Analysis Of Equity And Capital Structure Of Telstra Company And TPG Telecom Limited

Equity Items of Telstra Company and TPG Telecom Limited

The financial statement represents the overall position of a business in terms of figures. It becomes essential for the managers, investors, suppliers, creditors and the analyst of the company to identify and evaluate all the accounting and financial figures of the business to measure the performance. However, a business’s figures could be evaluated and compared with the other firms in the same industries, if the same recording and presentation method has been followed by the company (Lambert, 2008). In order to maintain the similarity and transparency in the business, global financial reporting process, accounting standards and policies have been offered by the Australian accounting body so that the investors decisions could not be manipulated and they could found a better base to compare the different positions of the organization in the industry to make decision. The rpeort focuses on the Telstra Company and TPG telecom Limited.

Telstra limited is Telecommunication Company in the Australian market which mainly operates and builds the telecommunication network, mobile internet access, market voice, pay television and various other product and services in the Australian market. It is the largest Australian telecommunication company. It is operating its business through around 150 subsidiaries of the company (Home, 2018). According to the annual report (2017) 32000 employees are working with the company in order to achieve the common goal of the business.

TPG telecom limited:

TPG telecom limited is Telecommunication Company in the Australian market which specializes in offering the consumer and business internet services in the Australian market. It also offers the mobile services. It is the second largest Australian telecommunication company. It is operating its business through around various subsidiaries of the company such as Adam internet, AAPT limited, iiNet, TransACT etc. (Home, 2018). According to the annual report (2017) 5083 employees are working with the company in order to achieve the common goal of the business.

The owner’s equity of an organization must be presented in the balance sheet of an organization and the financial notes about those figures must also be presented by tan organization in order to offer the relevant and transparent information to the stakeholders of the business (Lambert, 2008).

1. List of equity items:

The equity item list of the company, Telstra Company and TPG telecom Limited, has been evaluated through identifying the balance sheet and the financial note of the company. Below are the list and the figures of both the companies:

Equity Items
	TPG Telecom limited	Telstra Company
AUD in million	2017	2016	Changes	2017	2016	Changes
Stockholders’ equity
Share capital	1449.4	1051.9	37.79%	4421	5167	-14.44%
Reserves	-18.1	41.2	-143.93%	-105	62	-269.35%
Retained earnings	963.3	681	41.45%	10225	10642	-3.92%
Total stockholder’s equity	2394.6	1774.1	34.98%	14541	15871	-8.38%

(Annual report, 2017)

The table explains that the main items of equity statement of a business are share capital, reserve and the retained earnings of the business. The table represent that the share capital represents the total amount which has been generated by the business on the basis of the ownership of the business. The share capital of Telstra limited and TPG telecom limited explains that the value of TPG has been improved and value of Telstra has been lowered because of the repayment of the shares by the company.

In addition, the resaves are the amount which is maintained by the company from net profit to keep the amount for any emergency cases in the business and compensate the losses of the business. The reserve position of both the companies has been lowered because of not requirement of that many reserves in the industry and lastly the retained earnings of the business have been measured (Annual report, 2017). Retained earnings stands for the amount which is keep by the business form net profit for the future investment and internal funds of the business. The retained earnings level has been reduced by TPG. Though, Telstra has improved the level. On the basis of the study, it has been concluded that the equity position of Telstra has been improved.

Comparison of Gearing Level of Telstra Company and TPG Telecom Limited

The gearing level of the company has been compared further to identify the capital structure rules followed by the company to identify the financial risk and the cost of the business. On the basis of the given table below, it has been recognized that the total debt of TPG is 39.43% of the equity which is quite better in terms of the financial gearing position and the financial risk of the business (Annual report, 2017). However, in case of Telstra limited, it has been found that the 126.64% debt amount is kept by the business against the total equity of the business which reduced the cost position of the business but the associated financial risk of the business is quite higher. Annual report (2017) of Telstra limited explains that required changes would be done by the business to maintain the financial risk of the business.

Equity Items
	TPG Telecom limited	Telstra Company
AUD in million	2017	2017
Long term debt	944.1	18414
Equity	2394.6	14541
Debt / Equity	39.43%	126.64%

(Annual report, 2017)

The cash flow statement is considers as one of the final financial statement of an organization which is prepared by the business after preparing the income statement and balance sheet. The proper financial notes about the cash outflows and cash inflows must also be presented by the organization in order to offer the relevant and transparent information to the stakeholders of the business.

List of cash flow items:

The cash flow item list of the company, Telstra Company and TPG telecom Limited, has been evaluated through identifying the cash flow statement and the financial note of the company.  

On the basis of the cash flow items given in the cash flow statement of the business, it has been found that the cash flow position of both the companies has been changed. The cash flow from receipts depicts the cash received from the customers which has been improved in both the companies. Further, the payment to suppliers, income tax is paid etc are the cash outflow of the business which has been improved because of the higher inventory purchased by the business (Annual report, 2017). further, the items of inventory and cash flows have been measured and found that those items in which the cash either has been paid by the company or received and which will impact for long term to the business is considered as investing cash flows and the item which is related the financial activities of the business would be recognized in the financial cash flows of the business.

On the basis of the overall evaluation on both the companies, the investing cash flows have been lower because company has not invested much in current year and the cash outflow of Telstra has been improved because of the higher investment (Annual report, 2017). Further, the financial activities cash flow position has also been changed in both the companies.

The cash flows of an organization are divided in the three categories on the basis of their nature and their relevance in the business. The main category of the cash flows is operating cash flows, investing cash flows and the financial cash flows of the business. The cash flow of TPG telecom has been evaluated firstly and it has been recognized that the operating activities has been improved by 89.24% because of higher cash inflow from customers and the government grants (Annual report, 2017). Further, the investing outflows of the business have been reduced because of the lower acquisitions and the investment. Lastly, the study has been done on the financial activities of the business which has been reduced because of the repayment of the borrowings and issues less borrowings in the market.

	TPG Telecom limited
AUD in million	2017	2016	2015	Changes
Net cash used for operating activities	722.7	620.4	381.9	89.24%
Net cash used for investing activities	-457.1	-1488.6	-265.6	72.10%
Net cash provided by (used for) financing activities	-258.6	884	-116.9	121.21%

Cash Flow Positions of Telstra Company and TPG Telecom Limited

(Annual report, 2016)

Further, the cash flow of Telstra limited has been evaluated and it has been recognized that the operating activities has been reduced by 6.45% because of higher cash outflow to the suppliers of the company. Further, the investing outflows of the business have been improved because of the higher acquisitions and the investment. Lastly, the study has been done on the financial activities of the business which has been reduced because of the repayment of the borrowings and issues less borrowings in the market.

	Telstra Company
AUD in million	2017	2016	2015	Changes
Net cash used for operating activities	7775	8133	8311	-6.45%
Net cash used for investing activities	-4279	-2207	-5692	-24.82%
Net cash provided by (used for) financing activities	-6104	-3777	-6882	-11.30%

(Annual report, 2016)

After evaluation on the broad categories of each of the business, the study has been done on the changes in the cash flow statement of both the companies. Through the evaluation on the changes from the last year in each of the company, it has been measured that the cash inflow from operating activities have been increased in TPG and reduced in Telstra because of different cash management strategies and credit policies of the business. In case of investment activities, it has been found that the reduction has been done by TPG in expenses. Though, the Telstra has improved the investment which has affected the cash inflow position of the business. Lastly, the study has been done on financial activities and it has been found that the outflow of both the companies is higher.

The study concludes that the position of TPG is better in managing the cash flow position and it has been added by the directors in their report as well (annual report, 2017).

The comprehensive income statement describes the factors which has impacted on the profitability level of the business but is presented by the business in different statement instead of the statement of the financial performance of the company (Kanagaretnam, Mathieu and Shehata, 2009). The proper financial notes about the comprehensive income statement must also be presented by the organization in order to offer the relevant and transparent information to the stakeholders of the business.

The comprehensive income statement item list of the company, Telstra Company and TPG telecom Limited, has been evaluated through identifying the comprehensive income statement and the financial note of the company. 

The above figure 3 and figure 4 explains that the items are affecting the profitability position of the business. But it has not been recorded by the business in the annual report of the business because of the fact that these figures have taken place in the business because of the external factors and they do not have any relevance and connection with the operations of the business (Jackling, Raar, Wines and McDowall, 2010). If these items would be recorded in the income statement only than it could lead different and manipulated result in the business.

The profitability level of the companies has been evaluated and it has been found that the items of comprehensive income statement have changed the profit level of each of the business (Kanagaretnam, Mathieu and Shehata, 2009). The annual report (2017) of TPG limited explains that the comprehensive income of the business is -59.8 which has reduced the profitability position of the company from $ 415.7 million to $ 355.9 million. As well, in case of Telstra limited, comprehensive income of the business is $ 7 million which has improved the profitability position of the company from $ 3881 million to $ 3902 million.

Rees and Shane, (2012) has depicted into his paper that of the comprehensive income statement items would be the ort of the statement of profit and loss of the business than it would change the total outcome of the business which is to even directly relate to the business. And the manager performance is related to the profit position of the business. So the different outcome would offer different base to ensure the performance (Bamber, Jiang, Petroni and Wang, 2010). So, the comprehensive income statement items must not be considered while calculating the manager’s performance in an organization.

Accounting for corporate income tax is one of the major figures of the business which is shown in the income statement, balance sheet and cash flow statement. In the income statement, the tax expenses related to the particular period is recognized while in the balance sheet, the due amount or extra paid amount is shown (Egger, Eggert, Keuschnigg and Winner, 2010). And lastly, in the cash flow statement, the entire cash amount paid by the government in the terms of tax is shown. The proper financial notes about the taxation must also be presented by the organization in order to offer the relevant and transparent information to the stakeholders of the business

1. Tax expenses:

The tax expenses of both the companies are as follows which has been found from the annual report (2017) of both the companies:

Income tax amount
	TPG Telecom limited	Telstra Company
AUD in million	2017	2017
Income tax expenses	179.8	1773

(Annual report, 2017)

The income tax of Telstra is very much higher than the TPG telecom limited.

Effective tax rate depicts the total tax expenses paid by the business to the government in context to the earnings before tax (Adams, Hardwick and Zou, 2008). The effective tax rate of Telstra is higher by .06% from TPG. Below table represents the effective tax rate of both the companies:

Effective tax rate
	TPG Telecom limited	Telstra Company
AUD in million	2017	2017
Income tax expenses	179.8	1773
EBT	595.5	5674
Effective tax rate	30.19%	31.25%

(Annual report, 2017)

Deferred tax assets and liabilities:

The deferred tax assets and liabilities of both the companies are as follows:

Deferred tax assets and liabilities
	TPG Telecom limited	Telstra Company
AUD in million	2017	2017
Deferred  tax assets		44
Deferred  tax liabilities	10.1	1539

(Annual report, 2017)

The financial notes of TPG explains that the company has paid less $ 10.1 million to the government and thus the amount has been represented in the liability side of the balance sheet, Further, the Telstra’s annual report (2017) explains that the last year amount has been not been balanced and the company has reduced the taxation amount due to which the DTL and DTA both has been seen in the annual report of the company (Rankin, Ferlauto, McGowan and Stanton, 2012).  

1. Changes in deferred tax amount:

The below table depicts the changes in both the companies from the last year:

Changes in Deferred tax assets and liabilities
	TPG Telecom limited	Telstra Company
AUD in million	2017	2016	Change	2017	2016	Change
Deferred  tax assets				44	54	-18.52%
Deferred  tax liabilities	10.1	62.7	-83.89%	1539	1493	3.08%

(Annual report, 2017)

Ernst, Richter and Riedel, (2014) explains that cash tax amount is the total expenses and cash outflow of the business is an accounting year. The total amount paid by the business to government in a particular period is called cash tax amount, the cash tax amount calculations of both the companies are as follows:

Cash tax amount
	TPG Telecom limited	Telstra Company
AUD in million	2017	2017
Book Income tax expenses	179.8	1773
ADD: Increment in the deferred  tax assets	0	-10
Less: Increase in deffered tax liabilities	-52.6	46
unleveraged cash taxes	232.4	1717

(Annual report, 2017)

The cash tax rate has been calculated further by the company through considering the earrings before tax and the cash tax amount of the business, the cash tax rate of the business is as follows:

Cash tax rate
	TPG Telecom limited	Telstra Company
AUD in million	2017	2017
Book Income tax expenses	179.8	1773
ADD: Increment in the deferred  tax assets	0	-10
Less: Increse in deffred tax liabilities	-52.6	46
unleveraged cash taxes	232.4	1717
EBT	595.5	5674
Cash tax arte	39.03%	30.26%

(Annual report, 2017)

Differences in cash and book tax rate:

Lastly, the annual report (2017) describes 30% book rate of both the companies and the cash tax rate of TPG and Telstra limited are 39.03% and 30.26% which represents the higher amount paid by the business than the book tax rate of the businesses.

Tax rate changes
	TPG Telecom limited	Telstra Company
AUD in million	2017	2017
Book tax rate	30%	30%
Cash tax rate	39.03%	30.26%

(Annual report, 2017)

Conclusion:

To conclude, the recording and the presentation of each of the final financial statement must be done by the business properly. It helps the business and the stakeholders of the business to evaluate all the figures briefly and reach over a conclusion about the overall position at better level. On the basis of the study on the report and the conclusion, it has been found that the Telstra limited and TPG telecom limited are following the same rules and AASBs to record and present the performance of the business.

References:

Adams, M., Hardwick, P. and Zou, H., 2008. Reinsurance and corporate taxation in the United Kingdom life insurance industry. Journal of Banking & Finance, 32(1), pp.101-115.

Annual report. 2016. Telstra limited. [online]. Available at: https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20F/FY16-Annual-Report-single-pages.pdf [accessed 21/9/18].

Annual report. 2016. TPG telecom limited. [online]. Available at: https://www.annualreports.com/HostedData/AnnualReportArchive/t/ASX_TPM_2016.pdf [accessed 21/9/18].

Annual report. 2017. Telstra limited. [online]. Available at: https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20F/Annual-Report-2017.PDF [accessed 21/9/18].

Annual report. 2017. TPG telecom limited. [online]. Available at: https://www.tpg.com.au/about/pdfs/FY17%20Annual%20Report.pdf [accessed 21/9/18].

Bamber, L.S., Jiang, J., Petroni, K.R. and Wang, I.Y., 2010. Comprehensive income: Who’s afraid of performance reporting?. The Accounting Review, 85(1), pp.97-126.

Egger, P., Eggert, W., Keuschnigg, C. and Winner, H., 2010. Corporate taxation, debt financing and foreign-plant ownership. European Economic Review, 54(1), pp.96-107.

Ernst, C., Richter, K. and Riedel, N., 2014. Corporate taxation and the quality of research and development. International Tax and Public Finance, 21(4), pp.694-719.

Home. 2018. Telstra limited. [online]. Available at: https://www.telstra.com.au/ [accessed 21/9/18].

Home. 2018. TPG telecom limited. [online]. Available at: https://www.tpg.com.au/ [accessed 21/9/18].

Jackling, B., Raar, J., Wines, G. and McDowall, T., 2010. Accounting: A framework for decision making. McGraw-Hill Education.

Kanagaretnam, K., Mathieu, R. and Shehata, M., 2009. Usefulness of comprehensive income reporting in Canada. Journal of Accounting and Public Policy, 28(4), pp.349-365.

Lambert, S., 2008. A conceptual framework for business model research. BLED 2008 proceedings, 21(4), p.24.

Rankin, M., Ferlauto, K., McGowan, S.C. and Stanton, P.A., 2012. Contemporary issues in accounting. Milton, Australia: Wiley.

Rees, L.L. and Shane, P.B., 2012. Academic research and standard-setting: The case of other comprehensive income. Accounting Horizons, 26(4), pp.789-815.