Simple Strategies For Maximum Market Return

Macquarie Telecom Group

Discuss About The Simple Strategies For Maximum Market Return?

This report is prepared for enhancing the knowledge of financial market of Australia for taking the investing decisions related to stock market in better way. For completion of this report, two companies are selected such as Macquarie Telecom Group and Telstra Telecommunication. This report will focus on conducting top down and bottom up analysis for better understanding of the impact of economic factors on current economic growth of Australia and industry performance. Top down analysis is helpful to understand the economic conditions of a country. Industry and company analysis are also helpful for making the better investment decisions in the stock marketing. Moreover, bottom up analysis is beneficial for understanding the financial situations of both the companies. Investors of companies focus on analysis of the company value and competitive advantages to predict future performance of its stock price. For this, various financial ratios have been calculated and analyzed like current ratio, debt ratio, liquidity ratio, earning per share etc for both the companies.

The journey of Macquarie telecom group was started as an entrepreneur that has made difference between customer services and deregulated telecom industry. This company is dominated by the monopolistic competition with Telstra whose customer crush is very large. Whenever Macquarie has delayed adoption of the new technologies, it has affected profits of the company. Macquarie has fought with the deregulation by cutting down the prices and introducing new technologies for the customers (Macquarie, 2017). The main aim of this company is to focus only on one segment of the customers and provide them the better telecom services. Our customers are always important for us to gain success within the market or industry.

Macquarie Company is dealing in three types of businesses such as Macquarie telecom, Macquarie services and Macquarie government. In Macquarie Telecom, it provides the several telecom services in the market like data, voice, mobile and collocation services. It was the first business of Macquarie group. Under Macquarie services, the company is dealing with IT specialist centre, cloud and dedicated server (Peter, 2012). IT related complaints come in this organisation. Lastly, Macquarie government is dealing with the cyber security, secure cloud and data centre services. It has worked with Australian defence and intelligence agencies.

Telstra is a leading telecommunication and technology company of Australia. It provides the full ranges of services related to telecom sector across Australia. Business mission of Telstra is to create a connection in the future for everybody. The core values of Telstra telecommunication include care, trust, togetherness, simple and courage within employees within the organisation. Further, vision of company is to stay connected with communities, government, business and individuals (Telstra.com, 2017). The company has adopted various strategies to improve the customer experience, drive value and growth from the core of business for sustainable growth of the business.

Telstra Telecommunication

The company is providing better connection to customers, improving their lifestyle, and working through a better connection. It provides services to customers within Australia and outside of Australia also. It is the largest and fastest mobile network in all over the Australia.

Fundamental analysis is method of scientific analysis, as it tries to estimate the intrinsic worth of the company. It efficiently analyses the basic fundamental criteria of the company like sales, profits and balance sheet elements. It pays deep attention to a company’s debt-equity ratio, earning per share, dividend payout, profit margins, interest, asset and dividend coverage, sales penetration, market share, product and market innovation and the promoters record of accomplishment. It is a conservative and non-speculative approach for valuating equity shares on value-based methods. It consists of three phases such as economic analysis, industry analysis and company analysis (Matt, 2016). In fundamental analysis, a study of comparative balance sheet, profit & loss account will be conducted for each company.

From economic analysis, it has been determined that the economic growth of Australia has declined slowly. Economy of Australia has seen significant fall in fixed and public investment of the stock market in Australian exchange market. In economic analysis has considered the various factors that include the current changes in interest rate, foreign exchange rate and GDP. The current GDP (Gross domestic product) per capita income of Australia is showing an increasing trend from past years. For example, the per capita GDP of Australia has increased from 50952 US dollar in 2007 to 55670 US dollar (Trading Economics, 2017). The growth rate of GDP per capita income is showing a scope for sustainable business growth for both telecom companies across Australia (Nlkiforos, 2012). While, current exchange rate of 1 AUD is 0.80 US dollar in 2017. It means the value of Australian dollar against US dollar is good. But as compared to past years, the exchange value of Australian dollar against US dollar is at very lower level (i.e. 0.80 USD in 2017) than the value in 2011 (i.e. 1.09960 USD) (XE, 2017). This can be a negative factor for attraction of Australian economy for foreign investors. But, from analysis of GDP per capita of Australia, it can be said that consumers of Australia have the ability to pay for services offered by both the chosen companies.

Moreover, the depreciation of Australian dollar has a positive effect on the export of goods. For example, companies that have export trade in US regions will enjoy competitive advantages. But at the same time, price of import of goods, foreign investment and overseas of travel shall be affected negatively. Additionally, the rate of interest in Australia is recorded at historical low level as on 5^th September 2017 i.e. 1.5% (Trading Economics, 2017). Lower rate of interest is beneficial for the organizations, as they will be able to get bank loan at lower rate.

Fundamental Analysis

Industry analysis is helpful for understanding the operating activities, financial key element and development of mobile, broadband and fixed line in sector of telecommunication industry.  Further, telecommunication companies have trained their staffs for handling dynamic changes that occur in the market (Riaz, 2016). These changes include new technologies, low margin and competition in the traditional market within the Australia. Many developments are occurring in the telecommunication industry since last five years (i.e. from 2011 to 2015). These developments are affecting the competitive advantages of the telecommunication sector.

These developments are creating pressure on the two Tier mobiles service providers to achieve the target and maintain the market share price in the Australia. Another development of telecom sector is growth in consumer demands for data services. Increasing demand of mobile data services will affect quality of services in the telecom sector. Meanwhile, consumers’ protection is also considered as important by the telecommunication sector of Australia (ACC report, 2016). Telecommunications operators are more focused on providing better services to the customers with the help of bringing in transparency in their services, bringing in new technologies and promoting the innovated product in the market.

This analysis is helpful for investors to analyze different resources and capabilities within each company. It is helpful to identify companies that are more capable for creating and maintaining competitive advantages in the market of Australia. This analysis is more focused on management and financial situation of each company in telecommunication sector.

The management of both companies are very efficient and effective and focused on customer needs and wants. Investors might look at management to assess its capabilities, strengths and weaknesses of the companies so as to help investors in making better investment decisions.

This is the second step of company analysis. In this, investors analyze the financial statements of both companies, which is helpful to take the better investment decisions (Wang, 2015). The Macquarie telecom group Company is more profitable as compared to Telstra communication. Macquarie captures higher market shares in stock market of Australia, because dividend ratio of Macquarie telecom group is high as compared to Telstra. Debt ratio of both companies is slightly different with each other, which affects the share price of the stock market in (ASX). For investment purpose, Macquarie telecom group will prove to be more profitable as compared to Telstra telecom.

A bottom-up investigation approach focuses on analysis of individual stocks of the companies. In bottom-up analysis, the investors focus on attention of the specific company rather than on the industry in which that company operates the business, or country economy as an Australian market (Eugene and Philip, 2012). Different ratios are calculated for both the companies for understanding the company value in the market. The calculation and interpretation of different ratios for both the chosen companies is as below:

Economic Analysis

From the annual report information that data related to the Telstra’s financial performance is evaluated on the basis of various ratios. Different kinds of ratio that have been calculated and analyzed are the profitability ratio, liquidity ratio, capital structure ratio and market performance ratio for the business in two consecutive years as 2016 and 2017.   

Ratio Analysis for Telstra Business
Ratio Name	Formula	2016	2017
Current Ratio	Current Asset/Current liabilities	1.02	0.86
	Current Asset	9340	7,862
	Current Liabilities	9188	9159
Quick Ratio	Current Asset-Inventories /Current Liabilities	0.91	0.76
	Current Asset	8357	7,862
	Inventories	557	893
	Current Liabilities	9188	9159
Gross Profit Margin	Gross Profit /Sales	0.54	0.48
	Gross Profit	10465	10679
	Sales	22685	22134
Profit Margin	Profit Before Tax/Sales	0.24	0.255
	Profit Before Tax	7648	5647
	Sales	22685	22134
Debt Ratio	Total Liabilities/Total Assets	0.65	0.57
	Total Liabilities	27379	24573
	Total Assets	42133	43286
Debt to Equity Ratio	Total Liabilities/Total Equity	1.72	1.6877
	Total Liabilities	27379	24573
	Total Equity	15907	14560
Price Earnings Ratio	Market Price Per Share/Earnings Per Share	2.22	1.12
	Market Price Per Share	5.56	3.65
	Earnings Per Share	2.5	3.25
Dividend Payout Ratio	Dividend Per Share/ Earnings Per Share	1.24	0.95
	Dividend Per Share	3.1	3.1
	Earnings Per Share	2.5	3.25

On the basis of above interpretation of data for the year 2016 and 2017, the current ratio is determined as 1.02 and 0.86 respectively which is moved towards negative, it intensify that the company’s ability is getting down in order to paying the short term debts or obligation that arises over the company. As company is not able to maintain the asset and liability ration through using the market securities, cash and receivables. Along with this the, quick ratio for the company is measured as 0.91 and 0.76 which is also indicating that the company’s strength is getting lower to pay the quick arises liabilities over the business due to its operating activities. These are delivering the negative performance of company over the year 2016 and 2017. At the same time, it is stated that the current ratios are delivering the information about the operating cycle of Telstra buisness. Quick ratio is also not enough to respond the current liabilities over the most liquid assets (Brigham and Houston, 2012).  

From the analysis of profitability ratio which indicates the return on investment over the operational activities of business. Gross profit margin ratio is calculated as 0.54 and 0.48 for the year 2016 and 2017 respectively, it means that the company’s gross margin has decrease as compare to the current year. It indicates that the financial operation of business is generating higher expenses so that it also impacts on the net profitability of business. Furthermore, Profit margin for Telstra business has also increased from 0.24 to 0.25 in year 2016 and 2017 which strengthen the financial position of business good because long term stability for business is depends on the generation of profit as it also an investor luring proficiency of business. Profitability is crucial important to measure the efficiency of organization that declare strong capabilities of company (Katsioloudes, 2012). As after check, the above table can be said that the efficiency of Telstra Company increased as compare to last year.

Over the measurement of debt ratio which inferences that the debt’s on company’s as liabilities are reducing over the year 2016 to 2017 by 0.65 to 0.57, which is better for the company to attract the potential investors. Further, debt to equity ratio is also decreasing from 1.72 to 1.68 which states that the business liabilities over the equity are lower from last financial year. Both of the considerations are getting which is good to reduce the liabilities over the business. Over the interpretation of price earnings ratio, it can be said that the performance of business is also decreasing from 2.22 to 1.12 it is not good for the shareholder and business as well because it influence the brand image of company in perspective market. It is also detained that the market price for shares are reducing but the earnings per share is increasing, so the overall impact laid down the business customer generation strategy or concerned market capabilities. Along with this, dividend payout ratio for the business is also decreasing from 1.24 to 0.95 from the year 2016 to 2017 which is also negative for the Telstra to gain the competitive advantages in Australian market that would also hamper the attraction point of perspective shareholder and investors.

Industry Analysis

Ratio Analysis for  Macquarie Telecom Group
Ratio Name	Formula	2016	2017
Current Ratio	Current Asset/Current liabilities	1.78	1.33
	Current Asset	57	52
	Current Liabilities	32	39
Quick Ratio	Current Asset-Inventories /Current Liabilities	1.53	1.08
	Current Asset	57	52
	Inventories	8	10
	Current Liabilities	32	39
Gross Profit Margin	Gross Profit /Sales	1	1
	Gross Profit	203	220
	Sales	203	220
Profit Margin	Profit Before Tax/Sales	0.163	0.19
	Profit Before Tax	33	41
	Sales	203	220
Debt Ratio	Total Liabilities/Total Assets	0.92	0.91
	Total Liabilities	181.1	165.6
	Total Assets	196.8	182.9
Debt to Equity Ratio	Total Liabilities/Total Equity	2.63	2.5524
	Total Liabilities	181.1	165.6
	Total Equity	68.79	64.88
Price Earnings Ratio	Market Price Per Share/Earnings Per Share	0.17	0.34
	Market Price Per Share	11.5	14.54
	Earnings Per Share	69.28	42.42
Dividend Payout Ratio	Dividend Per Share/ Earnings Per Share	49.19	21.21
	Dividend Per Share	0.71	0.5
	Earnings Per Share	69.28	42.42

On the basis of above information, it can be stated that the current ratio is decreasing from 1.78 to 1.33 which impacts the financial ability of company to pay the short term and long term liabilities over the business but it is higher that the Telstra’s financial performance. Along with this, quick ratio is also getting down by the 1.53 to 1.08 for the year 2016 to 2017 which is also not good for the business to pay the short term debt imposed from operating activities of business. Over the profitability ratio, it can be interpreted that the gross profit margin for company is 1 and 1 because of enough information about the financial operation of business.

On the other hand, profit margin for company is decreasing from 2016 to 2017 which is better for the company to tap the market by delivering higher profit to the investors and shareholders. It is also stated that the debt ratio is not changing from two consecutive years; it is detained as 0.92 to 0.91. Along with this, the debt to equity ratio is also not much changed which states that liabilities are in control with reference to assets and debts for business.

Moreover, price earnings ratio for the business is also measured as 0.17 to 0.34 which is better for the company to capture the higher profit generation policy of business. On the other hand, the dividend payout ratio is decreasing which is not better for the business to gain higher attraction of shareholders.   

From the analysis of results of different ratios, it can be said to investors that financially both the organizations are performing well. It would be better for the investors to invest in Macquarie telecom group as compared to Telstra. It is because the dividend payout ratio of this company is better. At the same time, the financial performance of Macquarie telecom group is also good. For example, the profit margin ratio of this company has increased from 0.16 in 2016 to 0.19 in 2017. This indicates increase in profitability of company. So, there are chances that investors might get good return in coming years over their investment.

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