SingTel vs Telstra

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.

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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

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 its receivable than for Telstra (6.32 times in 2008). Consequently, Telstra demonstrated better performance in term of management in inventory and days’ sale in average accounts receivable; in return, SingTel appeared to be better in collecting accounts receivable.

Telstra’s current ratio increased from 0.5642 to 0.6787 by 20.30%, while SingTel’s one decreased significantly from 1.1783 to 0.7037 by 40.28%. Moreover, trend of quick ratio was same as the situation of the current ratio (a 20.28% improvement of Telstra to 0.6038 and a 40.82% decline of SingTel to 0.6822). It is clearly to say that SingTel could find more difficult than Telstra to adapt current assets into cash straight away in order to pay current liabilities. For this reason, the financial position of Telstra was definitely better than SingTel.

SingTel’s debt ratio was dramatically raised from 0.3616 to 0.3950 by 9.24%, whereas Telstra’s one had just slightly increased from 0.6675 to 0.6771 by 1.43%. However, debt ratio of SingTel is smaller than Telstra. That’s why, SingTel was more confident to borrow money than Telstra.

Additionally, SingTel could cover its interest payment 10 times in 2008 from 9 times in 2007, increasing by 11.13%, when Telstra’s times-interest-earned ratio is just 5 times in 2008, slightly declined by 5.38%. As a result,
SingTel found it easier to cover its debt than Telstra. Finally, SingTel had a better financial stability than Telstra.

During 2007-2008, Telstra obtained higher diluted earnings per share from 26.2000 to 29.8000 successfully, compared to Singtel’s 17.8600 and 18.9200 respectively. It signifies that Telstra generated greater profit attributable to each share of investors. For P/E, prices at the end of June 2007, 2008 are used for Singtel and September 2007, 2008 for Telstra, to fully reflect the impact of the 2007 and 2008 annual reports on the market prices of the stocks. P/E of both companies fell over the period. However, P/E of Telstra (14.0268) is still higher than that of Singtel (11.2682), normally means that investors have higher expectation for the Telstra in the future. The decrease in actual dividend (lower net profit) leads to the significant drop in dividend yield of Singtel (more than one third). By contrast, there was a slight rise in Telstra’s dividend yield as its actual dividend stayed unchanged. The higher dividend yield (3.3493% compared to 1.7802% of Singtel) makes Telstra more attractive to investors.

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Karl Marx

Lean Operations