Financial Analysis Of Telstra Corporation Ltd: 2014-16

Income statement analysis

The present study is concerned with the assessment of the financial position of Telstra Corporation Ltd. The report will consider the financial performance of Telstra Corporation Ltd for over the period of three years ranging from 2014-16. The report will consider the income statement, statement of financial positon and cash flow statement to gain an in depth understanding of the financial position of Telstra Corporation Ltd. Additionally, the ratio analysis will be performed to further understanding the financial positon of Telstra Corporation Ltd in the terms of the profitability, efficiency, liquidity and capital structure ratios.

As evident from the financial income statement of Telstra Corporation Ltd during the year ended 2014 the company reported the net revenue of $24,320 million revenue however, in the year 2015 the company reported a rise in the revenue as the net revenue reported by the company stood 26,023 (Telstra.com.au, 2015). Taking into the considerations the profit before income tax, Telstra Corporation Ltd reported some earnings before tax of $6,228 for the year ended 2014 whereas in the subsequent year of 2015 the company reported some earnings before tax of $6,073.        

The net profit after tax stood $4.3 billion for the year ended 2015 and the rise in the revenue is mainly attributed to the increase in the total Foxtel subscriber by 18.4%. Additionally, the profit before tax for the year ended 2016 stood $6,310.  Taking into the considerations net income derived by the Telstra Corporation Ltd in the subsequent year of 2016 it was noticed that in the year 2016 the net income of the company stood $25,911 million (Telstra.com.au, 2015). The net profit after tax reported by the company stood $5.8 billion and the rise in the net profit is largely attributable to the sale of auto home shares with the company reporting the net profit after tax of $1.8 billion (Wahlen etv al., 2014).  

During the year 2016, the retail income of Telstra Corporation fell by 1.5% to $16,656 million whereas the EBITDA further fell by 3.9% to $9,220 million. The fall in the EBITDA was primarily attributed to the falling margin of fixed voice and the effect of migration to the NBN network.

The statement of financial position represents that the gross debt position for the year ended 2016 stood $16,009 that consisted of the borrowings of $17,302 million and net amount of derivative assets for Telstra Corporation standing $1,293 (Telstra.com.au, 2015). The rise in the derivative assets of $1,047 in comparison to the reported figures of June 2015 reflects debt maturities of $1,581, which was offset by a sum of $2,628 million of increasing debt.

The non-current assets during the year 2014-15 increased by 15.7 percent to $33,475 million with intangible assets increasing by $2,950 mainly because of the acquisition of the spectrum. The company reported further increase in goodwill that was resulted from the acquisition of the controlled entities and organizations (Telstra.com.au, 2015). The non-current liabilities increased by 6.5% in 2014-15 to $17,806 million.  

Statement of financial position analysis

During the year 2015-16, the balance sheet of Telstra Corporation demonstrated a strong position with net assets standing $15,907 million. The current assets rose by 34% to 9,340 million and this was largely due to the increase in the cash of $2,154 million. The current liabilities on the other hand rose by 13.0% to $9,188 million whereas the non-current liabilities have increased by 2.2% to $18,191 million.    

The net cash provided by the operating activities for the year ended 2014 stood $8613 million whereas in the year the figure stood 8,311 with a fall of 3.5% (Telstra.com.au, 2015). The net amount of finance cost of Telstra Corporation declined by 28% to $689 million and this was largely due to the reduction in the net borrowing of $87 million and $175 million reduction in the other finance cost. By considering the cash flow statement for the year ended 2014 and 2015 the lower of borrowing cost was primarily because of the lower average debt resulting from the debt maturities that were funded out by Telstra Corporation based on the existing liquidity (Bourguignon et al., 2015).

During the year 2014-15, the free cash flow generated by the firm from the operating and investment activities stood $2,619 million reflecting a fall of 65.0 percent. The difference was primarily because of the payment of spectrum and M&A activities along with the acquisition of Pacnet Ltd. In comparison to the financial year, 2015 the capital expenditure reported in the cash flow statement represented a rise of $3,589 and a large part of this expenditure is incurred on the extended 4G and 4GX services. The reported amount of free cash flow for 2016 stood $5926 million with an increase of $3,307 million. The increase in free cash flow is because of the sale of Auto home along with the mergers and acquisition (Ic et al., 2015).

Profitability ratio represents the class of financial metrics, which is used to determine the ability of the business in deriving revenues in respect of its expenditure (Deegan, 2013). The gross profit margin reported by Telstra has been on a declining trend with gross margin standing 74.14% in 2014 and 73.42% in 2015. The gross margin further fell to 71.95% in the year 2016. The net margin ratio though stood steady as the net profit margin for 2014 stood 17.02% while in 2015 it stood 16.37. With an increase in revenue, the net profit margin gain strength as it stood 22.37% in 2016.  

The operating profit margin for 2015 stood 23.22% while in 2016 it declined to 19.72%. The return on equity for Telstra has been positive as the return on equity stood 30% whereas in subsequently increased to 36.42% the increase in return on equity is primarily due to increase in sale of Auto home shares in 2016 (Jordan, 2014). The return on assets of the firm for the financial year 2014 and 2016 stood 10.86% while in the year 2015 it stood marginally lower to 10.46. However in the year 2016 Telstra Corporation reported an improve return on equity of 13.35%. Overall, it can be said that the overall profitability of the firm has been effective as the business have been successful in meeting its expense in respect of revenue generated (Williams, 2014).

Cash Flow Statement analysis

The efficiency ratio represents the effectiveness of Telstra Corporation in using its assets and liabilities (Warren & Jones, 2018). As evident the accounts receivable turnover stood 6.02 for the year ended 2014 while in the subsequent year of 2015 and 2016 it stood 5.47 and 5.45 respectively. During the year 2014, the asset turnover ratio has been steady as the ratio stood 0.64 and 0.60 respectively. This reflects that Telstra has effectively used its non-current assets to generated sufficient amount of revenue.

The working capital ratio for Telstra during the year 2014 was 1.20 while in the year 2015. In the following years of 2015 and 2016, the ratio stood 0.86 and 1.02 respectively. Overall, by considering the efficiency ratio it can be said that Telstra has been efficient in making a relative use of its assets in proportion to its liabilities since the analysis represents the successful ability of abilities of Telstra Corporation in paying its liabilities with its assets (Henderson et al., 2015).

The liquidity ratio represents those ratios that is between the liquid assets and the liabilities of an organization (Pratt, 2016). In the present context of Telstra Corporation liquidity ratios such as Current ratio, Quick Ratio and Cash Ratio is computed to gauge into the viability of the liquid assets and the liabilities reported by the firm. The current ratio reported by the firm for the year ended 2014-stood 1.20 whereas in the following year of 2015 the current ratio stood 0.86. The fall in trend of current ratio is primarily because of cash flowing out in the acquisition and mergers with firms and heavy outlay in the 4G spectrum service (Dokas et al., 2014). In the following year of 2016, the current ratio gained strength as the ratio stood 1.02 and this is primarily because of increase in cash from the sale of Auto Home.

The quick ratio on the other hand for the year ended 2014 and 2015 stood 1.54 whereas in the following year it gained marginally to stand at 1.58. On considering the quick ratio, it can be staid that Telstra Corporation has been efficient in meeting the short-term financial liabilities (Marshall, 2016).

The cash ratio represents the total cash and cash equivalents to its current liabilities. As evident in the year 2014 the cash ratio stood 0.64 while in the year 2015 it fell to 0.17. The fall in cash flow ratio is due to the payments made on spectrum and M&A activities. However, the cash ratio gained in 2016 with figures standing 0.39 with company reporting an increase in cash from the sale of Spectrum. Overall Telstra Corporation has been efficient in meeting its short financial obligations and the company has been successful in converting cash (Hoskin et al., 2014).   

The capital structure ratio represents the effectiveness of the firm in maximizing its value (Hoyle et al., 2015). As evident, the debt ratio for the firm stood relatively lower throughout the span of three years with 1.54 and 1.58 for the year 2015 and 2016 respectively. The equity ratio measures the financial leverage of Telstra as the equity ratio for the firm during the year 2015 and 2016 stood 0.35 and 0.37. This represents that the company is effectively managing its debt to finance its assets. The debt equity ratio represents the amount of debt used by Telstra Corporation in financing its value to the shareholders (Bodie et al., 2014). As evident, the debt to equity ratio stood 1.87 during the year 2015. In the following year of 2015 and 2016, the ratio stood 1.87 and 1.73 respectively. 

Conclusion: 

On a conclusive note the analysis, suggest that the overall performance of the firm has been growing as the business has made advancement in technologies and constant innovation so that it can reshape the telecommunication technology and market as well. The company has been able to transform the consumer anticipation with segmented products across its area of operations. The financial analysis represents that the company has performed well in the market by improving its revenue from operations.

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