MBA403 Financial Analysis Report: Telstra Telecommunication

This report provides a financial analysis of Telstra Corporation Limited, focusing on its financial performance and market position based on the annual reports from 2018 and 2019. The analysis includes key financial ratios like Return on Equity, Return on Assets, Current Ratio, and Debt Ratio, offering insights into the company's profitability, liquidity, and solvency. The report highlights the decrease in total income and revenue, along with an increase in operating expenses and finance costs, while also acknowledging the company's strong balance sheet. The interpretation of these ratios leads to a conclusion that the company's financial position is good, with sufficient profits to meet its obligations and pay dividends. However, the report also points out areas of concern, such as the liquidity position and equity position, and recommends potential investors consider the company as a good investment. The report recommends that the company focuses on building growth and value, improving the customer experience, and cost reduction. It is based on an assignment brief that requires an analysis of an ASX-listed company with recommendations for shareholders.

Financial analysis report of Telstra Telecommunication company

Executive summary
This report includes the analysis of Telstra Corporation Limited and it deals in building and
operating telecommunication networks and markets voice, mobile, internet access, pay television
and other products and services. It includes the analysis of evaluating the potential investors of
the company and it is based on the financial performance and market reviews of the company.
They are committed to providing the best services to customers. They offer a full range of
services and compete in all the telecommunications market in Australia. This report includes the
analysis of financial performance of the company. The analysis of the report is done to make the
recommendation for shareholders for making the investment and required decisions for
improving the financial performance of the company.
Analysis
Telstra telecommunication is analyzed as one of the largest network providers in Australia. The
below information includes the financial performance of the company from the Telstra annual
report for the year ended 30th June 2018. It is analyzed that the total income of the company has
been decreased with 3.6% as compared to last year and the net profits of the company are $2.1
billion. The various factors are considered by the board for capital management as well as
maintaining the financial strengths and financial flexibilities. The operating expenses of the
company are increased by 6.5 percent form the last year. The current assets of the company have
increased by 1.4 percent and it has helped in increasing the sales of the company by $121 million
(Telstra Telecommunications Company, 2019). The total revenue of the company has decreased
as well as the total income. The finance cost of the company has increased from $42 million to $
630 million because of increase in net borrowing costs. The balance sheet of the company was
strong because of net assets value which is $14,530.

The financial position of the company
Return on Equity
Year 2019 (in dollars)
Net Profit (A) 2,149
Shareholder's Equity (B) 14,530
Ratio (A/B) 0.15
Return on Asset
Year 2019 (In dollars)
Net Profit (A) 2,149
Total Asset (B) 42,589
Ratio (A/B) 0.05
Current Ratio
Year 2019 (In dollars)
Current Asset (A) 7,303
Current Liability (B) 9,553
Ratio (A/B) 0.76
Liquid Ratio
Year 2019 (In dollars)
Liquid Asset (A) 6,855
Inventories (B) 448
Current Liability (C) 9,553
Ratio (A)-(B)/(C) 0.67

Debt Ratio
Year 2019 (In dollars)
Total Debt (A) 28,059
Total Asset (B) 42,589
Ratio (A/B) 0.66
Equity Ratio
Year 2019 (In dollars)
Total Equity (A) 14,530
Total Assets (B) 42,589
Ratio (A/B) 0.34
Net Profit Ratio
Year 2019 (In dollars)
Net Profit (A) 2,149
Net Revenue (B) 25,259
Net Profit Ratio (A)/(B) 0.09

Interpretation
From the above evaluation of the ratios, it is concluded that the financial position of the company
is good as they are earning enough profit to operate the functions of the company. The
company’s net profit is enough to meet the needs of the company and they are earning that much
that they can pay the dividend to their shareholders. The net revenue of the company is good as
they selling good products in the market. The company can still earn more profit by increasing
their sales in the market.
The liquidity position of the company is not as good as they do not have enough cash to meet the
needs of the current cash. In the company Telstra, the inventories are also not enough which can
meet the requirement of the future so they also need more inventories for meeting the future
course of action. The company Telstra has good assets in comparison to the debts which are
showing a good position. The company has less debt which they can easily pay on time with
their profits. The equity position of the company is not good as they have very little equity. The
company has to issue some more equity so that they can expand their business more and can earn
more profits (Telstra Telecommunications Company, 2019).
The current liabilities of the company are very much in comparison to their current assets which
are not showing a good position. The company has to make the proper budget and do the proper
planning so that they can pay their debt on the time and they maintain the current cash in the
company. The company Telstra doesn’t have enough cash to pay their current debts on time
which results in declining their profit too (Kaya and Koch, 2015).
Telstra’s shares have more variables because of the fall in its share prices. In Telstra, the risk for
stakeholders is considered high which is related to the technology. The risk also includes the
customers’ expectations, market demand variations, competitors change the strategies
(Jackowicz, et al., 2017).
In order to analyze the share price of Telstra whether it is under or overvalued, the multiples of
financial comparable are considered. It is analyses the price to earnings ratio. In the industry of
telecommunication, Telstra is the market leader and its P/E ratio is much better than the
competitors. It is analyzed that the liquidity ratio is lower than the ideal ratios. In Telstra,

financial and administration are responsible for strategic planning and providing investment
opportunities.
Conclusion
The interpretation and analysis of Telstra corporation's limited financial performance and market
position is analyzed by annual report of the company of year ending 30 June 2019. The company
required to focus on building growth and value, improving the experience of customers, making
efforts for cost reductions. It is recommended to the shareholders to make the decision to invest
in the company as they are generating enough profits to pay sufficient dividends to the
shareholders. The company Telstra has good assets in comparison to the debts which are
showing a good position. Management of the company is expecting to meet the goals of the
shareholders and making the efforts to meet the needs of customers and expectations of the
shareholders for the growth and high ROI. It is recommended to potential investors to invest in
Telstra Telecommunication Company. In an equity market, expectations of shareholders are to
earn high ROI and by reducing the risk so that it does not cause any impairment to the liquidity.
The stocks of the company are effectively traded on the ASX and it includes the issue in
liquidity.

Reference
Jackowicz, K., Mielcarz, P. and Wnuczak, P., 2017. Fair value, equity cash flow and project
finance valuation: ambiguities and a solution. Managerial Finance, 43(8), pp.914-927.
Kaya, D. and Koch, M., 2015. Countries’ adoption of the International Financial Reporting
Standard for Small and Medium-sized Entities (IFRS for SMEs)–early empirical
evidence. Accounting and Business Research, 45(1), pp.93-120.
Telstra Telecommunications Company. 2018. Annual Report. Telstra Limited. Available at:
https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20F/2018-Annual-Report-
singlepages.pdf Accessed on 30 September2019.
Telstra Telecommunications Company. 2019. Annual Report. Telstra Limited. Available at:
https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20F/2019-Annual-Report-
singlepages.PDF Accessed on 30 September2019.