Corporate Accounting Report: Financial Analysis of Telstra Corporation

This report presents a comprehensive financial analysis of Telstra Corporation, a leading telecommunications company in Australia. It begins with an overview of Telstra, its operational history, and its position within the competitive Australian telecommunications market, including competitor analysis. The report then delves into Telstra's internal and external funding sources, followed by an analysis of its financial structure, highlighting debt-to-equity ratios and their implications. Key elements of Telstra's financial performance are examined, including profitability and liquidity ratios, and a comparison with a competitor, TPG Telecom Ltd. Furthermore, the report addresses changes in Telstra's accounting policies and provides an overview of the accounting treatment of property, plant, and equipment, as well as intangible assets. Finally, the report touches on Telstra's sustainability initiatives and the importance of corporate social responsibility, concluding with a summary of the company's financial position.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
9/13/2019

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Table of Contents
Introduction................................................................................................................................2
Overview of Telstra Corporation...........................................................................................2
Competitor analysis of Telstra...............................................................................................3
Internal and External Funding in Telstra...............................................................................4
Analysis of Financial Structure of Telstra.............................................................................4
Key Elements of Financial performance of Telstra...............................................................5
Changes in the accounting policies........................................................................................7
Property, plant and equipment accounting policy..................................................................7
Intangible Assets and Accounting Policy..............................................................................8
Sustainability Initiatives.........................................................................................................8
Importance of corporate social responsibility........................................................................8
Importance of Sustainability..................................................................................................9
Conclusion..................................................................................................................................9
References................................................................................................................................10

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Introduction
Corporate accounting is said to be a separate branch of accounting that deals with the
accounting for the businesses, management of their final accounts, and cash flow statements
analysis and explanation of the financial outcomes of the business and accounting for the
particular event such as absorption, preparing consolidated balance sheets, and amalgamation
(Trujillo-Ponce, Samaniego-Medina & Cardone-Riportella, 2014). The intent of this report is
to discuss about the financial position of Telstra Corporation which is one of the leading
telecommunication company of Australia by reviewing its financial statements. The report is
comprised of detailed description of the company and the industry in which it operates.
Besides this, the detailed regarding the competitors of the company has been presented in
order to know the position of the companies in the Australian market. In addition to this, the
paper is describing the key elements of the financial reporting of the company.
Overview of Telstra Corporation
Telstra Corporation is one of the well-known telecommunication companies of
Australia that operates and builds the telecommunication networks; allow internet access,
markets voice, pay television, and mobile. Telstra is operating in the Australian market from
1975 with the history of 44 years (Grad Connection, 2019). Telstra is now converted to be a
private company and is going through a change program to be the customer focused
organization. The company has 32293 employees in its Australian subsidiaries. This
company deals in the telecommunication industry of Australia (IBIS World, 2018). The
telecommunication services sector has altered the manner people of Australia communicate
by offering high level of connectivity. Increasing mobile services demand in the market has
impacted the demand of fixed line services that has been driven by the increasing
consumption of the mobile data and improving mobile connectivity. But, the decreasing

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demands of the fixed line services. However, reducing demand for the fixed line services and
intensive price competition in the segment of mobile services has majorly constrained the
capability of the subdivision to generate revenue. The total revenue of the subdivision is
anticipated to augment at the yearly rate of around 0.5% in the coming five years through
2018-19, to around $37.6 billion (IBIS World, 2019). The Mobile providers in the industry
are competing on the basis of price by providing additional value on their covered plans.
Competitor analysis of Telstra
The telecommunication industry of Australia is considered to be very competitive due
to presence of limited but strong players competing on the basis of price, quality of network,
and services. In fact as per the report of the Australian Competition and Consumer
Commission released 2015-2016, the competition on the Australian telecommunications
sector is based on the price aspect (Commonwealth of Australia, 2019). In the Australian
market, the importance of the National Broadband Network is increasing with time due to
increasing number of connections over the year. According to the analysis conducted by the
Australian commission in the year 2016, it was identified that there were around 1.1 million
NBN services activated (Flannery, 2017). All these services were mainly in district areas and
utilized wholly for residential services. Then in the year 2017, there were around 2 million
services activated, with the increasing services delivered in the provided in urban areas
increasing (Flannery, 2017). However, the altering nature of the customer can impact the
operations of different business and the increasing demand can offer higher benefits to the
business. Competition in the delivering of the services over the NBN is the major concern. As
per the review of the ACCC, Telstra has acquired the 48% of the NBN services, TPG has
covered iiNet 26%, and Optus has covered 14% whereas Vocus has covered the M2 with 6%
(Flannery, 2017). This highlights the relative shares of the businesses in the fixed line market
because there players are dominating the industry.

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Considering the increasing efforts of the main players in the year 2016, around 94%
of the people of Australia were having access to the 4G mobile networks offered by Optus,
Telstra, and Vodafone. On the other side, Telstra has dominated the market in the mobile
handset services segment, with around 45% share that is followed by the Optus and Vodafone
with 27% and 18% respectively.
Internal and External Funding in Telstra
Internal funding is the process under which business range the funds within the
organization for the operations of the functions (Pache & Santos, 2010). The internal funding
can be used by the business for the improvement and development of the machinery,
purchasing property, and manufacturing of the new products. Telstra is involved in the
internal funding and the sources that are used are issues equity shares, retained profit, and
collection of debt.
External Funding is the process under which the business arranges the funds from
outside the firm (Murtinho, Eakin, López-Carr & Hayes, 2013). The funding is required by
the businesses for the maintenance of the firm operations. The sources that Telstra uses for
external funding are bank loans, debentures, etc.
Analysis of Financial Structure of Telstra
Financial structure analysis is the assessment of the company’s equity and debt that is
used for financing of the operations. A major dependence on the debt funding enables the
shareholders to attain the higher ROI, because there is lower equity in the business. But, this
financial structure is considered to be a risky one because the business has high debt
obligation that has to be paid (Goodhart, 2013). The financial statement of Telstra highlights
that the total debt in the year 2018 is $19,040 m and at the same time the total equity of the

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company is $15,014 m, which reflects that the company is maintaining higher ratio of debt in
composition to its equity that indicates its higher leverage (Telstra, 2018). The higher debt of
the company represents that company is involved in taking higher risk considering its strong
financial position in the telecommunication industry. The higher debt and low equity
illustrates that Telstra Company is reducing the pressure over the owner’s equity which also
reduces their liability. Generally high debt is considered to be a danger for the business
because it increases the level of risk for the company. However, in the case of Telstra, the
company is gaining the advantage in tax deductions this is because the principal and interest
payment on the debt is deducted for the business in the income taxes. In addition to this, the
use of long-term debt helps the company in the purchase of equipment and inventory,
increasing the intensity of the marketing, and hiring of new workers. Taking the long-term
loan on a low interest can allow the company to operate the business profitably as well as
smoothly (Van Binsbergen, Graham & Yang, 2010). This also allow company to run the
operations extra miles and making additional profits. In addition to this, long-term debts help
business in eliminating the reliance in the expensive debt.
Key Elements of Financial performance of Telstra
Financial performance is said to be a subjective measure of identifying how a
company is making use of its assets from the major business mode and generate revenues.
This term is also utilized as the general measure of the overall financial health of the
company over the specified period (Rousseau & Wachtel, 2011). Some of the key elements of
financial performance are profitability, solvency, liquidity, etc.
Profitability – Profitability of a company can be measured with the help of
profitability ratios. This is one of the financial metrics that is utilized for accessing the ability
of the business to make earnings related to the operating costs, shareholders’ equity, balance
sheet assets, and revenue over time (Lins, Servaes & Tufano, 2010). In the case of Telstra,

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the return on equity of the company in the year 2018 is 24.1% where in the year 2017 it was
25.6% which is a change of 1.5%. This reflects that the company is receiving less return on
the equity, but is it just a minor change that can be managed by the business in the coming
future. Besides this, the profitability of the business can be assessed related to the cost and
expenses and it is examined in comparison to assets in order to find how operative a business
is in deploying assets for generating the sales and profits. Under this, the ratio that is
considered is return on asset. ROA of Telstra is 13.6% in 2018 and 15.6% in 2017 which is
change of 2% (Telstra, 2018).
On the other hand, the profitability position of TPG Telecom Ltd. which is the nearby
competitor of Telstra is discusses as follows: The return on equity of the company in 2018 is
15.34% which is less than the ROE of 2017 that is 19.85% (Morningstar, 2019b). This huge
decline in the return on equity reflects that the company is presently not able to get the return
and the performance is not stable. Besides this, the return on asset of TPG in 2018 is 8.53%
where in 2017 it is 10.77% (Morningstar, 2019b). These data reflects that the financial
performance of Telstra Company is better in comparison to its competitor TPG Telecom.
Liquidity – Liquidity ratio is considered to be an essential section of the financial
metrics utilized to define the capability of the debtor for the payment of the debt obligations
deprived of raising external capital. Liquidity ratios evaluates the capability of the business to
pay debt obligations and its safety margin by the computation of the metrics comprising the
current ratio, quick ratio, etc. (Al Karim & Alam, 2013). Considering the case of Telstra
Company the current ratio of the company in 2018 is 0.76 this reflects that the company
needs to improve this ratio in order to successfully meet its liabilities. Besides this, the quick
ratio of the company in 2018 is 0.63 (Morningstar, 2019a). These data reflects that the
company needs to work on improving its liquidity position such that at the uncertain time it
can use them.

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On the other hand, the current ratio of TPG Telecom in 2018 is 0.24. This data
reflects that the company capability to pay of its liability is low which can raise the
challenges to operate successfully in the near future. Besides this, the quick ratio of the
company in 2018 is 0.20 which reflects that the company can deal with challenges while
meeting its short-term liabilities with the liquid assets (Morningstar, 2019b).
The company has yet not disclosed any of such events that have taken place in the
company after the reporting of 2018.
Changes in the accounting policies
In the Telstra Company there were no such accounting policies changes in 2018,
however, there were some changes that are applicable from 1 July 2017:
AASB 2016-1 “Amendments related to the Australian Accounting Standards – For
the unrealised losses there is Recognition of Deferred Tax Assets
AASB 2016-2 ‘Amendments in relation to the Australian Accounting Standards -
Disclosure Initiative: Amendments to AASB 107’ (Telstra, 2018)
Property, plant and equipment accounting policy
The property plant and equipment are the non-financial assets which are measured at
their historical cost at the first instance. The cost is comprised of the purchase price and the
cost which is directly attributable to bring down the assets to its working condition and
location (Botelho, Azevedo, Costa & Oliveira, 2015).
Thereafter, PPE is recognised in the financial statements on the basis of various
measurement bases. The infrastructure and other assets which are under construction are
measured at the historical cost. The surplus assets are measured at the fair value which is the
price that is obtainable while selling the asset on the date of measurement.

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Intangible Assets and Accounting Policy
Intangible assets of the company are recognised at the acquisition cost less any
impairment losses, accumulated amortisation (Cohen, 2011). Goodwill is not generally
amortized but impairment test is carried yearly or when there is an indication of impairment.
The other intangible like internally generated intangibles like research cost is
expensed off whenever it is incurred as they have certain life and hence amortised over its
useful life on SLM basis.
The acquired intangibles are also accounted for in the same manner as that of
internally generated intangibles.
Sustainability Initiatives
The Telstra foundation and the Alannah & Madeline Foundation introduced eSmart
Liberaries in the year 2012 which is considered to be the most determined cyber safety
initiatives taken place in the Australia for the equipment of the libraries, users of the library
and staff with the abilities they require for the accountable, safe, and smart utilization of the
digital technology. In addition to this, the company has been involved in the energy
efficiency initiative under which it is focusing in reducing the energy consumption at its all
the units. The company has installed new lightning and air conditioning controls, reticent
incompetent systems of cooling, enhancing its approach to fault discovery and repair (Bigger
Picture, 2019).
Importance of corporate social responsibility
In today’s developing scenario, it has become important that the business operates in
the market in a way that highlights its social responsibility. Though, it is not considered to be
the legal requirement yet but has been considered a good practice for the business to consider
the social and environmental issues for the development of society and environment. Meeting

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the corporate social responsibility helps business in enhancing its brand image in the eyes of
customer as well as society (Devin & Lane, 2014).
Importance of Sustainability
Sustainability is all about meeting the business’s present needs deprived of
compromising the capability of the future generation for meeting their own needs.
Sustainability is important because it is not enough to only work for the benefit of the
business to earn the profit but it also focus on the development of planet as well as people
(Naeem & Neal, 2012).
Conclusion
The above report has discussed regarding the Telstra’s industry and competitive
position in the Australian telecommunication industry. The report has also discusses about its
financial performance in comparison to its competitor that is TPG Telecom. From the
analysis presented above, it has been identified that Telstra is the leading company of
telecommunication services and dealing with intense competition from TPG Telecom, Optus,
and Vodafone. Besides this, the financial performance of Telstra is better in comparison to its
competitors in relation to the profitability ratios. In addition to this, the company is deeply
involved in meeting its corporate social responsibilities by adopting different initiatives such
as effective energy consumption, etc. Further, the report has highlighted the important of
corporate social responsibility and sustainability in the business.

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