1. Based on your review of the most recent annual financial statements and notes only, briefly assess the company’s performance for this potential investor. (Analyze based on data from Financial reports P71, 73, 74)
By using the consolidated income statements, balance sheet and cash flow statement, we can assess the company’s financial position. On the income statement, the company’s operation revenue increased by 4.5% ($393.4 million) from year 2006 while its operating income decreased by $65.1 million in the same period. Without considering the net-cash settlement feature expense recorded in 2007, operating income increased $103.6 million. Even though including the net-cash settlement feature expense, net income and EPS in 2007 still increased 9.9% and 13.8% ($112.9 million and 46 cents) respectively from 2006. The income statement figures indicate that TELUS is profitable in 2007. On its balance sheet, TELUS had much lower current liabilities compared to 2006, which deceased 29% ($1095.3 million) mainly because the company made periodic instalment payments or repayment to reduce its current liabilities (P35-explanation of the change in balance). It proves that TELUS has no problem to pay off its loans. The company’s return on asset ratio, which is used to measure profitability, was increased to 18.7 % from 16.8% in 2006. Its return on common equity was also increased from 16.4% in 2006 to 18.1% in 2007. This indicates that income earned with the money invested by common shareholders was increased. In addition, TELUS’ dividend payout rate and ESP also increased, which shows a sign of good investment return (P8). On the consolidated cash flow statement, cash provided by operating activities increased by $368.0 million in 2007 compared to 2006. Cash flow from operation activities is the most important source of cash for business. The increase of this figure shows that TELUS has a good ability to generate cash inflows to maintain or even expand its operations. Cash used by investing activities increased by $96.4 million in 2007 from 2006, mainly due to upfront capital investment to support new enterprise customers as well as expenditures for digital wireless capacity and coverage. Generally to say, a company’s investments have significant impacts on its future performance. Spending money on capital assets purchase indicates the company is expanding, which is a good sign about the company. Cash used by financing activities was increased by $220.1 million in the last twelve months, due primarily to increased dividend payments. The common shares and non-voting shares issued were decreased by $103.6 million. The reason of this decrease is because TELUS keeps repurchasing its shares to reduce dilution and be able to pay shareholders higher dividends. From above analyze, based on its 2007 financial statements, TELUS is profitable and shows a good potential of future growth. The implication is that it’s a good company to invest on.
2．What information in the financial statements and notes did you find most helpful for assessing the financial performance in part (1) above? Why?
On TELUS income statement, operating revenue helps readers to know the company’s sources of cash and the ability to generate it. It is a very important figure to measure the company’s operation status. Operating expenses shows the uses of cash for the company to run its business. Many users are focused on a company’s net income figure, as it is a hard evidence to show how profitable the company is. On its balance sheet, current asset and current liability help readers to predict the company’s ability to maintain normal business operations, (the ability to pay current liabilities) and to pay long-term debt. Information in Note14 (p102)-capital asset, and note 17 (p105-107)-long term debt provide further details about the company’s balance sheet accounts. By reading those notes, we can...