Analysis
Profit margin
Profit margin is an accounting measure of how well the company manages expenses financially and its profitability. Profit margin as it reveals the amount of revenue returned to the company once it has covered fixed and variable expenses except for tax and interest. This data gathered were calculated by using the equation total comprehensive income divided by the total revenue. From the data conducted in 2016, the 22% profit margin means that Telstra has a net income of $0.22 for each dollar of total revenue earned (Telstra,2016). Whereas in 2015, there was difference of 4% profit margin in comparison to 2016, which means that Telstra shows an increase of 4% profit with a net income increase of $0.04 for each dollar of total revenue, earned (Telstra,2015). This indicates that the increasing operating margins shows that Telstra is managing to control cost and increase profit over the two years’ period from 2015 to 2016 and the company is still growing as stated in previous sections (Telstra, 2015 and Telstra,2016) . Profit margins above 20% suggests that Telstra is efficient and stable economically and financially.
Return on equity
Return on equity is the amount of net income returned as a percentage of shareholders’ equity. It’s also the measure of a corporation’s profitability as it reveals how
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This was calculated using the formula total debt (total liabilities) divided by total assets. It was attained a debt ratio of 0.632 or 63.2% in 2016 and 0.641 or 64.1% in 2015 meaning that Telstra has used their external financing (loans) to fund its assets. Hence shows that Telstra has less debt than assets, this is a great way to look at the financial health’s overview and decide whether to invest in more stock (Telstra, 2015 and Telstra, 2016). This shows that Telstra is performing really well financially and is at a very stable