Financial Accounting Report

This report analyzes the financial performance of Telstra Corporation Limited for the year 2017. It examines key sections of the annual report, including the financial statements (income statement, balance sheet, and cash flow statement), notes to the accounts, and the auditor's report. The report profiles the main directors and summarizes their report, highlighting a 4.3% increase in overall income to $28.2 billion and a 2% increase in EBITDA to $10.7 billion. A key focus is on ratio analysis, assessing profitability, liquidity, asset turnover, and leverage ratios. The analysis reveals a decline in gross and net margins, current and quick ratios, and asset turnover ratio, indicating potential challenges in profitability and liquidity. The debt-to-equity ratio increased, suggesting increased reliance on debt financing. The report concludes with an assessment of Telstra's financial health based on the calculated ratios and trends observed in the financial statements.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Table of Contents
1. Brief of the selected organisation:...............................................................................................2
2. Sections dominating the report:...................................................................................................2
3. Names of the four main directors and summary of the report:....................................................2
4. Auditors, their opinion and summary of the auditors’ report:.....................................................3
5. Increase or decrease in sales:.......................................................................................................3
6. Net cash inflow (outflow) from operating activities and change from the previous year:..........4
7. Retained profit, loans and debentures:.........................................................................................4
8. Ratio analysis for commenting on the financial health:..............................................................4
8.1 Profitability ratios:.................................................................................................................4
8.2 Liquidity ratios:.....................................................................................................................5
8.3 Asset turnover ratio:..............................................................................................................5
8.4 Leverage ratios:.....................................................................................................................5
References:......................................................................................................................................6
Appendices:.....................................................................................................................................7

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1. Brief of the selected organisation:
The organisation that has been selected to fit the purpose of this assignment is Telstra
Corporation Limited. The organisation has been previously known as Telecom, which has
merged with the Overseas Telecommunications Operation, firstly cross-border in 1993 and
domestically in 1995. Telstra has been privatised in three different stages “T1 ($3.30)”, “T2
($7.40)” and “T3 ($3.60)” in 1997, 1999 and 2006 respectively. In T1, 1/3rd of the government
shares have been sold to Telstra for $14 billion, which has helped the organisation to list on the
Australian Stock Exchange (ASX).
In 1999, additional 16% of the organisational shares had been sold to the public; thus,
leaving the Australian government with 51% ownership. In 2006, there has been announcement
of “T3”, which has minimised the ownership of the government to 17%. The organisation has
been engaged in operating and building telecommunications networks along with markets voice,
internet access, pay television and other entertainment services and products. The year under
review for this assignment is 2017.
2. Sections dominating the report:
The major sections that dominate the annual report of Telstra Corporation Limited
include the financial reports (income statement, balance sheet statement and cash flow
statement), notes to the accounting policies and estimates along with segmental disclosures.
3. Names of the four main directors and summary of the report:
The four main directors of Telstra Corporation Limited constitute of Andrew Penn
(CEO), John Mullen (Chairman), Peter R. Heart (Chairman of the Remuneration Committee and

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member of the Nomination Committee) and Nora L. Scheinkestel (Chairman of the Audit and
Risk Committee). According to the report of the directors, the overall income of the organisation
has been raised by 4.3% in 2017 to $28.2 billion along with increase in EBITDA by 2% to $10.7
billion. The main priority of the organisation is to enhance the experience of the customers and
the Net Promoter Score, which is the main customer measure, has recovered effectively in the
second half of 2017. Finally, the organisation has developed an effective audit and risk
committee to deal with the unanticipated risks along with maintaining transparency in the
financial statement disclosures.
4. Auditors, their opinion and summary of the auditors’ report:
The organisation has formed an effective internal committee and the external auditor of
the firm has been identified as Ernst and Young. According to the opinion of the external auditor,
the financial statements of Telstra have been prepared in compliance with the Corporations Act
2001, as it provides a fair and true revelation of the consolidated financial performance and
financial position of the organisation. In addition, it complies with AASB and Corporations
Regulations, 2001.
5. Increase or decrease in sales:
According to the annual report of the organisation, it has been found that the sales
revenue of the organisation has increased from $25,834 million in 2016 to $25,912 million in
2017. Hence, the sales of the organisation have increased marginally by 0.30% in 2017. The
possible reason behind such changes is the increasing demand in the market along with better
quality services provided on the part of Telstra Corporation Limited.

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6. Net cash inflow (outflow) from operating activities and change from the previous year:
According to the cash flow statement of the organisation, it could be observed that
Telstra has experienced decreased cash inflow from $8,133 million in 2016 to $7,775 million in
2017. Hence, it has decreased by $358 million and the amount of percentage decrease is 4.40%
in 2017.
7. Retained profit, loans and debentures:
The amounts of retained profit for Telstra Corporation Limited have been $10,642
million in 2016, which has decreased to $10,225 million in 2017. The organisation has short-
term debt amounting to $2,537 million in 2016 and $2,369 million in 2017. On the other hand,
the long-term debt of the organisation has been $14,378 million in 2016 and $14,574 million in
2017. However, Telstra has not issued any debenture in the financial years 2016 and 2017.
8. Ratio analysis for commenting on the financial health:
8.1 Profitability ratios:
The profitability ratios of the years 2016 and 2017 have been depicted in the form of a
table (Refer to Appendices, Appendix 4). It has been found that the gross margin of the
organisation has declined from 71.95% in 2016 to 57.75% in 2017 due to the increasing cost of
revenue in contrast to the overall sales. Moreover, the net margin of the organisation has fallen
from 22.37% in 2016 to 15.02% in 2017 due to sharp increase in sales, general and
administrative expenses.

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8.2 Liquidity ratios:
The liquidity ratios of the years 2016 and 2017 have been depicted in the form of a table
(Refer to Appendices, Appendix 5). It has been found that the current ratio of the organisation
has declined from 1.02 in 2016 to 0.86 in 2017 and it is below the industrial standard of 2. In
addition, the quick ratio of the organisation has fallen from 0.91 in 2016 to 0.70 in 2017, which
is below the industrial average of 1. The possible reason is the increasing amount of short-term
debt in relation to short-term assets, which has declined its solvency position.
8.3 Asset turnover ratio:
The asset turnover ratio of the years 2016 and 2017 has been depicted in the form of a
table (Refer to Appendices, Appendix 6). It has been found that the asset turnover ratio of the
organisation has declined marginally from 0.62 in 2016 to 0.61 in 2017. However, this turnover
is quite low, which denotes that the organisation is struggling to generate sufficient return by
utilising its assets (Weil, Schipper and Francis 2013).
8.4 Leverage ratios:
The leverage ratios of the years 2016 and 2017 have been depicted in the form of a table
(Refer to Appendices, Appendix 7). It has been found that the debt-to-equity ratio of the
organisation has increased from 1.73 in 2016 to 1.90 in 2017. This implies that Telstra has
focused on raising funds more through debt, instead of equity financing. . In addition, the interest
coverage ratio of the organisation has fallen from 6.40 in 2016 to 5.41 in 2017 and this implies
that the organisation has adequate capability to meet its interest expense with the help of
operating income.

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References:
Telstra.com.au. (2017). Telstra - mobile phones, prepaid phones, broadband, internet, home
phones, business phones. [online] Available at: https://www.telstra.com.au/ [Accessed 15 Sep.
2017].
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.

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Appendices:
Appendix 1: Income statement of Telstra Corporation for the years 2016 and 2017
Particulars 2016 (in million $) 2017 (in million $)
Revenue 25,834 25,912
Cost of revenue 7,247 10,958
Gross profit 18,587 14,954
Operating expenses
Research and development
Sales, General and administrative 7,863 9,178
Other operating expenses 5,630 1,831
Total operating expenses 13,493 11,009
Operating income 5,094 3,945
Interest Expense 796 729
Other income (expense) 1,302 2,431
Income before taxes 5,600 5,647
Provision for income taxes 1,768 1,773
Net income from continuing operations 3,832 3,874
Net income from discontinuing ops 2,017
Other (69) 17
Net income 5,780 3,891

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Net income available to common
shareholders 5,780 3,891
Earnings per share
Basic 0 0
Diluted 0 0
Weighted average shares outstanding
Basic 12,202 11,968
Diluted 12,216 11,968
EBITDA 10,551 10,817

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Appendix 2: Balance sheet statement of Telstra Corporation for the years 2016 and 2017
Particulars 2016 (in million $) 2017 (in million $)
Assets
Current assets
Cash
Cash and cash equivalents 3,550 938
Short-term investments 62 21
Total cash 3,612 959
Receivables 4,737 5,468
Inventories 557 893
Prepaid expenses 426 531
Other current assets 8 11
Total current assets 9,340 7,862
Non-current assets
Property, plant and equipment
Gross property, plant and equipment 64,960 64,312
Accumulated Depreciation (44,379) (42,962)
Net property, plant and equipment 20,581 21,350
Equity and other investments 2,745 2,109
Goodwill 1,346 1,269
Intangible assets 7,883 8,289
Deferred income taxes 54 44
Other long-term assets 1,337 1,210

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Total non-current assets 33,946 34,271
Total assets 43,286 42,133
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt 2,537 2,369
Capital leases 118 107
Accounts payable 1,465 1,185
Deferred income taxes 176 161
Deferred revenues 1,118 1,236
Other current liabilities 3,774 4,101
Total current liabilities 9,188 9,159
Non-current liabilities
Long-term debt 14,378 14,574
Capital leases 269 234
Deferred taxes liabilities 1,493 1,539
Other long-term liabilities 2,087 2,086
Total non-current liabilities 18,227 18,433
Total liabilities 27,415 27,592
Stockholders' equity
Common stock 5,167 4,421
Retained earnings 10,642 10,225

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Accumulated other comprehensive
income 62 (105)
Total stockholders' equity 15,871 14,541
Total liabilities and stockholders' equity 43,286 42,133