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 ope...Read More

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