Australian Institute of Management: Financial Analysis of Telstra

This report presents a comprehensive financial analysis of Telstra Corporation, examining its performance from 2018 to 2019. It delves into various financial ratios, including liquidity, profitability, efficiency, gearing, and market value ratios, to assess the company's financial health. The analysis reveals a decline in key financial indicators, such as current and quick ratios, indicating a decrease in liquidity. Profitability ratios like net profit margin, return on assets, and return on equity also show a downward trend, suggesting reduced profitability. Efficiency ratios demonstrate a slight decrease in asset turnover but an increase in receivables turnover. Furthermore, the report explores gearing ratios, highlighting changes in debt-to-equity and debt-to-capital ratios, and concludes with an examination of market value ratios, including EPS and dividend payout ratios. Overall, the analysis indicates a weakening financial position for Telstra, raising concerns for potential investors.

Running Head: MANAGING FINANCIAL RESOURCES AND DECISIONS
MANAGING FINANCIAL RESOURCES AND DECISIONS
Name of the Student
Name of the University
Author Note

1MANAGING FINANCIAL RESOURCES AND DECISIONS
Executive Summary
Financial analysis includes using of financial data for assessing performance of company and
making recommendation regarding the way it can be improved. It is the aspect of overall
finance function of business, which is consists of examining historical data for gaining
information about future and current performance of company. Therefore, this report aims to
do financial analysis of Telstra Corporation. Hence, it can be said that the current financial
position of Telstra is not good for investment by the investors because the liquidity, solvency,
profitability, efficiency and market value of company has been reduced from 2018-2019.

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Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Financial Analysis of Telstra Corporation.............................................................................3
Conclusion................................................................................................................................10
Reference..................................................................................................................................11

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Introduction
The success of business organization is related directly to competencies of the
business management. As the result of which business organization creates variations of the
way, new complex as well as changing situations of the success in market can be approached.
In order to approach stable and long-term approaches, managers tries to change their
approaches of management, during negative times. In global market economy, which is
subjected to constant uncertainties, the business organizations are faced with the demanding
economic conditions. Hence, for maintaining competitive and stable position on market,
providing inputs for management, making strategic decisions and achieving economic goals,
these business organizations are forced to constantly analyzing and monitoring their financial
situations (Dalnial et al. 2014).
Financial analysis is foundation of economic performance analysis of the company. It
is tool of the health diagnostics and it provides key information to the business owners and
managers by detecting strengths and weaknesses of company (Cagnazzo et al. 2014).
Therefore, this report aims to analyze financial performance of Telstra Corporation and
discussion will be on key financial issues, which are having particular importance to
organization.
Discussion
Financial Analysis of Telstra Corporation
In Australia, Telstra Corporation Limited that is also known as Telstra is one of the
most successful company. It is the largest mobile network of Australia, which provides users
with the home and mobile phones, internet packages and plans and others. Telstra is leading
information services and Telecommunication Company with the best brands in country. It is
full service international and domestic telecommunications provider for the Australia. In

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Australia, company provides retail mobile services of 18.3 million, retail fixed standalone
voice services of 1.4 million and retail fixed bundles and the services of standalone data of
3.7 million. Telstra operates in four different segments that is Telstra retail segment, Telstra
operational segment, Telstra wholesale segment and Telstra Enterprise and services segment.
The financial report of Telstra is “general purposes financial report”, which is
prepared by “for profit entity” according to “Australia Corporation Act 2001”. The year
2018 has been incredibly important year for the company, where it has embraced many
changes for ensuring continued success in future. The company is making good progress on
its strategy, however they feel significant impact of rollout of nbn on the profit and earnings
and the competition in market of mobile is high (Telstra.com.au, 2020).
Analysis of Liquidity Ratios
Liquidity ratio is the financial ratio, which indicates that whether the current assets of
company will be enough to meet their obligations, as and when it becomes due. This ratio
tells the ability of paying debt, when it becomes due. The entity tries to convert current assets
as early as possible into cash for paying its liabilities on time. This affects credibility and
credit rating of company. If there will be continued defaults in the repayments of short-term
liability then it will lead towards bankruptcy. Liquidity ratios plays vital role in company’
credit ratings and stability. Hence, for doing liquidity analysis of company, two ratios are
calculated, which includes current ratio and quick ratios (Hasibuan & Syahrial, 2019).
The current ratio of company was 0.83 in 2018, which reduced to 0.83 in 2019. It
means the ratio has been decreased by 0.07. It indicates that ability of Telstra Corporation in
meeting its short-term debts with its short-term assets has been decreased. This indicates
decline in liquidity position of company. The industry average of company is 0.99. This
indicates good liquidity position of industry compared to Telstra. Further, quick assets of

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Telstra was 0.72 in 2018, which reduced to 0.67 in 2019. It means the ration has been
decreased by 0.05. This indicates that ability of Telstra Corporation in meeting its short-term
obligations, with its most current assets has been decreased. The industry average of quick
ratio is 0.9. This indicates that industrial liquidity position for meeting short-term liabilities
from its most current assets is good compared to Telstra (Kanapickienė & Grundienė, 2015).
Current Ratio 2019 2018
Current Assets 7,303.00 7,290.00
Current Liabilities 9,553.00 8,785.00
Result 0.76 0.83
Quick Ratios 2019 2018
Quick Assets 6,398.00 6,367.00
Current Liabilities 9,553.00 8,785.00
Result 0.67 0.72
Telstra Group
Liquidity Ratios
Table 1: Liquidity Ratios of Telstra
Analysis of Profitability Ratios
The profitability ratios are the ratios, which helps in comparing accounts and
categories of income statements for showing ability of company for generating income from
its operations. This financial metrics are used by the investors and analysts for evaluating and
measuring company’s ability for generating profit relative to the revenue, shareholders’
equity, operating costs and assets of balance-sheet. In order measure profitability of
company, three ratios are calculated, which includes net profit margin, return on assets and
return on equity (Khaliq et al. 2014).
The net profit margin was 14% in 2018, which reduced to 9% in 2019. It means there
is 5% decrease in the ratio. This indicates that total net profit earned compared to the total
revenue earned from the operations has been decreased. The company is not able to generate

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enough income from is its total revenue. It is because of increased operating costs of
company. The industry average of net profit margin is 13%. This indicates net profit margin
of Telstra is not in par with industry’s profitability margin. Further, return on assets was 8%
in 2018, which reduced to 5% in 2019. This means there is 3% decrease in ratio. It indicates
that ability of Telstra Corporation in investing and utilizing its total assets for generating
return has been decreased. It indicates downward profit trend of the company, as rate of
return on the resources owned by business has been decreased (Kim & Im, 2017). The
industry average of this ratio is 8%. This indicates, ROA of industry is better compared to
industry. Moreover, return on equity was 24% in 2018, which reduced to 15% in 2019. It
means there is 9% decrease in ratio. It indicates that the ability of Telstra Corporation in
generating profits from the investments of shareholders has been decreased. This is not good
indicator because it shows that management is not able to effectively use assets of company
for creating profits. The industry average of this ratio is 11%. This means ROE of Telstra is
better compared to industry (Lakshmi, Martin & Venkatesan, 2015).
Net Profit Margin 2019 2018
Net Profit 2,149.00 3,557.00
Net Sales 25,259.00 25,848.00
Result 9% 14%
Result on Assets 2019 2018
Net Income 2,149.00 3,557.00
Total Assets 42,589.00 42,723.00
Result 5% 8%
Return on Equity 2019 2018
Net Income 2,149.00 3,557.00
Shareholders' Equity 14,530.00 14,619.00
Result 15% 24%
Profitability Ratios
Table 2: Profitability Ratios of Telstra
Analysis of Efficiency Ratios

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Efficiency ratios are the ratios, which helps in measuring how well the company
manage its routine affairs. It is used for analyzing efficiency of company in utilizing its assets
and liabilities. This particular ratio is used for analyzing and tracking performance of the
company. This ratios is also known as activity ratios that are used by the analysts for
measuring performance of the current or short-term performance of company. For measuring
efficiency of Tesltra Corporation, two ratios are calculated, which includes assets turnover
ratio and receivables turnover ratio (Mankin & Jewell, 2014).
The assets turnover ratio of Telstra was 0.61 in 2018, which reduced to 0.59 in 2019.
This means there is decrease in ratio by 0.02. It indicates that Telstra Corporation is not able
to utilize its assets in efficient way for producing sales. The higher ratio of asset turnover
ratio is good indicator. However, as it can be seen that company’s assets turnover ratio has
been decreased, which clearly implies that assets are not used by company in efficient way
for generating sales (Myšková & Hájek, 2017). The industry average of this ratio is 0.65.
This indicates that utilization of assets in generating revenue is more in industry compared to
Telstra. Further, the receivables turnover ratio of company was 4.43 in 2018, which increased
to 4.60 in 2019. It means there is increase in the ratio by 0.17. It shows that accounts
receivables collection by Telstra Corporation is efficient and this company is having high
proportion of the quality customers, which paid their outstanding debts quickly. As and when
the debts of customers becomes due, they make payment as early as possible. This is very
good indicator. The industry average of this ratio is 13.4. This indicates that receiving of debt
amount quickly from debtor is more quickly in industry as compared to Telstra (Nia, 2015).

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Asset Turnover Ratio 2019 2018
Net Sales 25,259.00 25,848.00
Average total Assets 42,656.00 42,364.50
Result 0.59 0.61
Receivables Turnover Ratio 2019 2018
Net Sales 25,259.00 25,848.00
Average Accounts Receivable 5,490.00 5,839.00
Result 4.60 4.43
Efficiency Ratios
Table 2: Efficiency Ratios of Telstra
Analysis of Gearing Ratios
Gearing ratio is the ratio that measures proportion of borrowed funds of the company
to its equity. It is group of the ratios, which compares some kind of shareholder’s equity to
debt or the funds borrowed by company. This ratio is measurement of financial leverage of
company that helps in demonstrating degree to which the activities of company are funded by
the shareholder’s fund versus the funds of creditors. For measuring financial leverage of
company, two ratios are calculated, which includes debt to equity ratio and debt to capital
ratio (Rodrigues & Rodrigues, 2018).
The debt to equity ratio in 2018 was 1.92, which increased to 1.93 in 2019. This
means there is increase in ratio by 0.01. It indicates that ability of shareholders’ equity in
covering its all debt in event of the business downturn has been slightly decreased, as uses of
debt has been increased. Debt is considered to be cheaper source of finance, hence, it is good.
The industry average of total debt to equity ratio is 116.23%. This implies that in less debt is
used by company in comparison to debt used by whole industry of telecommunication
(Abdullah, 2016). Further, debt to capital ratio was 0.66 in both the years that is 2018 and
2019. This mean that there were no change in the ratio between both years. It means that
there has been no changes in the leverage condition of company. The uses of debt is more in
comparison to equity. It is good because it is cheapo but it cannot be denied that that uses of

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debt is risky. The industry average of this ratio is 0.49, which is less in comparison to debt
uses by Telstra (Tan & Robinson, 2014).
Debt to Equity Ratio 2019 2018
Total Debt 28,059.00 28,104.00
Total Equity 14,530.00 14,619.00
Result 1.93 1.92
Debt to Capital Ratio 2019 2018
Total Debt 28,059.00 28,104.00
Total Capital 42,589.00 42,723.00
Result 0.66 0.66
Gearing Ratios
Table 2: Gearing Ratios of Telstra
Analysis of Market Value Ratios
When analyst wants to have understanding of how well other investors value the
entity then they looks at the market ratios. It evaluates current market price of the common
stock share versus indicator of the ability of company for generating profits of company. This
ratio helps the analysts to understand how the investors feels about certain company. EPS and
dividend payout ratios are determined for measuring market value of company (Uechi et al.
2015).
The EPS of company was 30.20 in 2018, which reduced to 18.10. It means that there
is decrease of 12.10 cents from 2018-2019. This indicates that in comparison to 2018, the
availability of net income of the company for making payments to common stock holders has
been decreased. This trend is not good from the investors point of investors, as it is signal that
stock price of company may decline in future. The industry average of EPS is 1.42%. It
implies that EPS of Telstra is good compared to industry. Further, dividend payout ratio of
company was 0.36 in 2018, which increased to 0.44 in 2019. This means the ratio has been
increased to 0.08. It indicates that the ability of Telstra in paying percentage of the earnings

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to shareholders in the dividends has been increased over the year. It also shows that company
is maintaining stability in paying dividends. The industry average of this ratio is 0.50. It
implies that in comparison to industry, company is distributing less dividend (Williams &
Dobelman, 2017).
EPS 18.10 30.20
Dividend Payout Ratio 2019 2018
DPS 8.00 11.00
EPS 18.10 30.20
Result 0.44 0.36
Market Value
Table 2: Market Value Ratios of Telstra
Conclusion
Therefore, this report concludes that financial performance of Telstra Corporation has
been declined over the years. It has been analyzed that the liquidity position of company has
been low for both the years 2018-2019 and it has been declined also. Further, the profitability
position of Telstra has been drastically reduced and it is not performing in accordance with
the average set by the industry. Moreover, the efficiency position of company indicates that
company is not utilizing its assets for generating sales, however, the customers of company
pays their dues quickly. In addition, solvency position of company indicates that company is
using more debt in comparison to equity, which is risky. Further, the market value of
company is decreased because of decrease in EPS, however, company is paying regular
dividends. Lastly, it can be said that currently, it is not good investing choice for the investors
to invest in Telstra Corporation.

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