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Please see the following notes. 1. 'TMA3 Guidelines' document gives the details of the assignment. 2. TMS03 guidance on format gives the document format to be used.3. 'Managing Finance & Resources' -...

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Please see the following notes.
1. 'TMA3 Guidelines' document gives the details of the assignment. 2. TMS03 guidance on format gives the document format to be used.3. 'Managing Finance & Resources' - This is the course module4. 'Telefonica_Finance Statements' - Zip document contains the financial statements based on which the assignment to be prepared.5. Additional Financial information' excel files gives the figures of another company 'DT Group' and also telecom industry financial ratios for the comparison with the Telefonica company. The links to the financial statements of the both companies are given below.
https://www.telefonica.com/en/web/about_telefonica/publications/annual-reports

https://telekom.com/en/investor-relations


If you need any additional information, please let me know.

Many thanks
Answered Same Day Mar 17, 2020

Solution

Aarti J answered on Mar 21 2020
145 Votes
Financial Analysis – Telefonica group’s financial performance
Course Name
Course Date
Student’s Name
Financial Analysis – Telefonica group’s financial performance    10
Financial Analysis – Telefonica group’s financial performance
Introduction
Telephonica is a communication provider company which facilitates communication between people. The company revolves around innovation and technology with which the company achieves to resolve all the communication issues that the customers face. The company facilitates the enjoyment for the connection and safeguarding the information of the customers. With a strong emphasis on the technology, the company gives wide options to people to connect to their friends and family. (About company, 2018)
Financial Analysis
In this section we will be analysing the financial performance of Telefonica and compare it with its competitors and industry average. Financial analysis is done with the help of the financial ratios which helps in analysing the financial performance of the company from different perspectives.
Profitability ratios:
Profitability ratios are the ratios which helps in analysing the profitability of the firm,
Return on Capital employed (ROCE):
Return on Capital employed is calculated as = Net operating income / Capital employed
Capital employed is calculated as the total of long term debt and shareholder’s equity. Return on capital employed helps in analysing the operating profitability of the firm.
    
    2014
    2015
    2016
    ROCE (Net operating income/Capital employed)
    7.52%
    3.29%
    6.20%
    Net operating income
    6967
    2897
    5469
    Capital employed
    92600
    88105
    88190
    Long term debt
    62311
    60549
    59805
    Shareholder’s fund
    30289
    27556
    28385
    
    
    TELEFONICA COMPANY
    
    
    
    Vertical Analysis
    Financial Ratio Analysis
    
    
    
    
    
    2014
    2015
    2016
    2014
    2015
    2016
    Profitability
    ROCE
    7.52%
    3.29%
    6.20%
    
    Worse
    Bette
The return on capital employed of the company has been fluctuating over the last three years. The company’s ROCE was quite low in the year 2015 as compared to 2014 and 2016, because of low net operating income of the company in 2015. In 2015, the company had low operating income because of high operating expenses personnel costs and other operating expenses. With this, the company’s net operating income affected the return on capital employed.
In the year 2016, the company made an effort to reduce its operating expenses, supplies expenses as well as other expenses which has helped the company to improve on its profitability and return on capital employed in the year 2016. (Annual Report, 2016)
Return on Sales
Return on sales is calculated as operating income by sales, it helps in analysing the operating profitability or operating performance of the company.
    
    2014
    2015
    2016
    ROS (Operating income/Sales)
    13.38%
    5.09%
    10.17%
    Operating income
    6967
    2897
    5469
    Sales
    52084
    56927
    53799
    
    
    TELEFONICA COMPANY
    
    
    
    Vertical Analysis
    Financial Ratio Analysis
    
    
    
    
    
    2014
    2015
    2016
    2014
    2015
    2016
    Profitability
    ROS
    13.38%
    5.09%
    10.17%
    
    Worse
    Bette
The return on sales in 2015 decreased because of the decrease in the operating income. In 2015, the company had low operating income because of high operating expenses personnel costs and other operating expenses. With this, the company’s net operating income affected the return on sales.
In the year 2016, the company made an effort to reduce its operating expenses, supplies expenses as well as other expenses which has helped the company to improve on its profitability of the company. Thus, the return on sales improved.
Asset utilization ratio
Asset utilization ratio helps in analysing the efficiency of the use of the assets to generate the sales. Higher the ratio more efficient is the company’s assets utilization.
    
    2014
    2015
    2016
    AUR (Sales/Capital employed)
    0.562
    0.646
    0.610
    Sales
    52084
    56927
    53799
    Capital employed
    92600
    88105
    88190
    
    
    TELEFONICA COMPANY
    
    
    
    Vertical Analysis
    Financial Ratio Analysis
    
    
    
    
    
    2014
    2015
    2016
    2014
    2015
    2016
    Profitability
    AUR
    0.56
    0.65
    0.61
    
    Bette
    Worse
In the year 2016, the sales of the company decreased by 5.49% in 2016 which affected the asset utilization ratio of the company...
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