Financial Analysis of Singapore Telecommunications Limited

Question: Discuss about the Financial Analysis of Singapore Telecommunications Limited. Answer: Introduction The investors require information that helps them take investment decisions (Tracy, 2012). The information needs of the investors could be met out by analyzing the financial statements of the company. In order to gain insight into the financial performance and position of the telecommunication sector in Singapore, two big giants of the sector namely Singapore Telecommunication Limited and Starhub have been chosen for analysis. Singapore Telecommunication Limited The company provides integrated infocomms technology solutions primarily in the countries such as Singapore, Australia, the United State, and the Europe (Singtel, 2016). It is one of the biggest companies on the Stock Exchange of Singapore thus; it would provide a glimpse of entire industry in terms of financial performance. StarHub Ltd This company was founded in the year 1998 and since it has grown significantly. The company provides communication and entertainment services in Singapore and it is one of the biggest revivals of Singapore Telecommunication Limited (StarHub, 2016). This company has been chosen to compare the financial performance of Singapore Telecommunication Ltd. It has been observed from the chart shown above that the profitability of Singapore Telecommunication Limited is showing upward in the financial year 2015. On the other hand, the profitability of its competitor namely Starhub is going downward. The net margin of Singapore Telecommunication Limited has gone up from 19.29% in the year 2013 to 21.96% in the year 2015 (Appendix). Further, the operating profit margin and return on equity are also showing slight improvements in the current financial year (Tracy, 2012). Further, analysis reveals that the company has higher net margin (21.96%) than its competitor (15.22%), but the position in regard to return on equity is different. The competitor has very high return on equity (198.93%), which appears to be due to low equity maintained by it (Appendix). Starhub has very low equity, which is depicted from high debt equity ratio of 9 times. Liquidity Analysis The current ratio of Singapore Telecommunication Limited has been found to be 0.83, 0.86, and 0.83 times for the financial years 2013, 2014, and 2015 respectively (Appendix). Further, in respect of its competitor it has been observed to be 0.71, 0.56, 0.59 times for financial years 2013, 2014, and 2015 respectively. Thus, it can be observed that the company has been able to maintain the current ratio at same level, but the competitors liquidity position is going downward. Further, comparing the liquidity position of the company with its competitor, it could be observed that company is in better position. Efficiency Analysis Singapore Telecommunication Limited provides 82 days credit period, while, it competitor is extending only 47 days credit to the customers. Further, the asset turnover ratio of the company is also lower than that of its competitor. This indicates that the management of the company has not been able to deploy its assets efficiently. Further, the trend in the recent years depicts that the accounts receivable days are increasing and the asset turnover ratio is decreasing continuously, which is indicative of deterioration in the efficiency of the operations (Tracy, 2012). Solvency Analysis The debt equity ratio of the company is 0.70 times while that of its competitor is 9.21 times, which indicates that the solvency position of the company is far better. Further, the company also maintains sufficient operating profits to pay off the debt obligations on time, which is depicted in the Interest Times ratio of 9.60 times. Conclusion From the ratio analysis conducted in this report, it could be articulated that the profitability, liquidity, and solvency of Singapore Telecommunication Limited is better than Starhub Limited. However, the managements efficiency as regard deployment of the assets of the company has been found to be lower than its competitor. Overall, Singapore Telecommunication Limited is in better position than Starhub Limited. Reference Singtel. 2016. Company profile. [Online]. Available at: https://www.singtel.com/about-Us/company-profile.html [Accessed on: 13 November 2016]. Starhub. 2016. Company profile. [Online]. Available at: https://www.starhub.com/about-us/company-information/profile.html [Accessed on: 13 November 2016]. Tracy, A. 2012.Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet. RatioAnalysis.net.