ACCT100 Financial Statement Analysis - Telstra Assignment Sample

• Subject Code : ACCT100
• Subject Name : Accounting and Finance

Principles of Accounting

Executive summary of Telstra

Telstra has been an attractive investment proposition so far, its financial ratios in terms of profitability, liquidity and solvency are concerned. Though the figures in 2019 are on a declining mode, it is still to show off a stronghold in its financial scenario. The financial ratios are used for making such decision but such ratios could be misleading, still is one of the popular ways for contemplating business decisions. Telstra beside its finances is also a coherent name in delivering a higher level of ethical stance in terms of responsible business, digital innovations and environmental solutions.

Table Of Contents

Introduction:

Financial feasibility:

Profitability –.

Liquidity –.

Solvency –.

Investment feasibility for Telstra:

Evolution of corporate reporting:

Key measures of ethics by Telstra:

Conclusion:

References.

Introduction to Telstra 

The report would determine the financial feasibility of the Melbourne based Australian telecommunication organisation, Telstra providing services in terms of voice, internet, mobile, television and other services. The report would assess the financial feasibility in terms of profitability, liquidity and solvency of the organisation. The results would be used to adjudge whether Telstra would be a favourable investment and a proper decision would be attained to keeping in mind the limitation of the financial ratios. Besides financial proposition, the report would also go through the other sustainability factors that are required for the organisation for its rightful sustenance. It would also come up with certain key measures to be undertaken by Telstra in ensuring a higher level of ethical instincts.

1. Financial feasibility:

In this section, a financial analysis would be carried forth in lieu of the financial elements such as profitability, liquidity and solvency for two consecutive years, 2019 and 2018.

Profitability –

The profitability element would be discussed in terms of operating margin, net margin and return of equity.

Operating margin:

The operating margin for Telstra comes as 13.31% in 2019 while it was 19.86% in 2018 showing the operational efficiency of the organisation to retain suitable profitability after incurring the operational expenses (Deegan, 2014). The figure shows that in 2018, the organisational position was comparatively better owing to marginally higher revenue and lower operational costs while in 2019, the situation was in stark contrast.

Net margin:

The net margin of Telstra stands at 12.33% in 2018 which reduced to 7.73% in 2019. The figure shows off the organisational resources left behind after incurring the sorts of expenses to be distributed among the investors (Hopper & Bui, 2016). It indicates that the organisation expenses are higher in the current year with a lower revenue as a comparison to its previous year indicating the scenario to control the expenses.

Return on equity:

Return on equity (ROE) shows the organisational return for the investors based on their investment on the organisation. In this case, Telstra got an ROE of 24.33% in 2018 which reduced to 14.79% in 2019 implicating a lower return for the shareholders. It is generally considered higher the ROE, it is better for the organisation and a range of 15-20% is considered a good ROE. So though the ROE of Telstra is in a decline mode, it is still in the effective range of a good ROE making the organisation investment-worthy (Brewer, 2017).

Liquidity –

The element of liquidity would be discussed in lieu of the current ratio and quick ratio.

Current ratio:

Current ratio indicates the liquidity level of the organisation to meet its immediate obligations that need to be honoured within a year (Granlund & Lukka, 2017). Telstra had a current ratio of 0.83 in 2018 which slightly reduced to 0.76 in 2019. It is seen that Telstra is undertaking an aggressive approach to meet its business objectives by utilising the idle resources while raising the liquidity risk to an extent.

Quick ratio:

Quick ratio for Telstra has been 0.77 in 2018 which marginally reduced to 0.72 in 2019. The scenario depicts that Telstra has the requisite liquidity to meet its current obligations that might erupt immediately say within a month (Edwards, et al., 2015). So the current figures of quick ratio show that Telstra with its current liquidity level would be able to honour its immediate business obligations keeping away the risk of bankruptcy.

Solvency –

The solvency aspect of Telstra would be illustrated through the inventory turnover ratio, account receivable (days) and account payable (days).

Inventory turnover ratio:

Telstra has been able to enhance its inventory turnover ratio from 37.85 in 2018 to 44.27 in 2019 as a higher inventory turnover indicates better inventory management for the organisation (Messner, 2016). The figure below indicates that Telstra has been in a position to sell off its inventory owing to its efficient market proposition. So higher the inventory turnover ratio, it is better for Telstra to yield good results.

Account receivable (days):

The figures above tell about the capability of the organisation to collect its dues from the market and lower the days, it is suitable for the business. But Telstra has a higher receivable day which comes as 70.72 days and 70.78 days in 2018 and 2019 respectively. So there has not been any major difference in the figures over the years indicating that the collection department of Telstra is not good at negotiation to facilitate the payment faster (Maynard, 2017). The figures could be brought down by offering a discount to the debtors to initiate a faster payment.

Account payable (days):

Accounts payable days gives the number of days the organisation needs to pay off its debts and higher the days, it is better for the organisation (Granlund & Lukka, 2017). Telstra had 88.75 days in 2018 which reduced to 83.32 days in 2019. Generally, the businesses tend to pay off the debts at a later stage owing to the credit agreement as in case of Telstra. It is seen that the telecom organisation has been paying off its debt little earlier than the previous year. It might be due to a favourable credit agreement with the creditors offering a suitable discount initiating early payments.

2. Investment Feasibility for Telstra:

The profitability, liquidity and solvency scenario of Telstra shows that the organisation is running well, managing its assets effectively and extracting suitable profitability not only for itself but for its shareholders as well. The profitability aspect shows that though in 2019, the figures are on a declining phase it is in the safe range of effective organisational profitability. It indicates that the organisation is doing well in the market and have a sustainable future (Granlund & Lukka, 2017). The liquidity aspect shows that the organisation is equipped to honour its dues avoiding the risk of bankruptcy.

Further, the higher inventory turnover ratio shows the frequency of the stocks getting rewind indicating healthy demand of the product and services of Telstra in the market. So it would be wise to invest in Telstra going by its financial ratios for a better return in future (Ikerd, 2012). Besides the financial workings, Telstra is also actively involved in laying down sustainable and transparent ethical means to have a tolerant, peaceful and coherent society indicating its strong branding and reputation in the market.

Limitation of financial ratios:

The investment decision on Telstra has indeed been undertaken based on the figures derived from the financial statement by working out the financial ratios (Brewer, 2017). But the financial ratios are not full-proof as they are subjected to the following limitations –

Telstra might make some year-end change in its financial statement to look at the financial figures impressing as part of window dressing measurers.

The financial ratios do not abide by the inflation as it considers the historical costs keeping aside the future value of the figures (Hopper & Bui, 2016).

The financial ratios avoid the qualitative aspect of the organisation upholding the financials only.

The financial ratios do not tend to solve the financial issues of Telstra rather provide vague guidance (Messner, 2016).

There are certain rules and regulations in finance that could be exploited by the organisations for working out its financial ratios giving an incorrect assumption.

So, it is seen that though the financial ratios enable to have the investment decision it is not devoid of any flaws, any sort of decision would be made keeping in mind the above factors as well.

3. Evolution of Corporate Reporting:

In the 21^st century, financial reporting is not the ultimate say in reporting as the organisations have to abide by the sustainability factors as well. So the following aspects need to be reported to show the sustainability measures undertaken by Telstra –

• Responsible business – Telstra commits for a responsible, transparent and accountable business scenario during the changing times. The organisation strives to uphold the ethical aspects in business along with technological advancements and new business opportunities to explore the market (Vaughan, 2011). In this process, Telstra commits to manage a well-built relationship with its suppliers and employees and live up to their expectations.
• Digital innovations – For FY2019, Telstra undertook digital inclusion making a point to promote the same through its product and services. The telecom company invested substantially to attain the objective of ‘Everyone Connected’ program (Telstra Exchange, 2020). It is to inculcate the right support and expertise to browse the online resources confidentially and safely giving away the risk of hacking and security breach. The organisation connected approximately 1 million vulnerable subscribers through its safe network and trained 36,000 personnel through its digital capability exercises.
• Environmental solutions – Telstra involved itself to address the issues of the resilience of climate change, so the business efforts to conceive and leverage advanced technologies emitting lower carbon. As a resultant effect, Telstra has changed its business approach by placing itself as an environment-friendly organisation by investing $4.7 million to have energy efficiency business processes (Ikerd, 2012).

4. Key Measures of Ethics by Telstra:

The following measures could be rightly attributed as fair ethical practices undertaken by Telstra:

• Governance – Telstra has strategized its Values and Code of Conducts to set forth the behavioural standards in lieu of a global approach for its ethical and defiance commitments (Jänicke, 2012). The organisation arranges for its compliance training program aligned with the Code of Conduct as an integral part of its governance framework. It is reported that in FY2019, 98.3% of its employees underwent the compliance training program successfully to have fair business practice in the workplace.
• Anti-bribery and anti-corruption drive – Telstra abide by the Suppliers and Business Partners regulation to close a deal effectively in lieu of minimum standards owing to ethical obligations. It also strives to protect the identity of the whistle-blowers and ensure a fair investigation to unearth the matter (Telstra Exchange, 2020).
• Data privacy – the Code of Conduct for Telstra upholds to protect the confidential data and information of the customers and abides by the prevailing Australian regulations for the purpose. The company admits that some of the data and personal information of the clients are used to provide intelligence to the administration strictly for national interest, otherwise such things are not at all entertained.
• Transparency with customers – Telstra assists the administration in dealing with criminal law activities, financial crime and other lawless events by sharing the details and information it possesses of such alleged subscribers. It is to have a peaceful and coherent society as supported by the local administration.

Conclusion on Telstra 

The report concludes the fact that Telstra is quite strong in its financials making it a suitable investment proposition. Be its profitability, liquidity or solvency, all the elements are likely to give the telecom company a fillip to enhance its proposition in the upcoming days making it investment-worthy. But the decision is based on financial ratios which are worked out based on historical data. So the potential investor needs to be aware of such facts. It is seen that Telstra lays down a helping hand in having an ethical business scenario focusing on the aspects of responsible business, digital innovations and environmental solutions. So, from each avenue, Telstra is a wise investment proposition giving the impression of having a sustainable future in commercial terms.

References for Telstra 

Brewer, P. C., 2017. Redefining Management Accounting. London: IFAC.

Deegan, C., 2014. Positive Accounting Theory. In: Financial accounting. 8th ed. North Ryde, NSW: McGraw-Hill Education, pp. 308-314.

Edwards, A., Schwab, C. & Shevlin, T., 2015. Financial constraints and cash tax savings. The Accounting Review, 91(3), pp. 859-881.

Granlund, M. & Lukka, K., 2017. Investigating highly established research paradigms: Reviving contextuality in contingency theory based management accounting research. Critical Perspectives on Accounting, 45(2), pp. 63-80.

Hopper, T. & Bui, B., 2016. Has management accounting research been critical?. Management Accounting Research, 31(5), pp. 10-30.

Ikerd, J., 2012. The essentials of economic sustainability. CT ed. Bloomfield: Kumarian Press.

Jänicke, M., 2012. “Green growth”: From a growing eco-industry to economic sustainability. Energy Policy, 48(2), pp. 13-21.

Maynard, J., 2017. Financial accounting, reporting, and analysis. London: Oxford University Press.

Messner, M., 2016. Does industry matter? How industry context shapes management accounting practice. Management Accounting Research, 31(12), pp. 103-111.

Telstra Exchange, 2020. Sustainability Report 2019 | Telstra Exchange. [Online]
Available at: https://exchange.telstra.com.au/sustainability/
[Accessed 13 May 2020].

Vaughan, D., 2011. The importance of capabilities in the sustainability of information and communications technology programs: the case of remote Indigenous Australian communities. Ethics and Information Technology, 13(2), pp. 131-150.

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