Financial and Economic Interpretation and Communication of Telstra Corporation Limited

This report undertakes financial and non-financial analysis of Telstra Corporation Limited to facilitate investment decision of potential investors. The financial analysis is undertaken with the use of information extracted from the financial statement of the company while non-financial information is gained form the annual reports and other relevant materials containing the information. The evaluation of performance of Telstra is undertaken to facilitate the investment decision of a potential investor. The report analyzes the key financial performance indicators of Telstra and interprets the key changes in the financial performance indicators. The report concludes that the company is performing financially sound and also the non-financial information predicts the sustaining growth of the company.

Financial and Economic Interpretation and Communication
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Resource A
Executive Summary
This report is developed to undertake financial and non-financial analysis of an ASX
listed entity, that is, Telstra Corporation Limited. The financial analysis is undertaken with
the use of information extracted from the financial statement of the company while noon-
financial information is gained form the annual reports and other relevant materials
containing the information. The evaluation of performance of Telstra is undertaken to
facilitate the investment decision of a potential investor. Telstra Corporation Limited is a
telecommunication giant in Australia involved in providing diverse range of
telecommunication services such as mobile, broadband and voice services (About Us:
Telstra, 2018).
Analysis
Key Measures that shows the financial performance of Telstra
Particulars FY17 FY16
$M $M
Total Revenue $ 26,013.00 $ 25,911.00
Operating Expenses $ 17,558.00 $ 16,600.00
EBIT $ 6,238.00 $ 6,310.00
$ 3,874.00 $ 5,849.00
Earnings Per share $ 0.33 $ 0.32
$ 3,496.00 $ 5,926.00
Current Assets $ 7,862.00 $ 9,340.00
Current Liabilities $ 9,159.00 $ 9,188.00
Non Current Assets $ 34,271.00 $ 33,946.00
Long term debts $ 18,414.00 $ 18,191.00
Shareholder's equity $ 14,560.00 $ 15,907.00
Cash Flow from operating activity $ 7,775.00 $ 8,133.00
Total Capital Expenditure $ 5,321.00 $ 4,194.00
$ (2,608.00) $ 2,149.00
Profit for the period from continuing
and discontinued operations
Free cashflow from continuing and
discontinued operations
Net increase/(decrease) in cash and
cash equivalents
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Earnings Per share $ 0.33 $ 0.32
$ 3,496.00 $ 5,926.00
Current Assets $ 7,862.00 $ 9,340.00
Current Liabilities $ 9,159.00 $ 9,188.00
Non Current Assets $ 34,271.00 $ 33,946.00
Long term debts $ 18,414.00 $ 18,191.00
Shareholder's equity $ 14,560.00 $ 15,907.00
Cash Flow from operating activity $ 7,775.00 $ 8,133.00
Total Capital Expenditure $ 5,321.00 $ 4,194.00
$ (2,608.00) $ 2,149.00
Free cashflow from continuing and
discontinued operations
Net increase/(decrease) in cash and
cash equivalents
The analysis of the financial performance of Telstra over the last two years has
revealed its financial health in the year 2017 has been deteriorated as compared to the
previous year. The fact can be supported from the key financial results of its major financial
items in the financial year 2017. There is large decline in the net profitability, asset turnover
and liquidity position of the company in the year 2017 as compared to the previous year. The
decline in all these ratios indicates that the company cash inflows has decreased due to its
inefficiency in asset utilization and realizing sales from the current asset base. There is also
changes in its capital structure in the year 2017 due to lower debt equity ratio as compared to
the previous year. This further indicates that the company still need to develop an optima
capital structure having an adequate proportion of debt and equity that is bae to realize larger
returns by achieving operational efficiency. The declining cash inflows from its operational
activities is largely on account of its inefficiency in cash management (Telstra: Annual
Report, 2017).
Interpretation
Key Changes in the Financial Performance Indicators
The major reason that can be stated in regard of declined financial performance of
Telstra in the year 2017 as compared to the previous years is lowering of tariff rates within
Australia. This has caused the company to cause a reduction in its rates of calling for
maintaining its competitive position in the telecommunication market. This has resulted in a
downfall of the key financial performance indicators of the company in the recent years. In
addition to this, the company at present is not able to properly manage its liquidity resources
effectively. This is because the major reason for the reduced financial growth pf the company
in recent times is its inability to realize cash from its operational activities. The company is
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aiming to expand its business portfolio but its ineffectiveness to properly manage and realize
cash is negatively impacting its long-term strategy of expanding its business portfolio. It is
presently focusing on implement a divided cut that can negatively impact the share price of
the company in future context. Also, it has to meet competitive pressure and the challenges
pertaining in relation to regulations imposed by the government on telecommunication
industry to sustain its financial performance over the coming financial years (Papadopoulos,
2011).
Resource B: Non-Financial Information
The major business section of Telstra Corporation Limited are Telstra retail, Telstra
Wholesale, Telstra Operations and Global Enterprise and Services. The company mainly
carried out its operations across Australia and New Zealand. The changes in the financial
results of the company in the section retail have declined in the year 2017 as compared to the
previous year. The financial results in the section global enterprise, Telstra Wholesale and
Telstra Operations have increased in the year 2017 in comparison to the previous year. The
increasing tend of the telecommunication industry in Australia is further supported by other
sources from newspaper and other online articles. The current business strategy of Telstra is
to promote its global expansion and becoming a major provider of telecommunication
services across the world. The company is aiming to achieve its corporate strategy by
providing both fixed and flexible plans to the customers and achieving a global competitive
position in the telecommunication sector (Telstra: Annual Report, 2017).
The company aims to maintain a diverse employee base having varying skills and
competencies. The employees need to be technologically competent and possessing
educational qualifications in the electronic market for meeting their job requirement
adequately. The increasing demand of the mobile services among the target market of the
company presents a huge market potential for the telecommunication company (Cision News,
2017). The company has maintained a senior management team possessing rich experience of
telecommunication industry and high educational qualifications for carrying out their job
roles efficiently. The increasing demand of mobile and internet services will support the long-
term growth of the company in future context (Australia’s telecommunications market
structure, 2015). There has been increasing trend of remuneration for the highest earners such
as senior executive and other executive members in the company at present in comparison to
the previous years. The wages provided by the company is higher as compared to its
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competitor’s in the telecommunication sector of Australia. The company is publicly traded
and therefore owned by shareholders while the management structure consists of Board of
Directors and the management team. The management personnel’s are provided share
entitlement scheme in addition to the wages on the basis of achievement of determined
targets (Leadership Team: Telstra, 2018).
Conclusion
It is concluded from the overall report that the company is performing financially
sound and also the non-financial information predicts the sustaining growth of the company.
However, its performance has declined in the recent year of 2017 in comparison to the
previous year but it is expected to deliver good financial results in the future context as the
management is planning to implement key growth strategies for driving its performance. The
good economic forecast of Australia predicted by strong Australian dollar position, low
inflation rate and higher demands of consumers for telecommunication services further
predicts the improving performance of the company. The major limitation of the overall
performance analysis carried out in the report is difficult in understanding some of the
sections in the director’s report of the company. On the basis of overall analysis, a potential
investor is recommended to wait and analyze the performance of the company in coming
financial years before taking final decisions of investment.
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References
About Us: Telstra. 2018. [Online]. Available at: https://www.telstra.com.au/aboutus
[Accessed on: 11 June, 2018].
Cision News. 2017. Australia - Telecoms Industry - Statistics and Forecasts. [Online].
Available at: https://www.prnewswire.com/news-releases/australia---telecoms-industry---
statistics-and-forecasts-300425066.html [Accessed on: 11 June, 2018].
Leadership Team: Telstra. 2018. [Online]. Available at:
https://www.telstra.com.au/aboutus/our-company/present/leadership-team [Accessed on: 1
June, 2018].
Telstra: Annual Report 2017. [Online]. Available at:
https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf-e/Annual-Report-
2017.PDF [Accessed on: 11 June, 2018].
Australia’s telecommunications market structure. 2015. [Online]. Available at:
https://www.communications.gov.au/sites/g/files/net301/f/Vodafone%20-%20Attachment
%20E.pdf [Accessed on: 11 June, 2018].
Papadopoulos, P. 2011. Investment Report - Fundamental Analysis/ Ratio Analysis:
Comparative Approach between two FTSE 100 corporations Vodafone plc and British
Telecom Group. GRIN Verlag.
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