company analysis report

Company 1: Telstra Corporation 

 

Telstra corporation is a value company since comparing its P/E with the peers, its below the average which means consumers are not willing to pay more for each one unit of Telstra goods. 

 

Years	Current ratio	Quick ratio	Total asset turnover ratio	Gross profit margin ratio	ROE
2015	0.86	0.80	0.64	73.2%	28.9%
2016	1.02	0.96	0.62	72.0%	25.1%
2017	0.89	0.83	0.61	70.5%	25.9%
2018	0.83	0.77	0.61	67.7%	25.0%
2019	0.76	0.72	0.59	63.8%	14.8%
Mean	0.86	0.79	0.52	56.7%	10.7%

Ratio analysis 

There is an increase in Current ratio in Telstra Corporation over 2015 to 2016, but a constantly decrease after 2016 until 2019, it means the Telstra company has the best condition which current assets were able to efficiently cover the current the current liabilities, but after 2016, The Telstra corporation’s current assets has experienced a constant decline hitting to the 2019. According to the news in 2017, Telstra Corporation Ltd, posted an unexpected 11.8 percent fall in first-half profit, dragged down by falling revenues for its mainstay fixed-line and mobile telephone business (First republic news 2017). Since in 2017, Telstra corporation’s revenue has decreased, it would affect on the effectiveness of using current assets to cover its current liabilities, as revenues are part of current assets , it is inefficient to cover the current liabilities without sufficient revenues in the current account, in 2019, Telstra’s profit sunk to the lowest since 1997, this means Telstra continued lost their effectiveness of using the current assets, what is more, by comparing to the peers in terms of the industry average, the current ratio of Telstra is lower the average but just a 0.10 gap which states that Telstra has almost performed moderate in the using of current assets to cover their current liabilities.

This graph has a similar trend with the Current ratio trend graph over the 2015-2016 which means Quick ratio has a strong connection with the current ratio, it means the effectiveness of adjusting current assets by removing less liquid assets, at this point, Quick ratio of Telstra followed the same trend with current ratio of Telstra, which basically means the impacts happened on current ratio have influenced the quick ratio as well, by comparing it with the industry mean, Telstra has relative more less liquid assets than the market average. 

From the graph, it can be seen that the total asset turnover ratio trend of Telstra Corporation tended to be stable but a bit drop during the period from 2015 to 2019, Comparing the condition with the peers, its ratio in 2019 is higher than the average which means during the years, Telstra Corporation company has experienced moderate effectiveness of using its total asset base, with effectively using one unit of asset to generate more efficient sales. According to the financial results presentation from Telstra, it has reduced the fixed costs by $700 million, improved the customer experience and simplified their operations and products, this has impacted on the Telstra’s sales, Telstra has experienced using less costs of one assent to generate more unites of sales over the period. By comparing it with the industry average, it is beyond the average which indicates that Telstra has an advantage of effectiveness of using their total asset base to generate more sales, the assets have been relatively effective used over the period.  https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20F/170818-FY18-Transcript.pdf

From the table, it is suggested that the gross profit margin ratio trend of Telstra Corporation has constantly decreased over the period 2015-2019, in this situation, it is illustrates that the amount of profit on sales have went down slightly, in 2019, according to the News, Telstra’s profits have sunk to their lowest level since it was privatized in 1997, around $600 million of the decline in earnings was due to the impact of the NBA roll out, but excluding this factor the decline was about 4 percent (Duke 2019), by comparing it with the industry mean, it is greater than the data which indicates Telstra’s marginal profit has excessed the market average, apart from the drop in gross profit margin ratio over the period, but a look at the overall with comparing to the market, Telstra has experienced a good condition of profits generation. 

From the graph, it is clearly can be seen that the return on equity trend of Telstra Corporation has been fluctuant over the period 2015- 2019, there was a bit drop from 2015 to 2016, after it. During 2016-2018, it has been stable with a slightly fluctuation, However, there was a significant decline between 2018 to 2019 from 25% to 14.8%, according to the News, Telstra’s share price closed down almost 2 per cent on Monday after the Australian Competition and Consumer Commission revealed it would continue controls on the telco massive copper network for further 5 years, Telstra’s loss of its network monopoly has been accounted by the price of NBN plans and a sudden surge in competition in the market (Fernyhough 2018), by comparing it with the industry average, Telstra’s ROE is still higher than the average, even though the decline of share’s price for Telstra over the last 3 years, but in the overall, it was still operated better than the average, their shareholders were still getting more profits than the most of the other peers in the market. 

 

References: 

 

First Republic News 2017, Reuters, accessed from < https://www.reuters.com/article/telstra-results-idUSL4N1FO1SN > at 09 of September 

Duke, J 2019, ‘Telstra profit down 40 percent, warns a big impact from NBN in 2020’, The Sydeny Morning Herald, viewed from 

https://www.smh.com.au/business/companies/telstra-profit-down-40-per-cent-warns-of-big-impact-from-nbn-in-2020-20190815-p52h8k.html at 09 of September 2019. 

Fernyhough, J 2018, ‘ Telstra shares fall after ACCC extends copper network regulation’, Financial Review, viewed from<  https://www.afr.com/companies/telecommunications/telstra-shares-fall-after-accc-extends-copper-network-regulation-20181126-h18djb >  at 09 of September 2019. 

 

Technical analysis

As we can see from the table, the green line stands for 200 days moving average, and 50 days stands for 50 days moving average. It is can be seen that at 11 October 2018 and at 07 February 2019, the 50 days moving average line crossed the 200 days moving average line from bottom to top, which means this two points are buying points, Telstra company performed better in the most recent period, it is also can be seen that at those two buying points, their volumes of shares were standing out comparing to the recent volumes of dates. What is more, there was a selling point where the 50 days moving average line crossed the 200 days moving average line from top to bottom at about 09 January 2019, which indicates that the Telstra company performed worse than the most recent period, in order to make ideal profits for the shareholder, they should sell their shares at around that day, from this table, it is also can be found that at that selling point, it has the lowest volumes when compared it with the most recent dates within January.