Answer To: It is a 2000 word report which is due on the 9th of june 11 pm. It is the final assessment so there...
Tanmoy answered on Jun 08 2021
Valuation of Telstra Corporation Limited
Introduction
Telstra Corporation Ltd is an Australian telecommunication company which constructs and conducts its business in telecommunication networks, mobile, internet, pay television and market voice. The company was set up in the year 1975 and was originally controlled by Postmaster General’s Department (PMG) which was formed in the year 1901 as a result of the formation of Australian Federation. Presently it is headed by Andy Penn who is the CEO and John Mullen who is the chairman of Telstra. It is headquartered in Melbourne, Australia. There are approximately 26000 employees who work in Telstra as on 2019. The share of the company is traded on the ASX and NZX with the code TLS. As on 2020, Telstra earned revenue of $22767 million.
Company Financials
Financial Position of Telstra
Fiscal year is July-June. All values AUD Millions.
2020
2019
2018
2017
2016
Sales/Revenue
22,767
24,291
24,950
26,013
25,911
Sales Growth
-6.27%
-2.64%
-4.09%
0.39%
-
Cost of Goods Sold (COGS) incl. D&A
19,819
19,647
19,529
18,982
17,826
COGS excluding D&A
13,421
14,379
14,060
13,560
12,803
Depreciation & Amortization Expense
6,398
5,268
5,469
5,422
5,023
Depreciation
3,774
2,810
3,005
3,058
2,957
Amortization of Intangibles
1,564
1,472
1,465
1,383
1,198
Amortization of Deferred Charges
1,060
986
999
981
868
COGS Growth
0.88%
0.60%
2.88%
6.48%
-
Gross Income
2,948
4,644
5,421
7,031
8,085
Gross Income Growth
-36.52%
-14.33%
-22.90%
-13.04%
-
Gross Profit Margin
12.95%
-
-
-
-
SG&A Expense
1,622
2,658
2,472
2,254
2,132
Other SG&A
1,622
2,658
2,472
2,254
2,132
SGA Growth
-38.98%
7.52%
9.67%
5.72%
-
EBIT
1,326
1,986
-
4,777
5,953
Unusual Expense
468
1,389
727
437
456
Non Operating Income/Expense
3,025
3,129
3,579
1,847
791
Non-Operating Interest Income
274
238
218
138
86
Interest Expense
1,056
904
858
710
789
Interest Expense Growth
16.81%
5.36%
20.85%
-10.01%
-
Gross Interest Expense
1,113
1,009
959
791
862
Interest Capitalized
57
105
101
81
73
Pretax Income
3,101
3,060
5,161
5,615
5,585
Pretax Income Growth
1.34%
-40.71%
-8.09%
0.54%
-
Pretax Margin
13.62%
-
-
-
-
Income Tax
957
923
1,582
1,773
1,768
Income Tax - Current Domestic
973
943
1,549
1,747
1,768
Income Tax - Deferred Domestic
-16
-20
33
26
-
Equity in Affiliates
-305
12
-22
32
15
Consolidated Net Income
1,839
2,149
3,557
3,874
3,832
Minority Interest Expense
20
-5
-34
-17
69
Net Income
1,819
2,154
3,591
3,891
3,763
Net Income Growth
-15.55%
-40.02%
-7.71%
3.40%
-
Based on the income statement of Telstra extracted over the past five year from 2016 till 2020 it can be stated that the sales of the company has declined by -6.27% in 2020 compared to 2019. This was mainly due to slowdown combined with global pandemic covid-19 effects. The revenues of Telstra were hit in all the areas like fixed wholesale and mobile.
The net income of the company was down by -15.55% in 2020 compared to 2019. This was mainly due to increase in the costs of the company related to ongoing NBN migrations which resulted in the partial slowdown in the growth of Telstra (Telstra Annual Report 2020). There was also a loss of $150 million from the international roaming due to non-visiting of travellers in different countries. Also since most of the companies were shutdown due to the advent of covid-19, the usage of telecommunication was less and as a result Telstra suffered losses (Nico Arboleda, 2021).
Working capital of Telstra
Ratio Analysis
2020
2019
2018
2017
2016
Current Ratio
0.64
0.75
0.82
0.86
1.02
Quick Ratio
0.60
0.71
0.77
0.76
0.96
Working Capital
-3,642
-2,345
-1,564
-1,297
152
Growth/ (Decline) in WC
-55%
-50%
-21%
-953%
From 2017 onwards it can be observed that there was a negative growth in the working capital of Telstra. The negative growth rate in working capital was at -55% in 2020 and signifies that the company is unable to meet it short term requirements and debt obligations with the available current assets. This is not a good indicator for the company.
The current ratio which is the measurement of the company’s ability to meet its short term debt obligation signifies that the ratio is 0.64 in 2020 compared to 0.75 in 2019. This signifies that Telstra’s ability to meet the short term obligations are declining over a period of time.
There are reasons due to which the working capital of the company is declining. These are due to global slowdown due to covid-19; Telstra’s investment in new projects in various parts of Australia and utilizing the current assets efficiently without keeping it ideal for a longer period of time. Also there are large numbers of leases for Telstra which are paid through...