Financial Statement Analysis Assignment Sample

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Financial Statement Analysis Assignment Sample

1.0 Introduction

TPG telecom limited is an Australian telecommunication and IT company that generally provides broadband and internet services in Australia. This company is second largest telecommunication and internet service provider all over the world (Dwyer, 2014). This Total Peripheral group was established in 1992 by Vicky Teoh and David Teoh. David Teoh is the executive chairman and one of the founder members of this TPG Telecom Limited. The head quarter of this company is in 65 Waterloo Road, North Ryde, NSW in Australia.

 The main products of TPG Telecom Limited are internet services, online televisions, accounting software, OEM service and mobile network services. Ending date of current fiscal year of this company is 31st July, 2016. This company generally provides its services in New Zealand and Australia. This company has 671000 internet subscriber and 360000 mobile subscribers. KPMG is the professional service company that generally the independent audit service of Total Peripheral Group (Brennan, 2017). The independent Auditors of this company said in the financial statement with a view to some basic preparation, functional currency and functional and presentation currency (Zeitoun & Mdawar, 2016). Some subsidiaries of this company are Adam Internet, AAPT Limited, Agile Communications, Net Space, PIPE Network etc. there are 1400 employees work in this company. Recent stock price of this company is 5.22 AUD and the last dividend date is 22nd November, 2016 and the dividend Amount is 70.5c.

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2.0 Industry Situation and Company Plans

2.1 Industry and Its Outlook

Internet and broadband services in Australia are now improved due to the range of technologies such as hybrid fiber, different digital subscriber lines and integrated service digital network (ISDN) services etc. (Liu et al., 2017). In present days all the office works in Australia generally maintained with the help of internet services. Total Peripheral groups mainly provide different broadband packages for different official and personal use segments. This company also introduced different unlimited internet plans limitless data uploading and downloading. This company also provides different accounting software for office use and another major segment of this company is mobile networking. The current asset of TPG telecom Limited is $970.9 million in the financial year 2016 and total revenue of this company was $2387.8 million.

 2.2 Future Plans of This Company

The main future plan of this company is to expand their business in foreign market to increase the profitability of this company. On the other hand Total Peripheral group are planning to invest huge amount on mobile network service segments. This company also spends $600 million to roll out the networks to achieve 80% population coverage.

3.0 Financial Statement Analysis

3.1 Financial performance of TPG Telecom Limited

Based on the financial report of this company, gross profit of Total Peripheral group in the financial year 2014 is $255.8 million. In case of financial year 2015 the gross profit of this company was $338.8 million and in case of financial year 2016 the gross profit of the company is $597.4 million. On the basis of financial report of TPG telecom Limited it has been found that there is a massive increase of gross profit of this company in the financial year 2015. That means the profit is $258.6 million more than previous year. On the other hand, TPG Telecom Limited increases their profit probably 42% in the financial year 2016.

 Figure: 1. Gross profit of TPG Telecom Limited

(Source: Author)

Net income of TPG Telecom Limited was $171.7 million. Based on the Annual report is has been recorded that in 2016, Net income of this company was $379.6 million so that income of this company has increased.

Figure: 2. Net Income of TPG Telecom Limited

(Source: Author)

The growth of income from the operation increased and in case of 2016 the growth is 77% and it is a massive growth that generally helps to increase the overall financial performance of this company.

Figure: 3. Income from Operations of TPG Telecom Limited

 (Source: Author)

Common size statement analysis refers to the analysis of financial statements of a company such as breakeven point, return on equity, return on net assets, gross profit ratio and return on operating assets. Trade analysis technique is a statistical technique that mainly used to identify the current trend of a particular company based on the previous reports and trends. Trend analysis generally helps this company to determine the growth and development in every year. Based on the annual report of total Peripheral Group it has been found that the selling of this company are increasing day by day so that the overall profitability also incising (TPG Telecom Limited, 2017). This company also received $1090 million in the financial year 2014, $1403.3 million in 2015 and $2625.5 million in the financial year 2016 so that profitability of this company increased in compare to previous years.

Figure: 4. Cash received from customer

(Source: Author)

The current Asset of TPG Telecom Limited is liabilities + Stockholders equity that means in case of financial year 2014 the total asset of this group is $ 719.93 million and In case of 2015 the total Asset of this company was $731.69 and in the financial year 2016, total asset of the company was $2064.69 million. On the basis of balance sheet of this company it has been found that company asset of this company are incising and the rate of profitability of this company also increasing.


Figure: 5. Assets of TPG Telecom Limited

(Source: Author)

This company also used different upgraded equipment such as high quality fibers and other cables for providing better services. The amount of total inventory of this company in the financial year 2016 is $12 million and in 2015, total inventory was $5.8 million. In 2014, total customer equipment inventory of this company was $207 million.

There are generally tow type of accounting policies such as Fist in First Out accounting policy and Last in Last Out accounting policy. In this case LIFO is applicable because when the product is sold then the last inventory produced is generally considered. TPG Telecom Company generally provides internet services and it is one of the important products for recent markets so that financial ratios of this company generally increased over the last five years (Van der Wee et al., 2016). 

3.2 Cash flow Statements

In financial year 2014 the cash flow was $532.9 million and in case of year 2015 the overall cash flow of the company decreased and incases of year 2016 the cash flow of the company increased huge that generally helps this company to grow their business. Total goodwill acquisition amount of this company in the 2016 is $1364.9 million, in 2015 the amount is $566 million and cost, and in 2014 the amount was $569 million. In 2016 the goodwill asset of this company increased huge so that brand image of this company also increases in present market.

year

2014 ($million)

2015 ($million)

2016($million)

Current Asset

201.9

253.9

970.9

Current liabilities

238.2

258.1

513.9

Net Credit Sales

970.6

1270.6

2387.8

Average Account receivable

70.24

44.9

112.8

Cost of Goods Sold

10.7

9.1

26.9

Net income

171.7

224.1

379.6

Revenue

970.6

1270.6

2387.8

Total Asset

1474.7

1669

3780.6

Shareholders' Equity

89.23

88.39

86.99

Total Liability

630.7

643.3

1977.7

EBIT

363.7

484.5

849.4

Interest expenses

8.4

14.9

67.5

Inventory

3.28

5.2

10.1

Table: 1. Financial Variables of TPG Telecom Limited

(Source: Author)

This company also invest huge amount in the market to provide better network coverage all over Australia. TPG telecom limited also investing huge amount in Singapore to make profit from foreign markets (Pearson, 2017). Net equity of this company increased over the last 3 years with huge rate that means the demand of their services increased.

year

2014 ($million)

2015 ($million)

2016 ($million)

Cash Flow

532.9

265.6

1488.6

Net Income

171.7

224.1

379.6

Table: 2. Cash Flow and Net Income of TPG Telecom Limited

(Source: Author)

On the basis of above Analysis it has been found that total income of this company has increased and profit margin of this company also increased over the last three years. Rate of cash flow was huge in the financial year 2016 and the number of customer of this company also increased so that this company develops their position in a proficient manner in Australian market.

4.0 Ratio Analysis

With the help of Ratio Analysis, it is possible to identify the financial analysis of a particular company such as liquidity, profitability and strength of the company.

4.1 Liquidity Ratio Analysis

With the help of Ratio Analysis it has been identified that liquidity ratios of this company increased than previous year that means the financial position of this company is improved. Equity return increased than previous year that generally develops the financial position. Receivable turnover ratio generally helps to measure the efficiency with a view to collection of account receivable. Maintaining proper receivable also help to reduce bad debts in 2016. On the other hand interest coverage decreased and the rate of earning per share value is very high so that the position and the goodwill assets or brand value are the major strength of this company (Mark, Griffin & Whitacre, 2016).

Liquidity Ratios

Formula

2014

2015

2016

Current Ratio

Current Asset/Current liabilities

0.847607053

0.983727238

1.88927807

Working capital

Current Asset-Current liabilities

-36.3

-4.2

457

Receivable turnover

Net Credit Sales/ Average Account receivable

13.81833713

28.29844098

21.16843972

Inventory turnover

Cost of Goods Sold/ Inventory

3.262195122

1.75

2.663366337

Average days' sales uncollected

(Account Receivable/ Net sales)*365

26.4141768

12.89823705

17.24265014

Average days' inventory on hand

365/Inventory turnover

111.8878505

208.5714286

137.0446097

Table: 3. Liquidity Ratios of TPG Telecom Limited

(Source: Author)

4.2 Profitability Ratio Analysis

Profitability ratio is important to generate to measuring the strength of a particular company (Brennan, 2017). On that basis of data it has been recorded that this company also maintain it profitability well but Profit margin is slightly decreased than previous year and it is one of the major weaknesses of TPG Telecom Limited.

Profitability ratios

Formula

2014

2015

2016

Profit margin

Net income/ Revenue

0.176900886

0.176373367

0.158974789

ROA

Net Income/ Total Asset

0.11643046

0.134272019

0.100407343

ROE

Net income/ Shareholders Equity

1.924240726

2.535354678

4.363719968

Asset Turnover

Revenue/Total Asset

0.658167763

0.761294188

0.631592869

Table: 4. Profitability Ratios of TPG Telecom Limited

(Source: Author)

4.3 Long term Solvency Ratio Analysis

This ratio is important to compare total debt and net equity. Solvency ratio is also important to recognize original physical health of this company. Debt equity ratio is higher in compare to other financial years so that using of credit financing increased than the shareholder finance.

Long term solvency ratios

Formula

2014

2015

2016

Debt to equity

Total Liability/ Shareholders Equity

7.068250588

7.277972621

22.7347971

Interest coverage

EBIT/ Interest expenses

43.29761905

32.51677852

12.5837037

Table: 5. Long Term solvency ratios of TPG Telecom Limited

(Source: Author)

4.4 Cash Flow Adequacy

It is the primary measurement of cash sufficiency. Performance ratio more than 1 signifies that company produce sufficient cash to meet the objectives. Ratio less than one indicate liquidity problems. Cash flow yield of this company has reduced that means company generating less market capitalization yearly.

Cash flow adequacy

Formula

2014

2015

2016

Cash flow yield

Cash flow from Operation/Net Profit

1.750728014

1.704149933

1.613104524

Cash flows to sales

Operating Cash Flow/ Net Sales

0.309705337

0.300566661

0.259820756

Cash flows to assets

Cash flow from Operation/Total Assets

0.203838069

0.228819652

0.164100936

Free cash flow

Operating Cash flow - expenditure

223.5

228.1

318

Table: 6. Cash Flow Adequacy of TPG Telecom Limited

(Source: Author)

4.5 Market Strength Ratio Analysis

Market strength of a company generally depends on earning per share value. In 2016, earning per share value increased massively that help to increase the profitability on the other hand Dividends per share value is not high but the increase of dividend help to attract more shareholders.

Market strength Ratios

2014 (cents)

2015 (cents)

2016 (cents)

earnings per share

21.6

28.2

45.3

Dividends

9.25

11.5

14.5

Table: 7. Market strength Ratios of TPG Telecom Limited

(Source: Author)

Conclusion

On the basis of financial performance it is possible to measure growth of company, profitability and liquidity etc. his company generally provides its services in New Zealand and Australia. This company has 671000 internet subscriber and 360000 mobile subscribers. Some subsidiaries of this company are Adam Internet, AAPT Limited, Agile Communications, and Net Space, PIPE Network etc. this particular research work mainly conducted to understand the financial and liquid position off this company. On the basis of above analysis it is conclude that the position of this company developed rapidly in current Australian market. However the company needs to maintain their profit margin and other expenses to increase profitability. Apart from that, company needs to take selective decisions in case of investment to ensure higher cash inflow in business.

 

References

Brennan, T. (2017). The post-internet order broadband sector: Lessons from the pre-open internet order experience. Review of Industrial Organization50(4), 469-486.

Liu, B., Cao, J., Johan, S., & Leng, T. (2017). The real effect of liquidity provision on entrepreneurial financing: evidence from a natural experiment in China. The European Journal of Finance, 1-32.

Mark, T. B., Griffin, T. W., & Whitacre, B. E. (2016). The Role of Wireless Broadband Connectivity on ‘ Big Data’ and the Agricultural Industry in the United States and Australia. International Food and Agribusiness Management Review19(A).

Pearson, G. (2017). Further challenges for Australian consumer law. In Consumer Law and Socioeconomic Development (pp. 287-305). Springer, Cham.

Van der Wee, M., Domingo, A., Verbrugge, S., & Oliver, M. (2016). Is policy adapting to its market, or vice-versa? Evaluation of policy measures on the FTTH market. In ITS Biennial (International Telecommunications Society) World conference (pp. 1-20).

Zeitoun, M. ?., & Mdawar, B. W. (2016). Role of financial analysis in improving performance in banking industry. An empirical study on Commercial Bank of Syria. ????????? ? ???????????????????, (3-1), 693-699.

Dwyer, T. (2014). Australian Media Monitor, April 2014. Global Media Journal Australian Edition8(1), 1-4.

TPG Telicom Limited, 2017.Annual report. Year ended 31st july, 2016 [Online] Available at: http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_TPM_2016.pdf [Assessed on 13/09/2017].

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