Accounting Assingment 3

8/14/2019 Accounting Assingment 3

1/19

Analysis of Financial Statements

Table of Contents

Sr.No. Contents1. About the Company2. Profitability of the company over the last two years3. Liquidity and Working Capital Position

4. Gearing Ratio Analysis5. Investor Ratios6. Price Earning ratio analysis

7. Trend Analysis8. Horizontal & Vertical Analysis


2/19

About the Company

Singapore Telecommunications Limited (SingTel) is Asias leading communications group,supported by more than 19,000 dedicated employees worldwide. Headquartered in Singapore,they are a dynamic global player in the telecommunications industry with presence throughoutAsia, Middle East, Europe and North America.In Singapore, SingTel is committed to leading and shaping the market by tapping 128 years ofoperating experience and state-of-the-art infrastructure to provide a diverse range of innovativecommunications solutions for consumers and businesses.Optus, their wholly-owned subsidiary, is the challenger telecommunications provider in Australia.SingTel Group has major investments in leading mobile operators in the region. The companyowns stakes ranging from 21.4 per cent to 45.0 per cent in AIS in Thailand, Bharti in India,Globe in the Philippines, Pacific Bangladesh Telecom in Bangladesh and Telkomsel in Indonesia.SingTel is Asias largest multi-market mobile operator, serving 124 million customers in sevenmarkets.To stay ahead, SingTel continues to set the pace in telecommunications, shaping the markets byintroducing innovative and relevant services and solutions.In the words of Singtel We aim to be an integral part of the lives of our customers, enhancing theway they live, work and play.


3/19

Profitability Ratios Analysis(all figures in million dollars)

1.) Operating expenses to sales

Op.Exp. Sales Ratio Year

8986.3 13151.1 68.33117 2007

8783.3 13138.4 66.85213 2006

The ratio measures operating expenses as a percentage of sales. There has been a 1.5%increase in the ratio as compared to the previous year. The percentage increase in sales is0.09% whereas the percentage increase in operating expenses respectively is 2.3% thusleading to a slightly higher operating ratio. The company should look into its operatingexpenses and pinpoint areas for improvement to achieve a higher level of sales with a stableor proportionately high operating expenses. These areas could include inventory, salaries etc.

2.) Operating profit to salesOp.Profit Sales Ratio Year

2949.1 13151.1 22.42474 2007

3642.5 13138.4 27.72408 2006

This ratio measures the operating profits as a percentage of sales. The ratio shows us a 5%drop in the operating profits though there has been a marginal increase in the sales. Thereason for this can be attributed to the rising operating expenses. Other factors that can be are

exceptional items. There has been a drastic drop of 630.5 from the previous year to this yearleading to a drop in the profits. Even though they are considered to be part of ordinarybusiness charges, exceptional items must be disclosed due to their sheer size or frequency.Thus the company must look into this aspect.

3.) Net Profit Margin before taxNPBT Sales Ratio Year

4152.7 13151.1 31.57683 20074499.3 13138.4 34.24542 2006

This ratio measures the NPBT as a percentage of sales. We see a 3% drop in net profit beforetax again largely attributable to the exceptional items. Another aspect is the drop of 49.7 in theinvestment and interest income as compared to the previous year. We can suggest thecompany look into this area as it is an additional income for the company.


4/19

Liquidity & Working Capital Position

1.) Current RatioRatio Year

0.32 20070.57 2006

Ratio measures company's ability to pay short-term obligations. The ratio has decreased i.e.deteriorated through the years. There are two factors affecting the current ratio. There Thecash and cash equivalents have reduced in 2007 whereas the current liabilities have increasedcausing the ratio to reduce. Thus, cash should be brought in the company from long termborrowings e.g. Borrowings (unsecured) could be increased which has decreased in 2007 togenerate Cash to better Singtel's ability to maintain short-term obligations.

2.) Working Capital WC Year-3512.6 2007-1302.5 2006

The working capital is the difference between the current assets and current liabilities. As we seethe figures the liquidity position has worsened from the previous year. Looking into the Balancesheet we can see that


5/19

Gearing Ratio Analysis1) Debt to Asset Ratio: Total Liabilities/Total Assets*100

Debt to Asset ratio is one that describes a company's leverage and its level of risk by indicatingthe relation between debt and assets.

Ratio Year

47.48 200737 2006

The ratios here show that the company's debt has been lesser than 50% of its assets for both thefinancial years. The company displays low risk involvement when its liabilities are concerned. The

company's debt has increased in the financial year 2006/07.

2) Equity to Asset Ratio: Capital & Reserves/Total Assets*100

Equity/Asset ratio is often used as a measure of leverage.

Ratio Year

52.52 200763 2006

The ratio has decreased in 2007 when compared to 2006. The Total Assets and Reserves haveremained more or less constant. Total equity has decreased in 2007; most of it because ofreduction in share capital. The company has bought back shares.

3) Debt to Equity Ratio: Total Liabilities/Capital & Reserves*100

The ratio helps in measuring the financial leverage of the company by taking into consideration itsliability and share holder's equity.

Ratio Year

90.4 200758.72 2006

The ratio is much higher for the year 2007 in comparison with 2006.There is a substantial difference in the two year's ratios owing to the following factors:a) Trade and other payables (current liabilities) has increased by more than 100%b) Total equity has reduced because of decrease in share capital.The company has entered into a high leverage situation and is becoming aggressive infinancing its growth.


6/19

Investment Ratios Analysis

1.) Return on owners equity(Profit after tax*100/capitals and reserves)Ratio Year

35.48 200731.41 2006

The share capital has decreased at a higher rate compared to PAT. This could mean that thecompany made a buyback of shares last year thereby reducing the share capital. Scheduled 5proves that they have bought back 829m shares worth Approx 2.2bSGD Also the buy back hashelped them positively influence the reduction in PAT

2.) Return on Capital Employed(Profit before interest and tax*100/(capital & reserves+ long term liability)

Ratio Year

28.29 200722.73 2006

3.) Earning/share(Post tax profit/ No of Shares)

Ratio Year

23.25 2007

24.98 2006

The number of shares has reduced but still the EPS is not improving. The clear reason is thelow PAT. This a point of grave concern for the company

4.) Interest cover(Profit before interest& investment*100/interest expense)

Ratio Year

10.85 200710.24 2006

This ratio shows that the company is already a well off as the companys profit is more than 10

times it interest that they pay. Though the increase is minimal the growth is towards the positiveside.


7/19

5.) Dividend yield(Ordinary dividend per share *100/market price per share)

Ratio Year4.14 20072.17 2006

Though has been almost a 100% increase in the dividend yield compared to the last year, thevalue of 4.14 % is not encouraging for a share trader.

6.) Dividend Payout RatioRatio Year

67.2 200746.19 2006

The dividend payout ratio has increased considerably. This shows that good amount of theprofits the company is making is being handed over to its share holders. But at the same time

the company must retain earning for future growth and expansion prospects.


8/19

Efficiency Ratios Analysis1) Debtors turnover times ratio

Ratio Year

8.90 200712.41 2006

This ratio compares the sales of a company to the revenue still to be collected from its debtors. Itshould be as high as possible. The ratio has lowered significantly as compared to the previousyear & would need further investigation, though one of the reasons could be the seasonal effect.

2) Debtors turnover ratio days

Ratio Year

41 200729.39 2006

This ratio indicates the average days for which the company hasn't collected its dues from itsdebtors. This ratio should be as low as possible. The company has done worse in this area but,the reason could be attributed to seasonal effects.

3) Creditors turnover times ratio

Ratio Year

1.81 20074.03 2006

This ratio compares the level of sales with the payments due to creditors. It tells us to what extentare sales being leveraged through payments outstanding to creditors. It should be low as possible.The company has dramatically reduced the ratio.

4) Creditors turnover days ratio

Ratio Year

201.22 200790.36 2006


9/19

This ratio indicates the average days for which the creditors of the company are not paid. Thehigher the ratio, the better it is for the company. The company has more than doubled the time forwhich it delays payments to its creditors.

5) Stock turnover times ratio

Ratio Year

1426.39 20071171.10 2006

This ratio indicates the level of finished goods stock as compared to the level of sales recordedthrough the year. It should be as high as possible. The company has improved on this front.

6) Stock turnover days ratio

Ratio Year

1426.39 20071171.10 2006

This ratio indicates the time for which the finished goods remain as stock. The lower this ratio thebetter it is. The company has improved upon its previous year's performance

7) Sales on total assets ratio

Ratio Year0.59 20070.58 2006

This ratio compares the sales to the total assets used to bring about those sales. It should be ashigh as possible. The company has improved this ratio.

8) Sales on net assets ratio

Ratio Year0.59 20070.58 2006

This ratio compares the sales achieved against the net assets of the company. This ratio again isbetter if higher. The company has improved significantly on this front.


10/19

9) Fixed assets turnover times ratio

Ratio Year

0.64 2007

0.63 2006

This ratio gives an indication of how much the company is leveraging its sales on the back of itsfixed assets. The higher this ratio the better it is. The company has shown a marginalimprovement on this front.

10) Current assets turnover times ratio

Ratio Year

0.64 20070.63 2006

This ratio tells us the extent to which the company is leveraging its revenues through its currentassets. The higher this ratio the better it is. There is a fractional improvement in this ratio.


11/19

Price Earning Ratio Analysis

Singtel2006 EPS basic (cents) 24.98 Market price 2.622006 EPS diluted (cents) 24.88

Starhub2006 EPS basic (cents) 17.60 Market price 2.16

PE ratio: Starhub: 2.16/0.1760 = 12.27 times (as of march 2006).

PE ratio: Singtel: 2.62/24.98 = 10.49 (as of march 2006).

In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared tocompanies with a lower P/E., thus Starhub investors a clearly expecting earnings growth in the future ascompared to Singtel investors.

The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to payper dollar of earnings. As we see Star Hub has a higher PR ratio as compared to Singtel which means that aStarhub investor is willing to pay 12$ for 1$ of current earnings, whereas a Singtel investor is willing to pay10$ for 1$ of current earnings.


12/19

Trend Analysis2005.00 2006.00 2007 2006 2007

OperatingRevenue 12617.00 13138.40 13151.1 4.13 0.10

Singtel's Sales i.e.

revenues frombusiness's own operationhas increased in 2006 ascompared to 2005 buthas dropped marginallyin 2007.Since thechange in 2007 isjust .10% the sale'shaven't changed muchthough the expenseshave increased.

OperatingExpenses 8010.70 8783.30 8986.3 9.64 2.31

The operating expenses

have been increasingthrough the years, butthe increase in expenseshas not been causing anincrease in the sales.

OperationalEBITDA 4661.80 4466.70 4281.7 -4.19 -4.14

Profit onOperatingactivities 2839.20 3642.50 2949.1 28.29 -19.04

The profit on Operatingactivities for Singtelincreased in 2006 butSingtel suffered a heavyloss from operating

activities in 2007 henceits core business is notgenerating any profits forthem.

Profit beforeinterest,investmentincome andtax 3784.40 4849.00 4486.8 28.13 -7.47Profit beforeTax 3385.70 4499.30 4152.7 32.89 -7.70

Profit AfterTax 3268.60 4161.30 3779.3 27.31 -9.18

Singtel's overall profitafter tax has also dipped

in 2007 as compared to2006.

Earning PerShare 37.95 49.89 46.38 31.46 -7.04

Portion of Singtel's profitallocated to eachoutstanding share ofcommon stock increasedlargely in 2006 butdropped in 2007.Henceprobably Singtel's share


13/19

price has also beenreducing in 2007.

CurrentAssets 2176.60 1742.00 1671.9 -19.97 -4.02Non-CurrentAssets 21696.10 20994.40 20608.8 -3.23 -1.84

Total Assets 23872.70 22736.40 22280.70 -4.76 -2.00

Assets also have beendecreasing through theyears leading to biggerproblems for Singtelmore so over bydecrease in currentassets as compared tonon-current assets.

CurrentLiabilities 2723.30 3044.50 5184.5 11.79 70.29

Non-CurrentLiabilities 6368.00 5367.60 5394.4 -15.71 0.50

TotalLiabilities 9091.30 8412.10 10578.90 -7.47 25.76

Liabilities decreased in2005, but it increasedlargely in 2006.Theincrease in liabilities ismore over due toincrease in its currentliabilities i.e the companyis not undertaking itscollection cyclesefficiently.

Net Assets 14781.40 1 4324.30 11701.80 -3.09 -18.31

Singtel's assets overliabilities have beendecreasing over theperiod which is not agood signal for thecompany solvency.

Share Capital 2496.20 4774.70 2562.1 91.28 -46.34

By 2006 Singtelincreased its sharecapital by issuing sharesin return of cash andother considerations.The share capital is

either common orpreferred shares. By2007 it has reduced itsshare capital by buyingback shares. On thewhole, from 2006 to2007 it has increased itsshare capital.


14/19

Reserves 12285.20 9549.20 18285.1 -22.27 91.48

The reserves of Singtelreduced in 2005, this canbe attributed to the factthat Singtel distributedlarger portion of its profitin form of dividend ratherthan retaining it as itsreserves fro futureinvestments to givebetter returns to its futurein form of dividends. In2006, the reservesincreased largely, asSingtel retained most ofits profit rather thanpassing it to its investorsin form of dividends.

Net Worth 14781.40 14323.90 20847.20 -3.10 45.54

The net worth of Singtel,i.e its assets overliabilities decreased in

2005 but by 2007 itincreased its net worthhence shareholder'sequity increased throughthe years.

Working

Capital -546.70 -1302.50 -3512.60 138.25 169.68

Singtel has reduced itsoperational efficiencythrough the years and itsshort-term financialhealth has beendeteriorating too. Thiscan be attributed to theslow collection process

that Singtel may befollowing and Singtel isunable to meet its shortterm liabilities with itscurrent assets. Companyshould increase itscurrent assets i.e cashand cash equivalentsand others and alsoimprove on its collectioncycle to reduce itscurrent liabilities tocreate a positive working

capital.


15/19

Horizontal & Vertical Analysis

Horizontal Analysis of Balance Sheet

2007 Changes 2006

Value%

Change

Cash & CashEquivalents

188.5 -481.3 -71.8573 669.8

Trade & OtherReceivables

1,477.10 419 39.59928 1,058.10

Inventories 6.3 -1.2 -16 7.5

Current Asset 1,671.90 -70.1 -4.02411 1,742.00

The current assetsheve gone down. Theprimary reason is the

decrease in cash &its equivalents. The

money could've beenused to liquidate

liabilities.

Property ,Plant &Equipment

1,970.90 -237.8 -10.7665 2,208.70

Intangible Assets 3.3 -0.3 -8.33333 3.6

AssociatedCompanies

24.7 0 0 24.7

Joint VentureCompanies

49.1 -7 -12.4777 56.1

Available for SaleInvestments

33.3 -10 -23.0947 43.3

DerivativeFinanacial

Instruments191.6 -47.6 -19.8997 239.2

Other non-current 16.9 -9.3 -35.4962 26.2


16/19

receivables

Total Non - CurrentAssets

20,608.80 -385.2 -1.83481 20,994.00

Total Assets 22,280.70 -455.3 -2.00255 22,736.00

The total assets have

gone down by 2% ,the primary reason

for which can beattributed as the

decrease in total non- current assets,property, plant &

equipment.

Trade & OtherPayables

4,954.10 2779.6 127.8271 2,174.50

Current TaxLiabilities

343.4 -16.6 -4.61111 360

Derivative FinancialInstruments

5 -67.8 -93.1319 72.8

Total CurrentLiabilities

5,184.50 2140 70.29069 3,044.50

The current liabilitieshave increased

dramatically becauseof a major increment

in trade & otherpayables.

Borrowing(Secured)

4,397.00 -183.7 -4.0103 4,580.70

Deferred income 13.1 4.1 45.55556 9


736 262 55.27426 474

Deferred TaxLiabilties

231.3 -51.6 -18.2397 282.9

Other Non -Current Liabilities

17 -4 -19.0476 21

Total Non- CurrentLiabilities

5,394.40 26.8 0.499292 5,367.60


17/19

Total Liabilties 10,578.90 2166.8 25.75813 8,412.10

The company hasborrowed a lot of

money throughderivative financialinstruments.Hence

the increase in thetotal liabilities.

Net Assets 11,701.80 -2622.1 -18.3058 14,323.90

The company hasconsiderably shed its

assets.The moneyhas been used toliquidate liabilties.

Share capital 2562.1 -2212.6 -46.3401 4774.7

Reserves 9,139.70 -409.5 -4.28832 9,549.20

Total Equity 11,701.80 -2622.1 -18.3058 14,323.90

Net CurrentLiabilities

-3,512.60 -2210.1 169.6814 -1,302.50

Vertical Analysis of Balance Sheet

Percenntage 2007 2006 Percentage Analysis

Cash & Cash Equivalents 0.846023689 188.5 669.8 2.94598874

Trade & Other Receivables 6.629504459 1,477.10 1,058.10 4.65385292

Inventories 0.028275593 6.3 7.5 0.032987333


18/19

Current Asset 7.50380374 1,671.90 1,742.00 7.661857847

The company hasmaintained the %

component ofcurrent assets inits total assets.

Property ,Plant &Equipment

8.84577235 1,970.90 2,208.70 9.714549613

Intangible Assets 0.014811025 3.3 3.6 0.01583392

Subsidiaries 82.21914033 18,319.00 18,392.20 80.89461647

Associated Companies 0.110858276 24.7 24.7 0.108638283

Joint Venture Companies 0.220370096 49.1 56.1 0.24674525

Available for SaleInvestments

0.149456705 33.3 43.3 0.190446868

Derivative FinanacialInstruments

0.859937076 191.6 239.2 1.052076003

Other non-currentreceivables

0.0758504 16.9 26.2 0.115235749

Total Non - Current Assets 92.49619626 20,608.80 20,994.00 92.33814215

Total Assets 100 22,280.70 22,736.00 100

Trade & Other Payables 22.23493876 4,954.10 2,174.50 9.564127375

The trade & otherpayables have

increased bymore than 12%. Itreflects poorly on

the company'sability to pay its

creditors.

Current Tax Liabilities 1.011637875 225.4 232.9 1.024366643


0.022440947 5 72.8 0.320197044


19/19

Total Current Liabilities 23.26901758 5,184.50 3,044.50 13.39065799

The total currentliabilities have

gone up by 10%as compared tothe total assets.

Borrowings ( Unsecured ) 19.73456848 4,397.00 4,580.70 20.14734342

Deferred income 0.05879528 13.1 9 0.039584799


3.303307347 736 474 2.084799437

Deferred Tax Liabilties 1.038118192 231.3 282.9 1.244282196

Other Non - CurrentLiabilities

0.076299219 17 21 0.092364532

Total Non- CurrentLiabilities

24.21108852 5,394.40 5,367.60 23.60837438

Total Liabilties 47.4801061 10,578.90 8,412.10 36.99903237The total liabilitieshave increased by

11%

Net Assets 52.5198939 11,701.80 14,323.90 63.00096763The net assets

have gone downby 11%

Share capital 11.49918988 2,562.10 4774.7 21.00061576

Reserves 41.02070402 9,139.70 9,549.20 42.00035186

Interest of Share Holders 52.5198939 11,701.80 14,323.90 63.00096763

Total Equity 52.5198939 11,701.80 14,323.90 63.00096763

Net Current Asset -15.7652138 -3,512.60 -1,302.50 -5.72880014

Date post:	30-May-2018
Category:	Documents
Upload:	kfccolor
View:	220 times
Download:	0 times

Accounting Assingment 3

Documents