Due date: 17 April 2014
Ange Dong (24831271)
Ee Heng Lim (25025287)
Lecturer: Eric Lee
Word count: 2089
Table of Contents:
This report will analyze selected three telecommunication companies, which are Telstra (TLS), Reverse Corp Limited (REF) and SingTel Optus Pty Ltd (SGT) from Australian Stock Exchange (ASX). Company’s data will be tabulated from 2009 to 2013 and to evaluate company’s profitability, efficiency, liquidity, capital structure and market performance. Next, by examine and comparing the past performance and position of these companies, it would provide a clearer insights for different type of investors based on the company’s nature.
Part 1. Company Analysis
Telstra Corporation limited (TLS)
Net profit margin
Figure 1: TLS profitability ratio (Fin analysis, 2013)
Overall, Telstra made positive net profit margin over last five financial years. As shown in figure 1, its profitability declined sharply in 2011 but soon recovered in 2012. A decline in EBIT can be attributed to higher expenses per dollar of sales, heavily investment or rising operating costs. Consequently, ROE and ROA declined in 2011, means less return generated per dollar of investment in assets and equity. This could be due to the decline of net profit, or increase of asset and equity investment. However, the average ROE and ROA during last five years are 30.89% and 11.69%, present a quite stable profitability. This reflects executives efficiently in managing the assets and equity of Telstra.
Asset turnover ratio
Figure 2：TLS efficiency ratio (Fin analysis, 2013)
Telstra has maintained its asset turnover ratio at an average of 64.7% over last five financial years, relatively high ratio indicate that Telstra is managing its current and non-current assets to generate higher sales revenue. Average of days receivables were 45 days whereas days payable were 58 days, it means Telstra spent less time to receive money than to pay out money. This suggests Telstra managers enacted efficient payment policy that minimizes the bad debt risks.
Figure 3: TLS liquidity ratio (Fin analysis, 2013)
As shown in figure 3, both current and quick ratios kept increasing over the last five years, with its current ratio averaging of 0.9 is below the arbitrary rule of thumb of 1.5, whereas quick ratio at an average of 0.86. The low current ratio may not indicate that Telstra have liquidity problems, since comparing current ratio with quick ratio, the percentage were almost same, due to the nature of telecom business which does not require high level of inventories, thus activity cycle is relatively shorter than other industries and hence is able to support a lower level of liquidity. Overall, the increased ratio indicates that Telstra did good job in its liquidity during last five years.
1.4 Capital structure
Debt to Equity Ratio (D/E)
Net interest cover
Figure 4: TLS capital structure ratio (Fin analysis, 2013)
The debt to equity ratio reveals that Telstra relied more on debt funding relative to equity funding, as its debt to equity ratios were above 100% during the period of 2009-2013. The sharp increase in D/E ratio in 2012…