MBA403: Accounting Financial Analysis of Telstra Ltd's Financials

This report provides a comprehensive financial analysis of Telstra Ltd, focusing on its performance in 2018. The analysis involves calculating and interpreting key financial ratios, including profitability, liquidity, asset turnover, and market relation ratios. The report examines both financial and non-financial factors affecting Telstra's performance, such as its mobile and broadband service growth and sustainability initiatives. The analysis reveals insights into Telstra's financial health, highlighting areas of improvement and offering recommendations for enhancing profitability, liquidity, and capital structure. The report concludes by advising potential investors about the company's innovative model and growth potential.

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

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ACCOUNTING FINANCIAL ANALYSIS
Table of Contents
Resource A.......................................................................................................................................3
Interpretation................................................................................................................................3
Recommendations........................................................................................................................4
Conclusion...................................................................................................................................4
Resource B.......................................................................................................................................5
Reference.........................................................................................................................................6
Appendix..........................................................................................................................................7

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ACCOUNTING FINANCIAL ANALYSIS
Executive Summary
The main purpose of the assessment is to analyse the financial performance of a company which
is listed in the Australian Stock Exchange. The company which is selected is Telstra Ltd which is
engaged in the business of providing mobile phones and broadband services to the residents. The
assessment considers the key financial ratios of the company and on the basis of same considers
financial performance of the business. The assessment also shows non-financial indicators which
affects the overall performance of the business. The financial performance of the company is
considered on the basis of financial information from the annual reports of the business.

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ACCOUNTING FINANCIAL ANALYSIS
Resource A
The main purpose of this assessment is to analyse the financial performance of Telstra
Ltd which is engaged in the business of providing mobile phones, telecommunication and broad
band services to the residents of Australia. The assessment would be computing key financial
ratios of the business for the current year and would be covering different area of performance
such profitability, liquidity, cash management and market relations (Telstra.com.au. 2019). Ratio
analysis can be defined as a tool which provides valuable insights regarding the performance of
the business relating different area of performance for the business.
Interpretation
Financial Factors
The ratios which are considered in this assessment are computed considering the annual
reports of the business for the year 2018. The computation of key financial ratios is shown in the
appendix section. The profitability ratio covers the return on equity estimate which is considered
to be one of the key financial indicators of a business. The return on equity figure is shown to
have decreased from the previous year analysis (Carraher and Van Auken 2013). The return on
equity signifies the profits which are earned by the business using the funds of the shareholders
of the business. The revenue and profits which is generated by the business has both decreased
from previous year (Businesswire.com. 2018). The return on equity figure effectively shows that
the ability of the business to meet the expectations of the shareholders of the company. In case of
liquidity ratios, current ratio is considered which is an important indicator for the business (Kim,
Kraft and Ryan 2013). The current ratio is also shown to have decreased during the year which
suggest that the liquidity position of the business has slightly declined from previous year. This
suggest that the business would not have proper funds at their disposal to meet their current
obligations. The management of the company needs to appropriately make decisions in order to
ensure that the liquidity position of the business can be improved.
The total asset turnover ratio of the business represents a part of the efficiency ratios of
the business. The total asset turnover ratio represents the revenue which can be generated by the
business using the total assets of the business. The total asset turnover ratio is shown to have
declined slightly during the period (Delen, Kuzey and Uyar 2013). The market relation ratio is
shown with the help of equity ratio which represent a relation between the total liabilities and
total equities of the business. The equity ratio is shown to have declined during the period. The
annual reports of the business show that the equity of the business has increased which signifies
that the management of Telstra ltd has issued new shares during the period.
The ratio which are computed have been shown to have decreased during the period but
the most significant change is noticed in current ratio which depicts the liquidity position of the
business due to significant fall in the current assets of the company and it also means that the
management might be facing a tough liquidity situation.
Non-Financial Factors
The above discussed factors are all financial factors which depicts the financial
performance but the business has also performed significantly well in terms of non-financial
factors such as the business has enhanced the scale of operations of the business which is shown

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ACCOUNTING FINANCIAL ANALYSIS
to be 17.7 million retail mobile services and 3.6 million fixed broadband services. The company
has operations in more than 20 countries. The non-financial factors which depict the performance
of the business are listed below:
 The retail services for mobile phones has enhanced to be 17.7 million and the fixed
broadband services has also enhanced to 3.6 million.
 The annual report for 2018 shows that the management of the company launched second
generation of Telstra Tv exclusively on demand of the customers.
 The company is the first Australian carrier to offer both Narrowband and Cat M1 Iot
Technologies.
 The company in terms of sustainability has a score of 74 in employee engagement survey
which is an impressive record.
Recommendations
The stakeholders of the business expect that the business would be looking after their
needs and take every step so that the expectations of the stakeholders are fulfilled. The
recommendations which can be provided to the management of Telstra ltd for the purpose of
improving the business structure of the company and for meeting the expectations of the
stakeholders are listed below:
 The management needs to improve the profitability which can be done by reducing the
cost of operations which at the moment is slightly high. The management needs to
introduce management practices which can help in reducing the costs of the business.
 The stakeholders expect the management to enhance their earnings which can be done by
increasing the level of profitability of the business and thereby also enhance the return on
equity of the business.
 The management also needs to ensure that the liquidity position of the business is
appropriate as this would help in meeting the current obligations of the business
effectively. The management can take steps in controlling the cash flows of the business.
 The capital structure of the business needs to be improved by mixing proper proportion of
equity and debt capital.
 From the perspective of the shareholders, the management needs to focus on wealtrh
maximization principle so that the market value of shares can increase.
Conclusion
The performance of Telstra ltd for the year 2018 is shown to be appropriate but certain
improvements needs to be brought about by the management. The ratio analysis shows that the
management of the company needs to consider the profitability and liquidity position of the
business effectively. The above discussion shows the importance of the key ratios which are
considered in this assessment and how the same has impact on the decision-making process of
the business. In addition to this, it can be advised to potential investors that the business is
favourable for making investments even though the current profitability and liquidity is not
appropriate. The main reason for the same is that the company follows an innovative model and
has a potential 0of making significant profits in coming years. In addition to this, the company is
expanding the range of products which is offered by the business which would further contribute
to the profitability of the business.

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ACCOUNTING FINANCIAL ANALYSIS
Resource B
The company which is considered is Telstra Ltd which has a core operation of serving the
telecommunication needs of the people. The company provides mobile phone services and
broadband services to the residents of Australia. The company has its main operations in
Australia and the company also has operations in over 20 countries.
The business has been performing better in Australia, however the management needs to
improve the performance of the business in different regions which is the main reason that the
revenue of the business has declined slightly (Weil, Schipper and Francis 2013). The industry of
Telecommunication in Australia is highly competitive in nature and the expected growth is 0.2%
every year and the revenue which is collected is expected to increase to $ 37.8 billion.
The business of Telstra main focus is to improve the technology level so that the business
can provide fast telecommunication services to the customers and ensure that the customers have
the best quality of services. The company requires skilled employees who are motivated to
perform their activities effectively. The management of Telstra ltd targets to further enhance the
business and scale of operations of the business.
The management of the company is dedicated towards bringing about innovation which
can be regarded as the biggest strength of the business. The remuneration strategy which is
formulated by the business includes Executive Variable Remuneration Plan (EVP) in FY18
which includes STI and LTI arrangements. The wages and remuneration strategy which is
adopted by Telstra ltd is appropriate in comparison to other competitors operating in the
industry.

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ACCOUNTING FINANCIAL ANALYSIS
Reference
Businesswire.com. (2018). Australia Telecoms Industry Statistics and Forecasts 2018-2023:
Telco Market Grows Slowly With Mobile Broadband Driving Growth -
ResearchAndMarkets.com. [online] Businesswire.com. Available at:
https://www.businesswire.com/news/home/20181127005716/en/Australia-Telecoms-Industry-
Statistics-Forecasts-2018-2023-Telco [Accessed 13 Feb. 2019].
Carraher, S. and Van Auken, H., 2013. The use of financial statements for decision making by
small firms. Journal of Small Business & Entrepreneurship, 26(3), pp.323-336.
Delen, D., Kuzey, C. and Uyar, A., 2013. Measuring firm performance using financial ratios: A
decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.
Kim, S., Kraft, P. and Ryan, S.G., 2013. Financial statement comparability and credit
risk. Review of Accounting Studies, 18(3), pp.783-823.
Telstra.com.au. (2019). [online] Available at:
https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20F/2018-Annual-
Report.pdf [Accessed 13 Feb. 2019].
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.

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ACCOUNTING FINANCIAL ANALYSIS
Appendix
Particulars Formula 2018 2017
Increase/
Decrease
$-m $-m
Total Revenue 26011 26013
Net Profit 3529 3874
Current Assets 7077 7862
Current Liabilities 8816 9159
Total Equity 15014 14560
Total Assets 42870 42133
Total Liabilities 27856 27573
Return on Equity Net Income/Owner's Equity
0.23504
7
0.26607
1 Decrease
Current Ratio
Current Assets/Current
Liabilities
0.80274
5
0.85839
1 Decrease
Total Asset Turnover
Ratio Sales/Total Assets
0.60674
1
0.61740
2 Decrease
Equity Ratio Total liabilities/Total Equity
1.85533
5 1.89375 Decrease
2017 2018
0.77
0.78
0.79
0.8
0.81
0.82
0.83
0.84
0.85
0.86
0.87
Current Rati o

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ACCOUNTING FINANCIAL ANALYSIS
2017 2018
0.21
0.22
0.23
0.24
0.25
0.26
0.27
Return on Equity