified that there
shall be the maintenance of the current ratio at 2 which is considered as the standard ratio and
will be ensuring that the company will meet with the expenses accurately.
Particulars Formula 2017 2018 2019
Current ratio Current assets/current
liabilities
0.86 0.80 0.76
Quick ratio Quick assets/Current
liabilities
0.70 0.65 0.67
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2017 2018 2019
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
Current ratio
Linear (Current ratio)
Quick ratio
Linear (Quick ratio)
The current assets and liabilities of the company are analyzed and in that it is considered that
there is a downward trend which is involved. The decline is made in 2018 and then again the rise
is there in 2019 (Telstra Corporation limited, 2018). The ratio which is calculated is much below
the required level and so the company will be making the changes in such manner that the same
is maintained. The assets of the company will be required to be increased and by that, the
increase in the ratio will be attained.
Non-current asset analysis
The provision of the products and services to the consumers require the use of the assets which
are maintained by the company. There are various aspects which need to be considered in
relation to the same such as the policies and the method of depreciation which is applicable
(Obstfeld, 2012). In the process of the analyzation, there will be consideration of the changes
which are taking place in the past few years. There are various assets which are involved and
consideration will be given to all of them in an effective manner.
In the case of the Telstra Corporation, there is the change which is identified and the balance of
the non-current assets is $34271 in 2017 which is increasing to $35793 in 2018. This is because
of the investments which are made by the company. The balance has further declined in 2019
and reached to $35286 (Telstra Corporation limited, 2018). The company is providing the
depreciation on the various assets such as the plant and property and in that straight-line method
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has been taken into use. There is the determination of the carrying amount by reduction of the
depreciation from the cost of the asset. This will be the value which is represented in the balance
sheet of the company. In the determination of the operating cash flow, the depreciation is added
back by the company. The expense is deducting the calculation of the net profit so that the tax
benefit can be availed and in the calculation of the operating cash flows which are made by the
company there is the adding back of the amount.
Scenario analysis
The investments are made by the company in various projects and for that several options are
available and it is required that there shall be a proper evaluation of all the available aspects.
There are various elements which need to be taken into consideration and in that the company
will be required to ascertain the impact which will be made on the final results (Spiecker and
Weber, 2014). For the ascertainment of the same, there will be the use of the net present value
which will be made. In that, the results will be derived by incorporating all the factors which are
changing and this will be providing the results which will be attained by the company after
considering the changes. There are several changes which take place and all of them will be
involved in the proper decision making. The NPV will be changing at all the levels and the
change in all the cases will be analyzed.
The comparison will be made among all the options which are available and with that, there will
be a derivation of the most sensitive element. This is the part which will be affecting the results
of the business the most and so shall be considered with due care (Wanyoike, 2017). The
calculations are made in the given case by incorporating the changes that are taking place in the
selling price, variable cost, sales unit, and fixed cost. The calculations are provided in the
appendix and the final results are as follows.
Worst case options:
Particulars Original Option
1
Option 2 Option 3 Option
4
NPV 6592661 4679131 1808836 3722366 6380047
% Change in NPV (A) -29.025 -72.563 -43.538 -3.225
Input which is changing Sales
units
selling
price
variable
cost
fixed
cost
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% change in Input (B) 20 20 20 22.22
Sensitivity (A/B) -1.4513 -3.6281 -2.1769 -0.1451
Best case options
Particulars Original Option
1
Option 2 Option 3 Option 4
NPV 6592661 8506191 11376487 9462956 6805275.76
% Change in NPV (A) 29.0252 72.56288 43.5377 3.2250171
Input which is changing Sales
units
selling
price
variable
cost
fixed cost
% change in Input (B) 20 20 20 22.22
Sensitivity (A/B) 1.4513 3.6281 2.1769 0.1451
It has been analyzed from the calculation in the appendix that there are various variables which
are involved and they are affecting the net present value of the project. The proper involvement
of them is made in the calculation and the impact which is made is represented in the table
above. It can be noted that out of all the variables the highest impact is made by the selling price
which is involved in the business (Slegers et al., 2013). With the change in the same, the net
present value is affected the most and so in the making of the decision it will be given the due
consideration and all the changes which are taking place in that will be considered on a priority
basis. The best decision will be made with the help of this and it will be providing the company
with the best outcomes. There is the consideration of the worst and best scenarios and the impact
will also be made accordingly. If the decrease is made in selling price then the NPV will be
lowest and if an increase is made then the highest NPV will be attained.
Share or bond issuance
In the year there are the retention rights which are provided by the company. In this, the one-off
retention rights have been issued to all the eligible employees who are involved in the company.
There are the outstanding rights which are included in the company on 30 June 2019 in which
13032150 rights were involved (Telstra Corporation limited, 2019). The allocation of the
retention rights has been made in November 2018 which will be considered in two parts in which
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one will be on the 31 December 2019 and another on 30 June 2021. The issue will be raising the
equity capital in the company and that will be used for the various purposes in the business.
PE ratio and share price movement
The price to earnings ratio is used in the business by which the comparison will be made and that
will be defining the position of the business. In this, the changes which are taking place in the
share price will be taken into consideration. There are various changes which are taking place in
the past years which will be analyzed and there will be the inclusion of the same in the
calculation of the ratios (Sun, 2012). The change in the ratio is taking place in the trend which is
involved will be identified.
The change which is there in the PE ratio and the share price will be considered and compared
with one another. The trend which is involved in them will be considered and the relation that is
there among them is to be taken into account.
The calculation will be made in this respect and for that, the data will be collected. There will be
ascertainment of the share price and the earnings will also be determined. With the help of them,
the ratio will be calculated and the same has been shown below:
Particulars 2017 2018 2019
MPS 3.6504 2.6928 3.9169
EPS 0.325 0.3 0.18
Price-earnings
ratio
11.23 8.98 21.76
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2017 2018 2019
0.00
5.00
10.00
15.00
20.00
25.00
Price earnings ratio
Price earnings ratio
Linear (Price earnings
ratio)
Share price movement
(Source: Market index, 2019)
The movements which are taking place in the share price and ratio have been ascertained. In that,
there is the consideration of all the aspects which are responsible. The share price of the
company is fluctuating and in that there are various movements which are taking place. The
decline is made in 2018 and then the rise is taking place in 2019 (Yahoo finance, 2019). The
calculation of the PE ratio is made by the help of that and in that also the movement is taking
place. The same change is taking place in the ratio which is there in the share price. Due to this it
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has been identified to be the convergent relation that exists among them and will be maintained
among them. The decline was more in 2018 and then the rise is taking place in an appropriate
manner and by that the company will be able to maintain the value of the business in the market.
Recommendations
With the help of the evaluation which is made, there are various results which are made. In that,
there is the consideration of the various aspects and by that, the findings have been made. The
capital structure has been analyzed and in that there is a need for the balance to be maintained.
There will be an increase which will be made in the equity funds and for that the shares will be
issued. The debt will be reduced and the ratio will be declining with the help of this and this will
be making the adequate capital structure. The liquidity of the company is weak and it is required
to be improved. There will be an addition which will be made in the current assets and by that
liquidity will be increased and that will help the company in dealing in a proper manner. There
will be proper payments which will be made to all the payables and the liabilities will be met on
time by the company.
Conclusion
The report has been made in relation to the Telstra Corporation limited and for that the analysis
has been made. In that, there has been the determination of the service which is provided by the
company and then the ratio has also been calculated. The performance has been evaluated and
for that, the proper calculations have been made by which the company is making effective
decisions. All of the changes which are taking place in the non-current assets of the company
have been determined and with that, there is the consideration of the method of the depreciation
which has been undertaken by the company in relation to the various assets. The operating cash
is also determined after considering the depreciation and all of that has been taken into account.
There is the calculation which is made for the determination of the sensitivity and in that the
available scenarios have been taken into account. There is the determination of the factor which
is most sensitive and will be affecting the decisions in a great manner. The shares have been
issued under a scheme and the complete information in that respect has been gained. The share
price movement is considered and with that, the changes in the ratio have also been considered.
There is the evaluation of both in which the relation among them is taken into account.
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References
Gonzalez, N., Miers, C., Redigolo, F., Simplicio, M., Carvalho, T., Näslund, M. and Pourzandi,
M. (2012) A quantitative analysis of current security concerns and solutions for cloud
computing. Journal of Cloud Computing: Advances, Systems and Applications, 1(1), p.11.
Kaur, H. and Dhaliwal, N.K. (2014) Financial Analysis of Factoring Companies in India: A
Study of SBI Global Factors and Canbank Factors. International Journal of Research in
Management, Science & Technology, 2(1), pp.30-34.
Market index. (2019) Telstra Corporation (TLS). [Online] Available at:
https://www.marketindex.com.au/asx/tls [Accessed 23 September 2019]
Obstfeld, M. (2012) Does the current account still matter?. American Economic Review, 102(3),
pp.1-23.
Shriwastava, S. (2013) Recent Global Financial Management Practices: Journey from Survival
of the Fittest to The Greatest. Anusandhanika, 5(1/2), p.242.
Slegers, P.M., Van Beveren, P.J.M., Wijffels, R.H., Van Straten, G. and Van Boxtel, A.J.B.
(2013) Scenario analysis of large scale algae production in tubular photobioreactors. Applied
energy, 105, pp.395-406.
Spiecker, S. and Weber, C. (2014) The future of the European electricity system and the impact
of fluctuating renewable energy–A scenario analysis. Energy Policy, 65, pp.185-197.
Sun, L. (2012) Information content of PE ratio, price-to-book ratio and firm size in predicting
equity returns. In International Conference on Innovation and Information Management, 36, pp.
262-267.
Telstra Corporation limited. (2018) Annual report. [Online] Available at:
https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20F/2018-Annual-
Report.pdf [Accessed 23 September 2019]
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Telstra Corporation limited. (2019) Annual report. [Online] Available at:
https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20F/2019-Annual-
Report.PDF [Accessed 23 September 2019]
Telstra Corporation limited. (2019) Mobile phones. [Online] Available at:
https://www.telstra.com.au/mobile-phones [Accessed 23 September 2019]
Wanyoike, J.E. (2017) Accounts receivable management practices and financial performance of
manufacturing firms in Kenya. Academic Research Insight Journal, 1(1), pp.1-15.
Yahoo finance. (2019) Telstra Corporation Limited (TLS.AX). [Online] Available at:
https://au.finance.yahoo.com/quote/TLS.AX/history?
period1=1411410600&period2=1569177000&interval=1mo&filter=history&frequency=1mo
[Accessed 23 September 2019]
1.
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Appendix
1. Worst cases:
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Best case options
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