Telstra Corporation Limited
By: James Widjaja • Research Paper • 797 Words • October 13, 2014 • 789 Views
Telstra Corporation Limited
Executive Summary
Telstra Corporation Limited (TLS), Singapore Telecommunications Limited (SGT) and Verizon Communication Inc (VZ) are three influential communication companies in their respective country. Their company are mainly engage in operating, maintaining or providing access to facilitates for the transmission of voice, data, text, sound and video wire, cable, wireless and satellite networks. The purpose of this report is to analyse the profitability, efficiency, liquidity, capital structure, and market performance in the past 6 years. Based on the ratios, changes in ratios and differences in the performance and position between three companies will be explained. Most of the data in the report are retrieved from MorningStar website, relevant industry news, financial articles and annual report from each company.
Telstra Corporation Limited (TLS)
-Capital Structure (find 2008 data!)
Year/Ratio | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | |
Debt to Equity Ratio (D/E) | 1.26% | 1.36 % | 1.14 % | 1.15% | 1.3% | 1.17% | |
Net interest cover | 5.73 | 7.29 | 6.75 | 5.02 | 7.13 | 7.03 |
Figure: TLS capital structure ratio (MorningStar, 2013)
Based on the Telstra’s Debt to Equity ratio from 2011 to 2012, there was a significance increase of 15.26%, which means that there was more debt in relation to equity (Entrepreneur 2014). Telstra arguably was being finance by creditors rather than by internal positive cash flow, which might lead to a dangerous trend. However, increase in Net Interest cover from 5.02 to 7.13 in 2011 to 2012 means that Telstra had a chance to easily able to meet its interest obligations from profits. This is an improvement compare to the decreasing of net interest cover from 2009 to 2011. Decreased in the Net interest cover means that the business is potentially in danger of not being able to meet its interest obligations (Biz/ed, 2003)
Year/Ratio | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | |
Debt to Equity Ratio (D/E) | 0.35 | 0.36 | 0.29 | 0.29 | 0.37 | 0.33 | |
Net Interest Cover | 14.22 | 14.09 | 15.51 | 14.16 | 13.33 | 15.37 |
Singapore Telecommunications Limited (SGT)
-Capital Structure (find 2008)
Figure: SGT capital structure ratio (MorningStar, 2013)
From 2009 until 2011, Debt to Equity ratios of SingTel decreased from around 0.36% to 0.29%. This is a good sign since a lower debt to equity ratio usually implies more financially stable business (My Accounting Course, 2014). The numbers in the net interest cover of SingTel from 2009 to 2011 did not show any significance increase or decrease. The stable number could mean that SingTel had no problems on paying companies debts. Except from 2011 to 2012, the numbers of net interest cover were decreasing while Debt To Equity ratios increased. This indicate that SingTel had a little bit difficulties on paying their increasing debts and they probably received less earnings around those years. However, they seemed to improve their business from 2012, proved by decrease in Debt to Equity ratios and increase in Net Interest Cover.
Verizon Communications Inc.
-Capital Structure
Year/Ratio | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 |
Debt to Equity Ratio (D/E) | 1.13% | 1.50% | 1.37% | 1.53% | 1.57% | 2.41% |
Net Interest Cover | 9.75 | 4.73 | 6.03 | 4.71 | 4.85 | 11.98 |
Figure: VZ Capital Structure Ratio (Stock Analysis, 2014)
The Debt to Equity ratios of Verizon is generally around 1% from 2008 until 2012. It increases to 2.41%. It is important to realize that if the ratio is more than 1, the majority of assets are financed through debt (Investor Words 2014). Considering that Verizon is a pretty big company, and their net interest cover is more than 1.5 and has been increasing from 2012 to 2013, it is pretty understandable that their Debt to Equity ratio is more than 1.