Financial Analysis of Optus: Performance, Trends, and Recommendations

This report presents a financial analysis of Optus, a major telecommunications company in Australia. It begins with a company background, highlighting its services and market position. The analysis then delves into trend analysis of the income statement and balance sheet, observing decreasing operating revenue and margins, rising finance costs, and changes in assets and liabilities. Key observations include increasing receivables, inventory, and borrowings. The report interprets these trends, noting the decline in operational revenue and the rise in finance costs. Recommendations include focusing on increasing operational revenues, reducing receivables, lowering finance costs, and controlling borrowings. Furthermore, the report conducts a ratio analysis, examining liquidity, efficiency, profitability, and capital structure ratios, revealing deteriorating trends across all categories. The analysis highlights potential short-term cash crunch, inefficiency in asset usage, adverse impacts on company valuation due to falling profitability, and leveraging of the balance sheet with higher financial risk. The overall conclusion emphasizes the need for Optus to improve its financial position by deleveraging its balance sheet and enhancing efficiency and profitability. The analysis uses trend analysis and ratio analysis to provide a critical assessment of Optus's financial statements.

O P T U S
FINANCIAL ANALYSIS

COMPANY BACKGROUND - OPTUS
2nd largest telecommunication company in
Australia
Parent firm since 2001 is Singtel based in
Singapore
 Products include internet access, fixed and
mobile telephony, leased lines, cable television
and data transmission
Above products marketed under different brand
names

COMPANY BACKGROUND – OPTUS (Contd..)
Previously was named Aussat Pty Limited
Offers various services and products to both
consumers and businesses
Relies on own network and partner networks
for providing services
Changing industry with bright future
prospects

TREND ANALYSIS – INCOME STATEMENT
Key Observations
 Operating revenue decreasing in both 2016 and 2017
 Declining operational profit margins in 2016 and 2017
 Significant jump in finance costs in 2016 and 2017
 Marginal increase in net profits in 2016 and 2017
aided by sizable jump in profit share from associates
and joint ventures along with interest and investment
income

TREND ANALYSIS – BALANCE SHEET
Key Observations
 Increase in current assets to the tune of 8% and 24% in 2016
and 2017 respectively on account of receivables and inventory
 Increase in non-current assets to the tune of 3% and 14% in
2016 and 2017 respectively primarily on account of associates
and joint ventures
 Increase in current liabilities the tune of 14% and 61% in 2016
and 2017 respectively on account of borrowings
 Marginal increase in non-current liabilities and equity in 2016
even though significant increase in 2017 on these accounts

Interpretation of Trend Analysis
Even though net profit has increased in 2016
and 2017, there has been a fall in operational
revenue and associated margins.
Another area of concern is the steep incline
in finance costs.
In balance sheet also, increased borrowings
are visible coupled with higher investments
in associates and rising inventory and
receivables

Recommendations
Company needs to focus on increasing
operational revenues which would ensure
better inventory management
Also, receivables need to be reduced coupled
with lowering of finance cost
Borrowings need to be controlled by
generating higher cash flows so as to avoid
future cash crunch

RATIO ANALYSIS – LIQUIDITY
RATIOS
Trend – Deterioration of both current ratio
and acid test ratios for both 2016 and 2017
since these are progressively declining
Reason- The % increase in current liabilities
exceeds the corresponding increase in
current assets primarily because of
borrowings
Implication- Potential short term cash crunch
and hence there is a need to improve these

RATIO ANALYSIS - EFFICIENCY
RATIO
Trend – Deterioration of efficiency ratios for
both 2016 and 2017 since these are
progressively declining
Reason – The period for receivable collection
has increased coupled with higher inventory
levels leading to lower sales being generated
from available assets
Implication – Inefficiency in usage of assets
and lower profits coupled with lower financial
strength

RATIO ANALYSIS – PROFITABILITY RATIOS
Trend – Deterioration of profitability ratios
(except net profit margin) for both 2016 and
2017 since these are progressively declining
Reason – There is a fall in the operating
revenues along with higher equity and assets
coupled with falling operating margins
Implication – Adverse impact on company
valuation on account of falling profitability

RATIO ANALYSIS – CAPITAL
STRUCTURE
Trend – Deterioration of capital structure
ratios for both 2016 and 2017 since these are
progressively declining
Reason – Rapidly rising debt levels coupled
with higher finance charges and lower
operating profits
Implication – Leveraging of balance sheet
and higher financial risk

OVERALL ANALYSIS & CONCLUSION
Company needs to focus on improving the
financial position by deleveraging balance
sheet
Also, higher profits need to be generated by
company by enhancing efficiency and
profitability ratios
Trend analysis and ratio analysis proved to
vital tools in carrying a critical analysis of
the financial statements of OPTUS