Individual Case #1: Financial Ratio AnalysisPurposeThis assignment is designed to help students obtain the ability to collect financialinformation and understand financial statements. Also, students are required to performfinancial analysis and benchmarking, evaluate financial performance, and providerecommendations to help the company to maximize its profit and market value.Requirements:• Identify two public listed companies in Canada• Retrieve their financial statements (company investor relation website orwww.sedar.com)• Perform financial analysis including vertical, horizontal and ratio analysis• Evaluate financial performance• Provide recommendationFormat• The maximum 10 pages of the body content and unlimited pages of the appendix• Single Space• Citation Style, APA or MLAIndividual Case Outline• Title Page• Executive Summary• Table of Content• Introductiono Company Backgroundo Main Competitor Background and Comparability Rational• Financial Assessmento Vertical Analysiso Horizontal Analysiso Financial Ratio Analysis• Recommendation• Conclusion• Reference• Appendix
Microsoft Word - Individual Case #1 2021W.docx Individual Case #1: Financial Ratio Analysis Purpose This assignment is designed to help students obtain the ability to collect financial information and understand financial statements. Also, students are required to perform financial analysis and benchmarking, evaluate financial performance, and provide recommendations to help the company to maximize its profit and market value. Requirements: • Identify two public listed companies in Canada • Retrieve their financial statements (company investor relation website or www.sedar.com) • Perform financial analysis including vertical, horizontal and ratio analysis • Evaluate financial performance • Provide recommendation Format • The maximum 10 pages of the body content and unlimited pages of the appendix • Single Space • Citation Style, APA or MLA Individual Case Outline • Title Page • Executive Summary • Table of Content • Introduction o Company Background o Main Competitor Background and Comparability Rational • Financial Assessment o Vertical Analysis o Horizontal Analysis o Financial Ratio Analysis • Recommendation • Conclusion • Reference • Appendix 1 19 FINANCIAL ANALYSIS Executive Summary This report provides a detailed Financial Analysis of two IT companies: Telus and Shaw. Firstly, we are going to present the backgrounds of the companies, and determine the comparability rational. The report brings a Financial Analysis, which includes: horizontal, vertical, and rational analysis. Recommendations are provided as per the analysis to improve Shaw’s profitability and gain market share. Benchmarks with the leading competitor, Telus, will be presented. These recommendations include increasing the return on Stockholder's Equity for increased financial leverage. Also, the company should plan to decrease the liabilities and increase its total assets, which can be done by getting more contracts. The report ends by providing a conclusion. Table of Contents I. Introduction……………………………………………………………………4 1. Telus……………………………………............……………………...4 2. Shaw.........……………………………………………………………..4 3. Comparability Rational………………………………………………..4 II. Financial Analysis……………………………………………………………..5 1. Horizontal Analysis……………………………………………………5 2. Vertical Analysis………………………………………………………6 3. Financial Ratio Analysis……………………………………………….6 a) Liquidity Ratios………………………………………………..6 i. Current Ratio……………………………......................6 ii. Working Capital Ratio………………………..………..6 b) Solvency Ratios………………………………………………..6 i. Debt to Assets…………………..………..........……….7 ii. Equity Ratio…….....…….……………………………..7 c) Profitability Ratios……………………………………………..7 i. Return on Common shareholder's equity (ROE)………7 ii. Return on Assets (ROA)……………………………….7 III. Recommendations………………………………………………………………8 IV. Conclusion………………………………………..……………………………..9 V. References………………………………………………………………………10 VI. Appendix………………………………………………………………………..11 Introduction Telus Telus is the second largest Canadian telecommunication company; it is the result of the merger between British Columbia and Alberta companies in 1998, in Vancouver headquarters. Telus offers Canadians innovative technologies over 100 year, and its focus on two segments: Wireline (digital personal communications services, equipment sales and wireless Internet services) and Wireless (voice local and long distance, data and others). It offers consumers deals based on contract, which has lower turn rate and reward consumers with prizes, such as laptops, smartphones and television. The total Telus Revenue for the year 2019 was 14,7 billion CAD. Shaw Shaw is the smallest telecommunication company in Canada, but it is considered as the main competitor for Telus in the Western Canada. It main strategy is offer consumers freedom and flexibility with month-to-month contracts, in which consumers have the option to leave when is not satisfied. Shaw is experiencing a growth in market with the creation of Freedom Mobile. Shaw’s total Revenue for the year 2019 was 5,35 billion CAD. Comparability Rational Telus and Shaw both compete in the Communication industry, offering similar products/services related to Wireless and Wireline. There are only minor differences between both companies, and it is related to type of contract offer. While Telus offers its consumers usually 3-year contract deal, Shaw offers its consumers month-to-month deals. The following Financial Analysis provides a review of the company's performance using its Consolidated Balance Sheets and Income Statements. It illustrated the differences in their vertical and horizontal analysis from 2016 to 2019. Financial Analysis Horizontal analysis The horizontal analysis has the goal to verify and compare the evolution of different elements in the financial statements over a period of time. Analyzing the Telus balance sheet, we can confirm that the current assets increased 13,3% from 2018 to 2019, representing a significant decrease compared to the same period from 2017 to 2018 where current assets had increased by 33,2%. Simultaneously, the total assets increased dramatically to 14,88% in 2019, compared to the year 2016, in which the increase was only 6,56%. The increase in total assets is directly related to an increase in cash, which was 29,3% in 2019. By the year 2018, the company had experienced a loss in cash, represented by -18,77%. The acquiring of property and equipment has also impacted the rise in Telus’s total assets, which has invested over 2 million CAD and represents an increase of 17,1%. Shaw managed to substantially increase its current assets by 106,33% in the year 2019, which is due to the rise in cash by 276,56%. This represents an increase in the total assets by 16,4% from 2016 to 2019. The company also made a small improvement of 3,52% in property, plant, and equipment in 2019, but the percentage was smaller than the previous year by almost 5% investment that did not interfere in the increase of total assets. Telus total liabilities and shareholder’s equity had experienced a continuous drop among the years, starting from 6,56% in 2017 to 14,88% in 2019, which increased 8,32%. This has resulted in an increase in payment for current mature long-term debt by 59,33%, which did not happen in the previous year. The shareholder’s equity has also experienced a significant drop to 3,08% by 2019; the prior year showed a high peak of 25,15%. Shaw’s total liabilities and shareholder’s equity had increased through the years, starting by -7% in 2017 and reaching a high peak of 10,6% in 2019. This results in the continuous decrease in long-term borrowings by 5,9% in 2019 and the increase of shareholder’s equity 5,3% in the same year. Comparing the Income Statement of Telus for the years 2019 to 2017, there has been an increase in Revenue by 2%, 8%, and 3,9%, respectively. We also verify a dramatic rise in depreciation by 15,6% in 2019, compared to the average of 3,3% in the previous two years. We can visualize a continued drop in the operating income through the years; in 2017, it was marking 19,4%, and in 2019 only 4,9%. The total net income has experienced a decline in its growth percentage, while in 2017, the growth was 19,7% of net income, in 2019, the increase was by 9,4%. Shaw’s Income Statement brings exciting numbers. The company's revenue has increased by 3%, 6%, and 8% through the years 2019 to 2017, respectively. The operating income has experienced a incredible improvement, reaching the high peak of 2121% in 2019. Operating income from the previous years were -96% in 2018, and -31% in 2017. This unexpected change shows that Shaw is gaining market share, which is positive for the company and investors. Vertical Analysis The vertical analysis is applied to identify the proportion of each account; this will give us the importance of each account in the final report. Telus In 2019, Telus dropped 1,41% in cash and 5,17% in its accounts receivable, the principal account for the current assets. This means that Telus increased its operations and has money to receive, resulted in the service they offer. We can confirm that the company remains in the top position in the industry, analyzing its Revenue, in which 99,53% comes from contracts with consumers. The company maintains its dividend payment; it had varied from 1% to 0,9% in all years analyzed that proves Telus is a stable company to invest, and day pay its shareholders annually. Its current liabilities for 2019 were 14,68%, while its current assets are 11,46%, but the difference does not change the company's credibility. The company's net income for 2019 was 12,12%, which indicates the company's profitability margin. Shaw Shaw had a significant increase in its cash in 2019 by 9,24%, but only 1,8% in its accounts receivable. The increase in its cash is positive for the company because it shows that it has money to pay short-term debts. The small increase in its accounts receivable demonstrates that the company is gaining market share, but the process is slow. Shaw’s current liabilities are higher than current assets, by 18,12% and 14,16%, respectively. The total net income for the IT company was 13,7% in 2019. Financial Ratio Analysis I. Liquidity Ratios The liquidity ratios calculate the ability of the company to pay its debts in the period of a year. a) Current Ratio Current ratio is calculated by the division of the company current assets by its current liabilities. Telus liquidity ratio is 0,78 for the year 2019, which shows an improvement of the company’s efficiency in pay its liabilities when compared with the year 2016, when the ratio was 0,50. Shaw’s liquidity ratio is 0,78 in 2019, which has also increased compared with 0,58 in 2016. Surprisingly both companies had the same current ratio. b) Working Capital Ratio The working capital ratio is calculated subtracting the company current assets by its current liabilities. Telus WCR is -1221mi CAD for the year 2019, which shows an increase of the company’s deficiency in pay its liabilities when compared by the prior year, which was -1003mi CAD. Shaw’s WCR was -619 hundred thousand CAD in 2019, which was worse than 2018. II. Solvency Ratios This type of ratio verifies the ability of a company to pay its total debts, short and long term. a) Debt to Assets Ratio: Calculated by the division of total liabilities by total assets of the company. Telus debt ratio in 2019 is 0,72%, while Shaw’s is 0,60%. Comparing both companies, Shaw’s has more leverage than Telus, which makes the company slightly less risk of paying mature obligations. b) Equity Ratio: It is calculates by dividing the company long-term debt by its