Performance analysis - SingTel vs Telstra

Topics: Financial ratios, Balance sheet, Financial ratio Pages: 7 (949 words) Published: April 23, 2014
Part A
SingTel (Singaporean-owned Company) and Telstra (Australian-owned Company) are leading corporations in communication with major businesses in fixed telephony, mobile phone and Internet. The two companies each have more than a hundred years of experience in telecommunication with domestic and international markets. Although they both have subsidiaries and joint ventures overseas, Telstra’s concerns are limited to Asia-Pacific and North America markets, while SingTel focuses on a wider range including Asia-Pacific, North America, Europe and Middle East. Optus – a SingTel subsidiary - is the second largest telecommunication provider in Australia whose Earnings Before Interest, Tax, Depreciation And Amortization (EBITDA) is approximately 50 % of SingTel consolidated EBITDA. Although both companies are listed on the Australian Stock Exchange (ASX), Telstra is also listed on the New Zealand Exchange (NZX) while SingTel is listed on the Singapore Exchange (SGX). Regarding company structure, both companies have a Group Chief Executive Officer and an Audit Committee.

SingTel’s financial reports are prepared in accordance with the Singapore Financial Reporting Standards (FRS) under Singapore Companies Act whereas Telstra’s financial reports are prepared according to the Australian Accounting Standards (AAS) under Australian Corporations Act. The differences in year ended (31 March and 31 June) and figure presented in Annual Reports (Singaporean dollars and Australian dollars) would not affect the analysis. Part B

1. Introduction: This report is aimed at giving investors an insight into the performance of SingTel and Telstra – two leading companies in communication. Based on the SingTel Annual Report 2007, 2008 and the Telstra Annual Report 2007, 2008, financial ratios of the two companies are calculated and evaluated in terms of profitability, liquidity, stability and attractiveness. The report also provides recommendation for investor with details of ratios presented in appendix. 2. Analysis

1. Analysing Profitability Ratios:
Profitability Ratios
SingTel

Telstra

2008
2007
%Change
2008
2007
%Change
Profit Margin
0.2668
0.2825
↓5.56%
0.1505
0.1568
↓3.99%
Rate of return on total assets
0.1522
0.1502
↑1.39%
0.1686
0.1554
↑8.49%
Rate of return to shareholders on total assets
0.1176
0.1141
↑3.08%
0.0980
0.0884
↑10.77%
Rate of return on ordinary shareholders’ equity
0.1893
0.1802
↑5.03%
0.2990
0.2577
↑16.00%
Inventory turnover
24.9475
19.4516
↑28.25%
6.3923
7.5129
↓14.92%
Accounts receivable turnover
5.9375
5.8960
↑0.70%
6.3183
6.2511
↑1.07%
Days' sales in average accounts receivable
61.4735
61.9061
↓0.70%
57.7691
58.3895
↓1.06%

There was a slight decrease in profit margin of both SingTel and Telstra in 2008, by 5.56% and 3.99% respectively. However, the ratio of SingTel during 2 years was still much higher than those of Telstra, showing that SingTel generated higher net profit out of every dollar of net sales than Telstra did.

Nevertheless, the ratios of ROA, ROA to shareholders and ROE of two companies tent to be upward during the period from 2007 to 2008, as illustrated on Figure 1. Moreover, Telstra appeared to perform better results in comparison with SingTel.

Over the period, inventory turnover ratio of SingTel was almost four times higher than that of Telstra (24.95 times and 6.39 times respectively in 2008), as shown on Figure 2, increasing dramatically by 28.25% while that ratio of Telstra decreased by 14.92%. Additionally, both two companies reported an down-ward tendency of day’s sales in average accounts receivable; but, the ratio of Telstra (58 days in 2008) was shorter than that of SingTel (61 days). Beside, accounts receivable turnover of the two companies suffered a slight growth by 0.7% for SingTel and 1.07% for Telstra in 2008, as illustrated in Figure 3. However, it took shorter time for SingTel (5.94 times in 2008) to collect...
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