Financial Analysis of Telecom Companies

This assignment requires a financial analysis of two Australian telecommunications companies: Telstra Corporation Limited and Macquarie Telecom Group. Students need to calculate and interpret key financial ratios such as liquidity, solvency, profitability, and efficiency ratios for both companies using their annual reports and other relevant data sources. The analysis should compare the performance of these companies, identify strengths and weaknesses, and provide insights into their financial health and future prospects within the Australian telecommunications market.

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Table of Contents
Introduction......................................................................................................................................4
Background of companies...............................................................................................................5
Macquarie Telecom Group..........................................................................................................5
Telstra telecommunication...........................................................................................................5
Top Down Analysis.........................................................................................................................6
Fundamental Analysis.................................................................................................................6
Economic analysis...................................................................................................................7
Industry analysis......................................................................................................................8
Company analysis........................................................................................................................8
Management of the companies................................................................................................9
Financial analysis.....................................................................................................................9
Bottom up analysis..........................................................................................................................9
Telstra Company Ratio analysis................................................................................................10
Macquarie telecom group Ratio analysis...................................................................................12
Summary and Recommendation....................................................................................................15
Referencing....................................................................................................................................16

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Executive Summary
This report is organized with the aim of making the readers aware of the financial market of
Australia for betterment of the investment decisions. For successful completion of this report,
telecommunication industry has been chosen. In telecommunication sector, two companies have
been selected in this report i.e. Macquarie Telecom Group and Telstra Telecommunication of
Australia. These both companies are operating their business all over the Australia. Both
companies are leading brands of Australia. Further, fundamental analysis has proved helpful to
understand the economic, industry and company situation in the market. From economic
analysis, it has been observed that the Australian economy is performing very well at global
level. While from the industry analysis, it has been found out that telecommunication sector of
Australia is a good sector for investment. Additionally, company analysis has helped to evaluate
and compare financial performance of chosen companies. Therefore, from study of this report,
investors would be able to take better investment decision for investing their money in share-
market of Australia.

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Introduction
This report is prepared for enhancing the knowledge of financial market of Australia for taking
the investing decisions related to stock market in better way. For completion of this report, two
companies are selected such as Macquarie Telecom Group and Telstra Telecommunication. This
report will focus on conducting top down and bottom up analysis for better understanding of the
impact of economic factors on current economic growth of Australia and industry performance.
Top down analysis is helpful to understand the economic conditions of a country. Industry and
company analysis are also helpful for making the better investment decisions in the stock market.
Moreover, bottom up analysis is beneficial for understanding the financial situations of both the
companies. Investors of companies focus on analysis of the company value and competitive
advantages to predict future performance of its stock price. For this, various financial ratios have
been calculated and analyzed like current ratio, debt ratio, liquidity ratio, earning per share etc
for both the companies.

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Background of Companies
Macquarie Telecom Group
The journey of Macquarie telecom group was started as an entrepreneur that has made difference
between customer services and deregulated telecom industry. This company is dominated by the
monopolistic competition with Telstra whose customer crush is very large. Whenever Macquarie
has delayed adoption of the new technologies, it has affected profits of the company. Macquarie
has fought with the deregulation by cutting down the prices and introducing new technologies for
the customers (Macquarie, 2017). The main aim of this company is to focus only on one segment
of the customers and provide them the better telecom services. Our customers are always
important for us to gain success within the market or industry.
Macquarie Company is dealing in three types of businesses such as Macquarie telecom,
Macquarie services and Macquarie government. In Macquarie Telecom, it provides the several
telecom services in the market like data, voice, mobile and collocation services. It was the first
business of Macquarie group. Under Macquarie services, the company is dealing with IT
specialist centre, cloud and dedicated server (Peter, 2012). IT related complaints come in this
organisation. Lastly, Macquarie government is dealing with the cyber security, secure cloud and
data centre services. It has worked with Australian defence and intelligence agencies.
Telstra Telecommunication
Telstra is a leading telecommunication and technology company of Australia. It provides the full
ranges of services related to telecom sector across Australia. Business mission of Telstra is to
create a connection in the future for everybody. The core values of Telstra telecommunication
include care, trust, togetherness, simple and courage within employees within the organisation.
Further, vision of company is to stay connected with communities, government, business and

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individuals (Telstra.com, 2017). The company has adopted various strategies to improve the
customer experience, drive value and growth from the core of business for sustainable growth of
the business.
The company is providing better connection to customers, improving their lifestyle, and working
through a better connection. It provides services to customers within Australia and outside of
Australia also. It is the largest and fastest mobile network in all over the Australia.
Top Down Analysis
Fundamental Analysis
Fundamental analysis is method of scientific analysis, as it tries to estimate the intrinsic worth of
the company. It efficiently analyses the basic fundamental criteria of the company like sales,
profits and balance sheet elements. It pays deep attention to a company’s debt-equity ratio,
earning per share, dividend payout, profit margins, interest, asset and dividend coverage, sales
penetration, market share, product and market innovation and the promoters record of
accomplishment. It is a conservative and non-speculative approach for valuating equity shares on
value-based methods. It consists of three phases such as economic analysis, industry analysis and
company analysis (Matt, 2016). In fundamental analysis, a study of comparative balance sheet,
profit & loss account will be conducted for each company.
Economic Analysis
From economic analysis, it has been determined that the economic growth of Australia has
declined slowly. Economy of Australia has seen significant fall in fixed and public investment of
the stock market in Australian exchange market. In economic analysis has considered the various
factors that include the current changes in interest rate, foreign exchange rate and GDP. The
current GDP (Gross domestic product) per capita income of Australia is showing an increasing

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trend from past years. For example, the per capita GDP of Australia has increased from 50952
US dollar in 2007 to 55670 US dollar (Trading Economics, 2017). The growth rate of GDP per
capita income is showing a scope for sustainable business growth for both telecom companies
across Australia (Nlkiforos, 2012). While, current exchange rate of 1 AUD is 0.80 US dollar in
2017. It means the value of Australian dollar against US dollar is good. But as compared to past
years, the exchange value of Australian dollar against US dollar is at very lower level (i.e. 0.80
USD in 2017) than the value in 2011 (i.e. 1.09960 USD) (XE, 2017). This can be a negative
factor for attraction of Australian economy for foreign investors. But, from analysis of GDP per
capita of Australia, it can be said that consumers of Australia have the ability to pay for services
offered by both the chosen companies.
Moreover, the depreciation of Australian dollar has a positive effect on the export of goods. For
example, companies that have export trade in US regions will enjoy competitive advantages. But
at the same time, price of import of goods, foreign investment and overseas of travel shall be
affected negatively. Additionally, the rate of interest in Australia is recorded at historical low
level as on 5th September 2017 i.e. 1.5% (Trading Economics, 2017). Lower rate of interest is
beneficial for the organizations, as they will be able to get bank loan at lower rate.
Industry analysis
Industry analysis is helpful for understanding the operating activities, financial key element and
development of mobile, broadband and fixed line in sector of telecommunication industry.
Further, telecommunication companies have trained their staffs for handling dynamic changes
that occur in the market (Riaz, 2016). These changes include new technologies, low margin and
competition in the traditional market within the Australia. Many developments are occurring in

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the telecommunication industry since last five years (i.e. from 2011 to 2015). These
developments are affecting the competitive advantages of the telecommunication sector.
These developments are creating pressure on the two Tier mobiles service providers to achieve
the target and maintain the market share price in the Australia. Another development of telecom
sector is growth in consumer demands for data services. Increasing demand of mobile data
services will affect quality of services in the telecom sector. Meanwhile, consumers’ protection
is also considered as important by the telecommunication sector of Australia (ACC report, 2016).
Telecommunications operators are more focused on providing better services to the customers
with the help of bringing in transparency in their services, bringing in new technologies and
promoting the innovated product in the market.
Company Analysis
This analysis is helpful for investors to analyze different resources and capabilities within each
company. It is helpful to identify companies that are more capable for creating and maintaining
competitive advantages in the market of Australia. This analysis is more focused on management
and financial situation of each company in telecommunication sector.
Management of the Companies
The management of both companies are very efficient and effective and focused on customer
needs and wants. Investors might look at management to assess its capabilities, strengths and
weaknesses of the companies so as to help investors in making better investment decisions.
Financial analysis
This is the second step of company analysis. In this, investors analyze the financial statements of
both companies, which is helpful to take the better investment decisions (Wang, 2015). The
Macquarie telecom group Company is more profitable as compared to Telstra communication.

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Macquarie captures higher market shares in stock market of Australia, because dividend ratio of
Macquarie telecom group is high as compared to Telstra. Debt ratio of both companies is slightly
different with each other, which affects the share price of the stock market in (ASX). For
investment purpose, Macquarie telecom group will prove to be more profitable as compared to
Telstra telecom.
Bottom-up Analysis
A bottom-up investigation approach focuses on analysis of individual stocks of the companies. In
bottom-up analysis, the investors focus on attention of the specific company rather than on the
industry in which that company operates the business, or country economy as an Australian
market (Eugene and Philip, 2012). Different ratios are calculated for both the companies for
understanding the company value in the market. The calculation and interpretation of different
ratios for both the chosen companies is as below:
Telstra Company Ratio analysis
From the annual report information that data related to the Telstra’s financial performance is
evaluated on the basis of various ratios. Different kinds of ratio that have been calculated and
analyzed are the profitability ratio, liquidity ratio, capital structure ratio and market performance
ratio for the business in two consecutive years as 2016 and 2017.
Ratio Analysis for Telstra Business
Ratio Name Formula 2016 2017
Current Ratio Current Asset/Current liabilities 1.02 0.86
Current Asset 9340 7,862
Current Liabilities 9188 9159
Quick Ratio Current Asset-Inventories /Current Liabilities 0.91 0.76

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Current Asset 8357 7,862
Inventories 557 893
Current Liabilities 9188 9159
Gross Profit Margin Gross Profit /Sales 0.54 0.48
Gross Profit 10465 10679
Sales 22685 22134
Profit Margin Profit Before Tax/Sales 0.24 0.255
Profit Before Tax 7648 5647
Sales 22685 22134
Debt Ratio Total Liabilities/Total Assets 0.65 0.57
Total Liabilities 27379 24573
Total Assets 42133 43286
Debt to Equity
Ratio
Total Liabilities/Total Equity 1.72 1.6877
Total Liabilities 27379 24573
Total Equity 15907 14560
Price Earnings
Ratio
Market Price Per Share/Earnings Per Share 2.22 1.12
Market Price Per Share 5.56 3.65
Earnings Per Share 2.5 3.25
Dividend Payout Dividend Per Share/ Earnings Per Share 1.24 0.95

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Ratio
Dividend Per Share 3.1 3.1
Earnings Per Share 2.5 3.25
Interpretation:
On the basis of above interpretation of data for the year 2016 and 2017, the current ratio is
determined as 1.02 and 0.86 respectively which is moved towards negative, it intensify that the
company’s ability is getting down in order to paying the short term debts or obligation that arises
over the company. As company is not able to maintain the asset and liability ration through using
the market securities, cash and receivables. Along with this the, quick ratio for the company is
measured as 0.91 and 0.76 which is also indicating that the company’s strength is getting lower
to pay the quick arises liabilities over the business due to its operating activities. These are
delivering the negative performance of company over the year 2016 and 2017. At the same time,
it is stated that the current ratios are delivering the information about the operating cycle of
Telstra buisness. Quick ratio is also not enough to respond the current liabilities over the most
liquid assets (Brigham and Houston, 2012).
From the analysis of profitability ratio which indicates the return on investment over the
operational activities of business. Gross profit margin ratio is calculated as 0.54 and 0.48 for the
year 2016 and 2017 respectively, it means that the company’s gross margin has decrease as
compare to the current year. It indicates that the financial operation of business is generating
higher expenses so that it also impacts on the net profitability of business. Furthermore, Profit
margin for Telstra business has also increased from 0.24 to 0.25 in year 2016 and 2017 which
strengthen the financial position of business good because long term stability for business is

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depends on the generation of profit as it also an investor luring proficiency of business.
Profitability is crucial important to measure the efficiency of organization that declare strong
capabilities of company (Katsioloudes, 2012). As after check, the above table can be said that the
efficiency of Telstra Company increased as compare to last year.
Over the measurement of debt ratio which inferences that the debt’s on company’s as liabilities
are reducing over the year 2016 to 2017 by 0.65 to 0.57, which is better for the company to
attract the potential investors. Further, debt to equity ratio is also decreasing from 1.72 to 1.68
which states that the business liabilities over the equity are lower from last financial year. Both
of the considerations are getting which is good to reduce the liabilities over the business. Over
the interpretation of price earnings ratio, it can be said that the performance of business is also
decreasing from 2.22 to 1.12 it is not good for the shareholder and business as well because it
influence the brand image of company in perspective market. It is also detained that the market
price for shares are reducing but the earnings per share is increasing, so the overall impact laid
down the business customer generation strategy or concerned market capabilities. Along with
this, dividend payout ratio for the business is also decreasing from 1.24 to 0.95 from the year
2016 to 2017 which is also negative for the Telstra to gain the competitive advantages in
Australian market that would also hamper the attraction point of perspective shareholder and
investors.
Macquarie telecom group Ratio analysis
Ratio Analysis for Macquarie Telecom Group
Ratio Name Formula 2016 2017
Current Ratio Current Asset/Current liabilities 1.78 1.33
Current Asset 57 52

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Current Liabilities 32 39
Quick Ratio Current Asset-Inventories /Current Liabilities 1.53 1.08
Current Asset 57 52
Inventories 8 10
Current Liabilities 32 39
Gross Profit Margin Gross Profit /Sales 1 1
Gross Profit 203 220
Sales 203 220
Profit Margin Profit Before Tax/Sales 0.163 0.19
Profit Before Tax 33 41
Sales 203 220
Debt Ratio Total Liabilities/Total Assets 0.92 0.91
Total Liabilities 181.1 165.6
Total Assets 196.8 182.9
Debt to Equity Ratio Total Liabilities/Total Equity 2.63 2.5524
Total Liabilities 181.1 165.6
Total Equity 68.79 64.88
Price Earnings Ratio Market Price Per Share/Earnings Per Share 0.17 0.34
Market Price Per Share 11.5 14.54
Earnings Per Share 69.28 42.42
Dividend Payout
Ratio
Dividend Per Share/ Earnings Per Share 49.19 21.21
Dividend Per Share 0.71 0.5

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Earnings Per Share 69.28 42.42
Interpretation:
On the basis of above information, it can be stated that the current ratio is decreasing from 1.78
to 1.33 which impacts the financial ability of company to pay the short term and long term
liabilities over the business but it is higher that the Telstra’s financial performance. Along with
this, quick ratio is also getting down by the 1.53 to 1.08 for the year 2016 to 2017 which is also
not good for the business to pay the short term debt imposed from operating activities of
business. Over the profitability ratio, it can be interpreted that the gross profit margin for
company is 1 and 1 because of enough information about the financial operation of business.
On the other hand, profit margin for company is decreasing from 2016 to 2017 which is better
for the company to tap the market by delivering higher profit to the investors and shareholders. It
is also stated that the debt ratio is not changing from two consecutive years; it is detained as 0.92
to 0.91. Along with this, the debt to equity ratio is also not much changed which states that
liabilities are in control with reference to assets and debts for business.
Moreover, price earnings ratio for the business is also measured as 0.17 to 0.34 which is better
for the company to capture the higher profit generation policy of business. On the other hand, the
dividend payout ratio is decreasing which is not better for the business to gain higher attraction
of shareholders.

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Summary and Recommendation
From the analysis of results of different ratios, it can be said to investors that financially both the
organizations are performing well. It would be better for the investors to invest in Macquarie
telecom group as compared to Telstra. It is because the dividend payout ratio of this company is
better. At the same time, the financial performance of Macquarie telecom group is also good. For
example, the profit margin ratio of this company has increased from 0.16 in 2016 to 0.19 in
2017. This indicates increase in profitability of company. So, there are chances that investors
might get good return in coming years over their investment.

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