Financial Statement Analysis Of Singapore Telecommunication Limited a

Question: Discuss about the Finanial Statement. Answer: Introduction: The study mainly evaluates the financial performance of Singapore Telecommunication Limited and StarHub Limited for last three fiscal years. In addition, appropriate ratios could mainly help in understanding the overall financial condition of the company, which might help in identifying relevant scope. Moreover, the trend position of the company might also be evaluated from the stock and share price movement in comparison with the FTSE. Singapore Telecommunication Limited is mainly known as the largest mobile network provider in Singapore, which was ranked 20-30 in the world (Singtel.com 2016). The company mainly has 82% of the fixed lines, 47% of the mobile market, and 43% of the broadband market. In addition, StarHub is Ltd is mainly identified as the third major Telco company in Singapore. The company mainly has 30% of the market share in mobile and broadband sectors combined, which allows them to generate high-end revenues (Starhub.com 2016). Graphically presenting financial performance of Singapore Telecommunication Limited and StarHub Limited with its each other and industry: Efficiency ratio: SingTel StarHub Industry Profitability 2015 2014 2013 2015 2014 2013 2015 Gross margin ratio 28.68% 29.96% 27.95% 56.92% 60.25% 60.07% 7.30% Profit margin 21.97% 21.71% 19.31% 15.23% 15.52% 15.71% 3.25% Return on equity 15.28% 15.31% 14.63% 198.45% 248.66% 448.25% 6.20% Table 1: Depicting the efficiency ratio (Source: As created by the author) Figure 1: Depicting the efficiency ratio (Source: As created by the author) SingTels receivable turnover declined from 2013 to 2015, which is due to the decline sales achieved by the company. However, the inventory turnover ratio mainly declined due to the increasing average inventory and declining cost of goods sold by the company. Moreover, the receivables turnover ratio of StarHub mainly declined due to the rising average receivables of the company in comparison to its sales. Moreover, the inventory turnover ratio also declines due to the increment in the cost of goods sold and average inventory. The decline in inventory turnover ratio mainly depicts the efficient management system adopted by the company, which reduces its inventory storage and declines its overall expenditure. In addition, as per industry average both companies have higher receivables and inventory turnover ratio, which mainly states its improved operational capability (Giordani et al. 2014). However, from the comparison StarHub has better receivable turnover, whereas SingTel has better inventory turnover ratio. Moreover, asset turnover ratios of both companies have been declining over the period of three years, which mainly helps is depicting het efficiency of the management in utilising its overall assets. However, as per the comparison the overall asset turnover ratio of StabHub is relatively better than its peer. Fito, Moya and Orgaz (2013) motioned that using the efficiency ratio mainly allows the investors to identify the overall efficiency of the company management. However, after the evaluation of efficiency ratio StarHub has the most viable financial condition, which might help in generating higher revenues. Liquidity ratio: SingTel StarHub Industry Profitability 2015 2014 2013 2015 2014 2013 2015 Gross margin ratio 28.68% 29.96% 27.95% 56.92% 60.25% 60.07% 7.30% Profit margin 21.97% 21.71% 19.31% 15.23% 15.52% 15.71% 3.25% Return on equity 15.28% 15.31% 14.63% 198.45% 248.66% 448.25% 6.20% Table 2: Depicting the Liquidity ratio (Source: As created by the author) Figure 2: Depicting the Liquidity ratio (Source: As created by the author) With the help of table and figure 2, the overall liquidity ratio of the company mainly states the overall financial condition of both companies. In addition, the overall financial condition of the company has mainly declined over the period of 3 years due to the increment in the overall current liability accumulation. SingTels overall current asset and liabilities is relatively same in 2015 in comparison with 2013, which was due to declining liabilities and assets accumulation. Moreover, the inventory accumulation also increased, which decreased the current assets value due the calculation of quick ratio. Moreover, both current and quick ratio of StarHub has mainly declined over the period of 2013 to 2015, which mainly states the declined accumulation of current assets and increment in the overall current liabilities. The increment in the overall closing inventory also reduced the current assets in the quick ratio calculation. Halkos and Tzeremes (2012) mentioned that uses of overall current and quick ratio also allow investors to detect the adequate accumulation of assets, which might help in fulfilling its short-term obligations. From the evaluation, both the companys current and quick ratios in not close to the industry standard, which only depicts vulnerability in its financial stability. The low accumulation of current assets is mainly harmful for both the companies as it might decrease its ability to support short-term obligations and continue with its operations. In addition, after the comparison of both SingTel and StarHubs liquidity ratio, it could be evaluated that SingTel could support its short-term obligation more effectively as it has higher quick and current ratios. Lakshmi, Martin and Venkatesan (2016) mentioned that investors by analysing liquidity ratio are able to detect companies with low risk exposure in their operations. Profitability ratio: SingTel StarHub Industry Profitability 2015 2014 2013 2015 2014 2013 2015 Gross margin ratio 28.68% 29.96% 27.95% 56.92% 60.25% 60.07% 7.30% Profit margin 21.97% 21.71% 19.31% 15.23% 15.52% 15.71% 3.25% Return on equity 15.28% 15.31% 14.63% 198.45% 248.66% 448.25% 6.20% Table 3: Depicting the Profitability ratio (Source: As created by the author) Figure 3: Depicting the Profitability ratio (Source: As created by the author) Table and figure 3 mainly compares the profitability ratio of StarHub and SingTel from 2013 to 2015, which allows in detecting companies performance. Moreover, the gross profitability of SingTel mainly improved from 2013 to 2015 due to contraction of sales incurred by the company. The reduction in sales mainly declined the cost incurred by the company and improved its overall gross profit. However, the decline in gross profit from 2014 to 2015 could be seen, while increase in net profit could be seen in the same duration. This is mainly due to the overall decline in administrative expenses incurred by the company to support its activities (Maheshwari and Agarwal 2013). In addition, relative decline in net and gross profit of StarHub could be seen, which is due to increment in cost of sales and administrative expenses incurred by company over the three fiscal period. Moreover, the return on equity of SingTel mainly improved over the three fiscal years, while decline in ROE could be seen in StarHub. The overall decline in ROE of StarHub is mainly due to the increment in accumulation of total equity. The company mainly maintained its overall profit over the fiscal years, while increasing its equity exposure. This mainly hampered its ROE and depicted the inefficiency of the management in utilising shareholders capital. In addition, ROE of SingTel mainly improved over fiscal years due to the increasing percentage of profit acquired by the company in comparison with its equity accumulation. Brou and Krueger (2016) stated that determination of ROE mainly help investors to detect the efficiency of the company in utilising the overall capital provided by the shareholders in obtaining relative profits. However, in comparison StarHub with the overall decline in the profitability and gross profit is more viable option than its peer. The high gross and net profit ratio mainly portrays a financially healthy company. In addition, as per the industry standard both the companies have higher profitability ratio, which mainly depicts the effective increment in its operations. Wijesundera et al. (2016) argued that industry standard mainly loses its friction if the company is the market leader and has the maximum market share. Investment ratio: SingTel StarHub Industry Profitability 2015 2014 2013 2015 2014 2013 2015 Gross margin ratio 28.68% 29.96% 27.95% 56.92% 60.25% 60.07% 7.30% Profit margin 21.97% 21.71% 19.31% 15.23% 15.52% 15.71% 3.25% Return on equity 15.28% 15.31% 14.63% 198.45% 248.66% 448.25% 6.20% Table 4: Depicting the Investment ratio (Source: As created by the author) Figure 4: Depicting the Investment ratio (Source: As created by the author) The investment ratio mainly states demand of the investors regarding shares of the company. Moreover, both companies P/E ratio maintop declined from 2013 to 2015, due to the high increment in EPS. SingTels overall EPS mainly had a continuous growth while its share price declined from 2014, to 2015. This relevant decline in the share price mainly affected its P/E ratio and from 2014 to 2015. However, the overall StarHub EPS mainly remained same from 2013 o 2015, while only its share price declined, which resulted in slashed P/E ratio. However, the increment in the overall dividend yield and earnings yield could be seen in both companies, which mainly help in attracting potential investors. Liang et al. (2016) mentioned that higher dividend yield mainly attracts investors and increases demand of share amount potential investors. The overall improvement in the dividend yield is due to the decline in share price and continued maintenance of same dividend level. According to the industry standard P/E ratio of both the companies are not adequate, which mainly states the current decline in its overall EPS and reduced demand of companies shares among potential investors. However, the improvement in dividend and earnings yield mainly helped in maintaining the overall interest of the investors. Moreover, after the comparison SingTel has higher earnings yield, while StarHub has higher divined yield, which could be derived from the evaluation. Md, Cheng and Chua (2013) stated that continuities increment in the dividend yield mainly help the company to increase their share price demand and value. Share price movement comparison: Figure 5: Depicting the share price movement of SingTel (Source: Sg.finance.yahoo.com 2016) Figure 6: Depicting the share price movement of StarHub (Source: Sg.finance.yahoo.com 2016) Figure 7: Depicting the price movement of FTSE (Source: Sg.finance.yahoo.com 2016) After the relevant evaluation of the figure 5 and 6, the overall share price movement of both companies can be evaluated. In addition, figure 7, mainly states the FTSE price movement, which could be compared with both the companies and could be used in detecting the price movement. From the one year evaluation of SingTel share price movement a low of 3.40 during Jan of 2016 and a high of 4.30 in Aug of 2016 could be seen (Sg.finance.yahoo.com 2016). This relative change in price structure mainly states the demand of the company was relatively high until it declared the results in 2016, which negatively affected its share price and reduced its performance. Moreover, after comparing SingTel share price movement with FTSE relatively changes in the price movement could be evaluated. As FTSE started to consolidate after Aug 2016, while SingTel declined in value. This mainly states that selling pressure continued in SingTel, which is hampering its prices (Sg.finance.yahoo.com 2016). Moreover, after the evaluation of share price movement of StarHub relatively declined in value from Aug 2016, which resulted in loses up to 19.44% on yearly basis (Sg.finance.yahoo.com 2016). However, the relative price movement of FTSE mainly indicates an increment of 15.48% in yearly basis. This distinguished price movement mainly states the vulnerability in telecommunication industry in Singapore. Xuan (2015) mentioned that price movement mainly help investors to detect the future prospects, which might help in improving the overall return from investment. On the other hand, Chandrasekaran, Manimannan and Kumar (2013) argued that during an economic crisis the share value of companies mainly decline, which result in losses in form of investment. The decline in the share price of StarHub was after the dividend payments conducted by the company during Aug. However, as compared to FTSE both companies share price is negatively performing, which only states the declining demand of inves tors. Evaluating external and internal sources affecting future performance of Singapore Telecommunication Limited and StarHub Limited: External factors Telecommunications Industry Regulations and political factors Currently the overall regulation and political factors of Singapore are in check, which has mainly supported the activities of telecommunication system. Competition The relatively entry in the telecommunication industry has mainly lowered the overall profitability, as companies had to adopt competitive pricing strategy to survive in the market. Economic condition The relative decline in the inflation rate in Singapore also contributes to the companys overall objective to achieve higher growth and return from their investment. Technological advancements The continuous change in technology and adoption of latest equipments are the major threat, which is been faced by the telecommunication industry. With every change in technology, the company needs to increase its capital expenditure, which mainly increases their debt and reduce their solvency scope. Internal factors SingTel Starhub Management Currently the management of the company is fairly exuberant, which mainly helps in achieving the depicted gaols The companys management is not fairly making adequate decisions, which is depicted from the overall share price demand and lowered financial position. Labour relations Currently the labour relation so the company is appropriate and support the future requirements The labour relation is adequate to maintain the level of productivity, which might help in generating higher revenues. Costs The costs are mainly declining, which has helped in improving its profitability ratio However, the company overall cost is mainly increasing, which is negotiable affecting its profitability ratio and increasing its overall debt Conclusion: The assignment mainly evaluates the financial performance of SingTel and StarHub from 2013 to 2015. The financial performance has been evaluated with the help of ratios and industry average. Moreover, from the evaluation SingTel is mainly derived as the most financially stable company as compared to its peers. However, both the companies have higher industry average, which mainly depicts the efficiency of the companys management. Furthermore, the share evaluation mainly states that SingTel has more value and has declined less than StarHub on yearly basis. Furthermore, the external factors and internal factors of SingTel are more prominent, which provide higher growth prospects and could help investor make adequate return from investment. Reference and Bibliography: Brou, F.B. and Krueger, T.M., 2016. Continental and National Differences in the Financial Ratios of Investment Banking Companies: An Application of the Altman Z Model.Journal of Accounting and Finance,16(3), p.37. Chandrasekaran, R., Manimannan, G. and Kumar, C.A., 2013, September. Assessment of Top Ranking Companions Using Financial Ratios. 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