Financial and Economic Interpretation and Communication for Telstra Corporation

This report provides a complete analysis of financial as well as non financial perspectives of Telstra Corporation during the last two years. It includes key measures that show the financial performance of Telstra, key financial ratios, reasons for changes in the performance indicators, non financial information, and interpretation.

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Financial and Economic Interpretation and Communication

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Contents
Executive Summary.........................................................................................................................3
Analysis...........................................................................................................................................3
Interpretation....................................................................................................................................4
Reasons for changes in the performance indicators.....................................................................4
Non financial information............................................................................................................4
Conclusion.......................................................................................................................................5
References........................................................................................................................................6

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Executive Summary
In this report wealth report has been prepared for the stakeholder’s of Telstra
Corporation. Telstra Corporation is one of biggest telecommunication company having it’s
headquarter in Australia. Telstra offer’s full range of telecommunication services and it competes
with other major player in this industry. Particularly in Australia, Telstra provides 17.6 million
retail mobile services, 3.5 million retail fixed broadband services and other fixed retail voice
services (About Us: Telstra, 2018). The main purpose of the report is to perform complete
analysis of financial as well as non financial perspectives of Telstra during the last two years.
Analysis
Key Measures that shows the financial performance of Telstra
Particulars FY17 FY16
%
Change
$M $M
Total Revenue $ 26,013.00 $ 25,911.00 0.39%
Operating Expenses $ 17,558.00 $ 16,600.00 5.77%
EBIT $ 6,238.00 $ 6,310.00 -1.14%
Profit for the period from continuing and
discontinued operations $ 3,874.00 $ 5,849.00 -33.77%
Earnings Per share $ 0.33 $ 0.32 2.85%
Free cash flow from continuing and
discontinued operations $ 3,496.00 $ 5,926.00 -41.01%
Current Assets $ 7,862.00 $ 9,340.00 -15.82%
Current Liabilities $ 9,159.00 $ 9,188.00 -0.32%
Non Current Assets $ 34,271.00 $ 33,946.00 0.96%
Long term debts $ 18,414.00 $ 18,191.00 1.23%
Shareholder's equity $ 14,560.00 $ 15,907.00 -8.47%
Cash Flow from operating activity $ 7,775.00 $ 8,133.00 -4.40%
Total Capital Expenditure $ 5,321.00 $ 4,194.00 26.87%
Net increase/(decrease) in cash and cash $ (2,608.00) $ 2,149.00 -221.36%

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equivalents
(Telstra: Annual Report, 2017)
Key Financial Ratios of Telstra
Particulars FY17 FY16 % Change
$M $M
Gross Profit Ratio 57.70% 71.90% -19.75%
Net Profit Ratio 15.02% 22.37% -32.86%
Return on Assets 9.11% 13.81% -34.03%
Return on Equity 25.59% 38.57% -33.65%
Current ratio 0.86 1.02 -15.69%
Quick ratio 0.70 0.90 -22.22%
Debt Equity ratio 1.02 0.92 10.87%
Free Cash Flow/Sales 9.47 15.25 -37.90%
Inventory Turnover 15.11 13.83 9.26%
(Davies and Crawford, 2011)
On the basis of overall performance of Telstra in last two financial years it can be said
that in year 2017 Telstra has suffered a significant downturn in the financial performance. The
Net profit ratio was been decreased by 32.86% from 22.37% in year 2016 to 15.02% in year
2017. Similarly return on assets has been moved down to 9.11% in year 2017 as compared to
13.81% in year 2016 indicating 34.03% decrease in this ratio. Current Ratio has also been
reduced 15.69% in year 2017 that indicates company has not sufficient assets to meet the short
term liabilities. The decrease in debt equity ratio in current year indicates poor capital structure
performance. Free cash to sales has also been decreased in current year by almost 40% that
indicates Telstra has poor cash management that leads to overall decrease in cash flow from
operating activity (Telstra: Annual Report, 2017).
Interpretation
Reasons for changes in the performance indicators
Telstra Corporation has faced the downturn in its financial performance due to many
reasons. The main reason was the decrease in tariff rates all over Australia that force Telstra to

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decrease their call rates as well as other tariff rates to survive in market (BuddeComm, 2018).
Despite of increase in market share the total revenue collected decreased and it leads to downfall
in profitability of the company. The possible reason that has impacted the liquidity position of
company was improper cash management by the managers of the company. The balance of cash
and cash equivalents has been decreased from $3550 million in year 2016 to $930 million in year
2017. It clearly reflects the poor cash management by the company. The board of directors at
Telstra has announced that there will decrease in dividend in next year. This decision has
critically impacted the share price of company and also forces the shareholders to withdraw the
investment made in Telstra. The Telstra has been facing many challenges in its core business
areas (Data) due to change in government policies and impact of competitors (Chau, 2017).
Non financial information
The core business areas of Telstra are Telstra retail, Global enterprise and Services,
Telstra Wholesale, Telstra Wholesale and Telstra Operations. Telstra mainly operates in whole
of Australia and New Zealand, and some other parts of world. The change in financial result in
each of business area has been provided below:
(Telstra: Annual Report, 2017)
There have many sources that indicate positive trend in telecommunication market of
Australia but this market is growing slowly and main focus of industry players is on increasing
their mobile data consumption per person to survive in the market (Cision News, 2017). In order
to meet the growing demand of customers in field of mobile data, Telstra has adopted new
business strategy to provide both fixed and flexible plans so that they can give very tough
competition to NBN particularly in broadband services. Looking at increase in demand by
customers particularly in Australia, it can be said that there has been huge potential for growth in
telecommunication market. The decrease in global tariff rates particularly for mobile data has
impacted the overall revenue of Telstra. The senior management team at Telstra is very efficient

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and has great experience in field of telecommunication. The management team has been
successful identified the reasons for downfall in financial performance of the company and has
implemented such business strategies that will be profitable in future financial year. It has been
from the annual report that there was increasing trend in remunerations given to the executive
personals as well as non executive personals from the last year (Leadership Team: Telstra, 2018).
There has been no difference in wages that could be earned from the competitor’s business. The
current management structure consist key management personals (KMPs) and executive board of
directors while company is publically owned by the shareholders of the company (Telstra:
Annual Report, 2017). Management personals have been offered with share entitlement scheme
and other non monetary benefits apart from the regular wages so that they can be motivated
towards the progress of the company.
Conclusion
The future growth of Telstra will definitely benefit the potential shareholder’s as
company has target a huge investment in future technology of telecommunication that will
definitively increase the customer base and drive maximum revenue to the company in next year.
This report has some limitations involved in analyzing the company annual report. The section of
annual report particularly director’s report is not easy to understand.

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References
About Us: Telstra. 2018. [Online]. Available at: https://www.telstra.com.au/aboutus [Accessed
on: 1 June, 2018].
BuddeComm. 2018. Australia - Telecoms Industry - Statistics and Forecasts. [Online]. Available
at: https://www.budde.com.au/Research/Australia-Telecoms-Industry-Statistics-and-Forecasts
[Accessed on: 1 June, 2018].
Chau. D. 2017. ABC News: Telstra's NBN fail, disappointing profit results pull down Australian
share market. [Online]. Available at: http://www.abc.net.au/news/2017-08-30/telstra-drags-
down-asx-australian-share-market/8856240 [Accessed on: 1 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: 1 June, 2018].
Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.
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: 1 June, 2018].