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Accounting for Managerial Decision

TABLE OF CONTENTS

1.0 INTRODUCTION -------------------------------------------------------------------- 2

2.0 INCOME STATEMENT ANALYSIS-------------------------------------------- 2

2.1 Horizontal analysis of income statement -------------------------------------------------- 2

2.2 Vertical analysis of income statement ----------------------------------------------------- 3

3.0 BALANCE SHEET ANALYSIS------------------------------------------------------

2.1 Horizontal analysis of balance sheet ------------------------------------------------------- 2

2.2 Vertical analysis of balance sheet -------------------------------------------------------- 3

4.0 CASH FLOW STATEMENT ANALYSIS-----------------------------------------

5.0 RATIO ANALYSIS

5.1 Profitability ------------------------------------------------------------------------------------ 2

5.2 Liquidity --------------------------------------------------------------------------------------- 3

5.3 Financial gearing--------------------------------------------------------------------------------

5.4 Investment ratios --------------------------------------------------------------------------------

REFERENCES----------------------------------------------------------------------------13

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10 INTRODUCTION

Singapore Telecommunications Limited, commonly abbreviated as SingTel, is Asia’s leading


communication group with operation and investment in more than 20 countries and territories
around the world. The group provides a diverse range of innovative communication services
including fixed, mobile and data communications, Internet, information technology (IT) and
consultancy, pay television and satellite.

Established in 1992, SingTel was listed on the Singapore Exchange in November 1993 and on
the Australian Stock Exchange in September 2001. SingTel has expanded aggressively outside
its home market and owns shares in many regional operators, including 100% of the second
largest Australian Telco, Optus, which was acquired in 2000 from Cable & Wireless and other
shareholders of Optus, and Bharti Airtel, the largest Telco in India.

Today, SingTel is the largest company listed on the Singapore Exchange in term of market
capitalization and is majority owned by Temasek Holdings.

Financial Years 2008 targets of SingTel group:

 Revenue to growth at single-digit level.


 Operational EBITDA (Earnings before interest, tax, depreciation, amortization) (exclude
strategic initiative) comparable to previous year.
 Telecom margin at mid-40% level.
 Overall EBITDA margin at 40%.
 CAPEX (Capital expenditure) as 0% of revenue at low double digit level.
 Free cash flow (exclude associated dividend) to decline slightly.

10 INCOME STATEMENT ANALYSIS

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1.1 Horizontal analysis of income statement

∆ YOY
2008 Change Change % 2007
S$ Mil S$ Mil
13,376.9
Operating revenue 14,844.40 1,467.50 10.97% 0
Mobile communications 5,976.30 584.40 10.84% 5,391.90
Data and internet 3,057.00 406.80 15.35% 2,650.20
National telephone 2,267.30 -7.70 -0.34% 2,275.00
Information technology and
engineering 1,230.70 204.20 19.89% 1,026.50
Sale of equipment 1,086.40 209.80 23.93% 876.60
International telephone 786.60 -26.80 -3.29% 813.40
Pay television 180.60 35.20 24.21% 145.40
Others 259.50 61.60 31.13% 197.90
Operating expense -10,392.50 -1,180.40 12.81% -9,212.10
Traffic expenses -2,706.80 13.50 -0.50% -2,720.30
Selling and administrative costs -3,410.50 -587.00 20.79% -2,823.50
Staff costs -1,943.70 -221.00 12.83% -1,722.70
Equipment costs (Cost of Sales) -1,371.20 -273.30 24.89% -1,097.90
Repair and maintenance -229.00 54.60 -19.25% -283.60
Others -661.30 -97.20 17.23% -564.10
Operating expense (ex - Cost of Sales) -8,951.30 -837.10 10.32% -8,114.20
Other income 78.30 -38.60 -33.02% 116.90
0.00
Total Income 4,530.20 248.50 5.80% 4,281.70

Compensation from IDA - 337.00


Depreciation and amortization -1,886.90 -32.30 1.74% -1,854.60
Exceptional items -50.10 -235.10 -127.08% 185.00
Profit on operating activities 2,593.20 -355.90 -12.07% 2,949.10
Share of result of associated and joint
venture companies 2,066.50 528.80 34.39% 1,537.70

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Profit before interest, investment


income (net) and tax 4,659.70 172.90 3.85% 4,486.80
Interest and investment income (net) 216.20 128.90 147.65% 87.30
Finance costs -392.90 28.50 -6.76% -421.40
Profit before tax 4,483.00 330.30 7.95% 4,152.70
Tax expense -522.30 -148.90 39.88% -373.40
Profit after tax 3,960.70 181.40 4.80% 3,779.30

Attributable to -
Shareholders of the company 3,960.20 181.40 4.80% 3,778.80
Minority interest 0.50 0.00 0.00% 0.50

Earnings per share attributable to


shareholders of the company
-basic(cents) 24.90 1.65 7.10% 23.25
-diluted (cents) 24.76 1.63 7.05% 23.13

Look at this table, we can clearly see that SingTel’s operating revenue increases by 1,467.50
(10.97%) between 2007 and 2008. The biggest contribution to this figure is Mobile
communications with an increase of 584.40 (10.84%), followed by Data and internet (406.80).
However, Sale of equipment soars the most by 23.93% between 2007 and 2008. In contrast,
decreases of 7.70 (-0.34%) in National telephone and of 26.80 (-3.29%) in International
telephone affect slightly total operating revenue. The reason could be Singaporean and foreigners
tend to use less telephone than mobile phone. Furthermore, comparing operating expenses in
2008 and 2007, there is an increase of 1,180.40. Besides, the rate of increase in operating
expenses (12.81%) is more than operating revenue (10.97%). In which, Selling and
administrative costs, Equipment costs contribute the most to operating expense. Especially, the
percentage of equipment costs rises more than equipment revenue (24.89% > 23.93%). This may
be because the company reduces the price to attract customers or changes the equipment mix that
the company sells more equipment which bring less profit margin. As a result, profit on
operating activities fall from 2,949.10 to 2,593.20. On the other hand, Interest and investment
income soars 147.65% that contributes to an increase in profit after tax (4.80%).

1.2 Vertical analysis of income statement

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2008 2007
S$ Mil % S$ Mil %
13,376.9 100.00
Operating revenue 14,844.40 100.00% 0 %
Mobile communications 5,976.30 40.26% 5,391.90 40.31%
Data and internet 3,057.00 20.59% 2,650.20 19.81%
National telephone 2,267.30 15.27% 2,275.00 17.01%
Information technology and engineering 1,230.70 8.29% 1,026.50 7.67%
Sale of equipment 1,086.40 7.32% 876.60 6.55%
International telephone 786.60 5.30% 813.40 6.08%
Pay television 180.60 1.22% 145.40 1.09%
Others 259.50 1.75% 197.90 1.48%
Operating expense -10,392.50 -70.01% -9,212.10 -68.87%
Traffic expenses -2,706.80 -18.23% -2,720.30 -20.34%
Selling and administrative costs -3,410.50 -22.97% -2,823.50 -21.11%
Staff costs -1,943.70 -13.09% -1,722.70 -12.88%
Equipment costs (Cost of Sales) -1,371.20 -9.24% -1,097.90 -8.21%
Repair and maintenance -229.00 -1.54% -283.60 -2.12%
Others -661.30 -4.45% -564.10 -4.22%
Operating expense (ex - Cost of Sales) -8,951.30 -60.30% -8,114.20 -60.66%
Other income 78.30 0.53% 116.90 0.87%
Total Income 4,530.20 30.52% 4,281.70 32.01%

Compensation from IDA - 337.00 2.52%


Depreciation and amortization -1,886.90 -12.71% -1,854.60 -13.86%
Exceptional items -50.10 -0.34% 185.00 1.38%
Profit on operating activities 2,593.20 17.47% 2,949.10 22.05%
Share of result of associated and joint
venture companies 2,066.50 13.92% 1,537.70 11.50%
Profit before interest, investment income
(net) and tax 4,659.70 31.39% 4,486.80 33.54%
Interest and investment income (net) 216.20 1.46% 87.30 0.65%
Finance costs -392.90 -2.65% -421.40 -3.15%
Profit before tax 4,483.00 30.20% 4,152.70 31.04%
Tax expense -522.30 -3.52% -373.40 -2.79%
Profit after tax 3,960.70 26.68% 3,779.30 28.25%

20 BALANCE SHEET ANALYSIS

3.1 Horizontal analysis of balance sheet

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Balance sheets

Horizontal analysis of balance sheets


2008 2007
YOY YOY
S$ Mil Change Change (%) S$ Mil
Current assets
Cash and cash equivalents 1,372.00 -18.10 -1.30% 1,390.10
Trade and other receivables 2,540.90 81.60 3.32% 2,459.30
Financial assists at fair value through
profit or loss ("FVTPL investments") 11.00 -330.50 -96.78% 341.50
Derivative financial instruments 2.50 -
Inventories 123.60 30.20 32.33% 93.40
4,050.00 -234.30 -5.47% 4,284.30

Non-current assets
Property, plant and equipment 10,124.20 394.60 4.06% 9,729.60
Intangible assets 10,056.50 -34.90 -0.35% 10,091.40
Subsidiaries - -
Associated companies 1,086.90 993.00 1057.51% 93.90
Joint venture companies 7,453.00 375.50 5.31% 7,077.50
Available-for-sale ("AFS") investments 352.60 310.20 731.60% 42.40
Derivative financial instruments 358.00 166.40 86.85% 191.60
Deferred tax assets 1,083.00 35.30 3.37% 1,047.70
Other non-current receivables 150.10 50.00 49.95% 100.10
30,664.30 2,290.10 8.07% 28,374.20

Total assets 34,714.30 2,055.80 6.29% 32,658.50

Current liabilities
Trade and other payables 3,360.10 293.50 9.57% 3,066.60
Provision 12.7 1.50 13.39% 11.2
Current tax liabilities 345.80 2.40 0.70% 343.40
Borrowing (unsecured) 1,874.30 1,678.00 854.81% 196.30
Borrowing (secured) 0.30 -0.30 -50.00% 0.60
Derivative financial instruments 162.50 144.70 812.92% 17.80
5,775.70 2,139.80 58.85% 3,635.90

Non-current liabilities
Borrowings (unsecured) 5,668.20 -603.00 -9.62% 6,271.20
Borrowings (secured) - 0.30
Advance billings 395.50 34.80 9.65% 360.70
Deferred income 40.10 23.80 146.01% 16.30
Derivative financial instruments 1,334.40 325.80 32.30% 1,008.60

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Deferred tax liabilities 329.50 14.10 4.47% 315.40


Other non-current liabilities 188.60 -11.50 -5.75% 200.10
7,956.30 -216.30 -2.65% 8,172.60

Total liabilities 13,712.00 1,903.50 16.12% 11,808.50

Share capital and reserves


Share capital 2,593.70 31.60 1.23% 2,562.10
Reserves 18,405.80 120.70 0.66% 18,285.10

Equity attributable to shareholders of the


company 20,999.50 152.30 0.73% 20,847.20
Minority interests 2.80 2.80

Total equity 21,002.30 152.30 0.73% 20,850.00

Total liabilities and shareholders' equity 34,714.30 32,658.50

3.2 Vertical analysis of balance sheet


Vertical analysis of balance sheets
2008 2007
S$ Mil % S$ Mil %
Current assets
Cash and cash equivalents 1,372.00 3.95% 1,390.10 4.26%
Trade and other receivables 2,540.90 7.32% 2,459.30 7.53%
Financial assets at fair value through
profit or loss ("FVTPL investments") 11.00 0.03% 341.50 1.05%
Derivative financial instruments 2.50 0.01% -
Inventories 123.60 0.36% 93.40 0.29%
4,050.00 11.67% 4,284.30 13.12%

Non-current assets
10,124.2
Property, plant and equipment 0 29.16% 9,729.60 29.79%
10,056.5 10,091.4
Intangible assets 0 28.97% 0 30.90%

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Subsidiaries - -
Associated companies 1,086.90 3.13% 93.90 0.29%
Joint venture companies 7,453.00 21.47% 7,077.50 21.67%
Available-for-sale ("AFS") investments 352.60 1.02% 42.40 0.13%
Derivative financial instruments 358.00 1.03% 191.60 0.59%
Deferred tax assets 1,083.00 3.12% 1,047.70 3.21%
Other non-current receivables 150.10 0.43% 100.10 0.31%
30,664.3 28,374.2
0 88.33% 0 86.88%

34,714.3 100.00 32,658.5 100.00


Total assets 0 % 0 %

Current liabilities
Trade and other payables 3,360.10 9.68% 3,066.60 9.39%
Provision 12.7 0.04% 11.2 0.03%
Current tax liabilities 345.80 1.00% 343.40 1.05%
Borrowing (unsecured) 1,874.30 5.40% 196.30 0.60%
Borrowing (secured) 0.30 0.00% 0.60 0.00%
Derivative financial instruments 162.50 0.47% 17.80 0.05%
5,775.70 16.64% 3,635.90 11.13%

Non-current liabilities
Borrowings (unsecured) 5,668.20 16.33% 6,271.20 19.20%
Borrowings (secured) - 0.30 0.00%
Advance billings 395.50 1.14% 360.70 1.10%
Deferred income 40.10 0.12% 16.30 0.05%
Derivative financial instruments 1,334.40 3.84% 1,008.60 3.09%
Deferred tax liabilities 329.50 0.95% 315.40 0.97%
Other non-current liabilities 188.60 0.54% 200.10 0.61%
7,956.30 22.92% 8,172.60 25.02%

13,712.0 11,808.5
Total liabilities 0 39.50% 0 36.16%

21,002.3 20,850.0
Total equity 0 60.50% 0 63.84%
Share capital and reserves
Share capital 2,593.70 7.47% 2,562.10 7.85%
18,405.8 18,285.1
Reserves 0 53.02% 0 55.99%
Equity attributable to shareholders 20,999.5 20,847.2
of the company 0 60.49% 0 63.83%
Minority interests 2.80 0.01% 2.80 0.01%

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34,714.3 100.00 32,658.5 100.00


Total liabilities and shareholders' equity 0 % 0 %

4.0 CASH FLOW STATEMENT ANALYSIS

2008 2007
S$
Mil S$ Mil
CASH FLOW FROM OPERATING ACTIVITIES
4152.
Profit before tax 4483 7

Adjustments for -
1886. 1854.
Depreciation and amortization 9 6
Exceptional items 50.1 -185
IDA compensation - -337
-
Interest and investment income (net) 216.2 -87.3
Finance costs 392.9 421.4
- -
Share of results of associated and joint venture companies 2066. 1537.
(post-tax) 5 7
Other non-cash items 52.6 48.9
99.8 177.9
OPERATING CASH FLOW BEFORE WORKING CAPITAL 4582. 4330.
CHANGES 8 6

CHANGE IN OPERATING ASSETS AND LIABILITIES


Trade and other receivables -35.8 -260.9
Trade and other payables 177.4 143.1
Inventories -30.9 46.9
Currency translation adjustments of subsidiaries -6.6 -6.8

4686. 4252.
CASH GENERATED FROM OPERATIONS 9 9

Payment to employees in cash under performance share


plans -11.7 -5.5
Dividends received from associated and joint venture 1113.
companies 5 672.7

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Income tax paid -335 -335.4

5453. 4584.
NET CASH INFLOW FROM OPERATING ACTIVITIES 7 7

CASH FLOWS FROM INVESTING ACTIVITIES


Dividends received from other investments 2.1 4.8
Interest received 51.9 125.9
Payment for acquisition of a subsidiary, net of cash
acquired - -0.2
-
1189.
Investment in associated and joint venture companies 3 -3.3
Long term loans repaid by joint venture companies 2.1 85.1
Proceeds from sale of joint venture companies (net of
withholding tax paid) 87.8 86.7
Proceeds from capital reduction of joint venture companies 86.1 -
Long term loans to joint venture companies - -0.1
Investment in AFS investments -1.1 -1
Proceeds from sale of AFS investments 1.3 12
Proceeds from capital reduction of AFS investments 14 -
Net sale proceeds from FVTPL investments 330.8 520
-
1789.
Payment for purchase of property, plant and equipment -1879 8
Advance payment for purchase of property, plant and
equipment -75 -
Proceeds from sale of property, plant and equipment 0.9 304.8
Purchase of intangible assets -3.1 -2.9
-
Withholding tax paid on intra-group interest income 177.7 -

-
2788.
NET CASH OUTFLOW FROM INVESTING ACTIVITIES 2 -658

CASH FLOWS FROM FINANCING ACTIVITIES


4927. 1313.
Proceeds from term loans 7 5
-
3748.
Repayment of term loans 7 -602.5
-
1329.
Bonds repaid -12.2 4
(Decrease)/Increase in finance lease liabilities -0.6 0.2
Repayment of other borrowings - -5.8
1166.
Net proceeds from /(Repayment of) borrowings 2 -624
Settlement of swap for bonds repaid - -88.1
Net interest paid on borrowings and sways - -412.6

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410.9
Dividends paid to minority shareholders -0.4 -0.3
- -
2544. 1336.
Final dividends paid to shareholders of the company 7 4
-
Interim dividends paid to shareholders of the company 890.7 -584.5
-
2271.
Payment for cancellation of shares on capital reduction - 6
Proceed from issue of shares 31.6 59
Purchase of performance shares -62.5 -51.5

-
2711.
NET CASH OUTFLOW FROM FINANCING ACTIVITIES 4 -5310

-
1383.
Net decrease in cash and cash equivalents -5.9 3
Exchange effects on cash and cash equivalents -12.2 3
2770.
Cash and cash equivalents at beginning of year 1390 3

1371.
CASH AND CASH EQUIVALENTS AT END OF YEAR 9 1390

5.0 RATIOS ANALYSIS

5.1 Profitability

Profitability 2008 2007 YOY change (%)


Gross profit margin 29.99% 31.13% -1.14%
Operating expense to sales 70.01% 68.87% 1.14%
Operating profit to sales 17.47% 22.05% -4.58%
Net profit margin 32.85% 34.19% -1.35%

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5.1.1 Gross profit margin

This ratio expresses the gross profit as a percentage of total sales and indicates that how many
gross profits that SingTel can gain out of each sale revenue. We can clearly see that Gross profit
margin reduce slightly by 1.14% between 2007 and 2008. This is because the growth rate of
expense (12.8%) is more than the growth rate of revenue (10.9%). There are two factors leading
to this problem, the marketing strategies is not effective and the weakness of SingTel’s ability to
control expenses. However, the main reason could be the economic crisis and an increase in
competition in the market that makes many companies, even SingTel, met difficulties.

5.1.2 Operating expense to sales

This ratio illustrates that how many expenses that SingTel spent to earn $1 revenue. There is a
slight increase of 1.14% in operating expense to sales in there the selling and administrative cost
and staff cost soar by 17%. That explain why gross profit margin decreases softly. This could be
SingTel’s portfolio is plentiful; hence SingTel can met many difficulties with controlling
expenses.

5.1.3 Operating profit to sales

This ratio shows that how many operating profits that SingTel can earn out of each sale revenue.
It indicates a small drop of 4.58% in 2008 compare with 2007. This is the result of a rapid
increase in expenses and a steadily rise in revenues. This problem requires SingTel need to
improve control its expenses and innovate effective marketing strategies to create more market
share.

5.1.4 Net profit margin

Net profit margin depicts the net profit as a percentage of total sales or how many net profits that
SingTel can get out of each sale revenue. A decline in gross profit margin (1.14%) together with
a decrease in operating profit to sales (4.58%) lead to a slump in net profit margin (1.35%).
However, a slump in net profit margin is less than a drop in operating profit to sales, it show that
SingTel have high income from associated and joint venture companies (20066.5m) and other
investments (4657.9m).

5.2 LIQUIDITY

Liquidity 2008 2007 YOY change


Current ratio 0.703 1.178 -0.474

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Quick ratio 0.682 1.152 -0.470


0.021 0.025

5.2.1 Current ratio

This ratio expresses SingTel’s ability to meet day to day debts or with $1 current liability, there
are how many current assets are ready to pay. In 2008, current ratio is 0.7 < 1, that means if all
current liabilities become due, SingTel will not have enough current assets to pay. This shows
that SingTel has liquidity problem and an increased risk of failing to generate any future cash
flows. Moreover, there is a fall in current ratio of 0.474 between 2007 and 2008 that indicates
SingTel’s ability to pay short-term obligation is reducing. The reason is because the current
assets decline () while current liability soar in 2008, especially a huge increase of in unsecure
borrowing. This will affect SingTel’s ability to pay current debts and raise the risk for lenders.

5.2.2 Quick ratio

In fact, inventory cannot be converted in cash quickly. Therefore lenders tend to care more about
quick ratio that excludes inventory. We can clearly see that quick ratio in 2008 is 0.68 < 1.
SingTel’s liquidity problem is affirmed again. SingTel will not have ability to pay quickly if
current liability is due. Furthermore, there is a slight decrease of 0.4705 in quick ratio between
2007 and 2008. However, comparing current ratio and quick ratio in both 2007 and 2008, there
are slight differences of 0.025 and 0.021 respectively. This illustrates that SingTel keeps a small
amount of inventory 123.6 (2008) and 93.4 (2007). This is a success of SingTel in controlling
inventory.

5.2.3 Working capital

Working capital is a measure of both a company’s efficiency and its current financial health.
Positive working capital indicates a company that has ability to pay off its short-term liabilities.
Negative working capital indicates a company that is unable to met day to day debts.

Working capital = current assets – current liabilities

2008 2007 YOY Change


Current assets 4,050.00 4,284.30 -234.30
Current liabilities 5,755.70 3,635.90 2,119.80
Working capital -1,705.70 648.40

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It is clear to see that in 2008 SingTel has a negative working capital or working capital
deficiency (-1,705.70) because there is a drop of 234.30 in current assets while current liability
rise rapidly by 2,119.80 between 2007 and 2008, especially a big increase of 1678m in unsecure
borrowing. This depict the weakness of SingTel of working capital management and SingTel
may run into trouble paying back creditor in the short-term in the coming time.

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5.3 FINANCIAL GEARING

Ratios Formulas 2008 2007


Debt ratio (%) Total liabilities/Total assets*100 39.50 36.15
Equity ratio (%) Capital & reserves /Total 60.49 63.83
Debt equity ratio assets*100
Total liabilities/capital & 65.29 56.64
(%) reserves *100

5.3.1 Debt Ratio

Debt ratio is ratio that indicates what proportion of debt a company has relative to its assets. The
measure gives an idea to the leverage of the company along with the potential risks the company
faces in terms of its debt-load.

Dept to Asset ratio gives an idea to a company’s leverage along with the potential risks the
company faces in dept – load. The ratios indicate that the company’s dept has been lesser 50%
than its assets for both 2 financial years. Dept ratio has increased from 36.15% in 2007 to
39.50% in 2008, so the level of risk went up when company’s liabilities are concerned.

5.3.2 Equity Ratio

The Equity Ratio is a good indicator of the level of leverage used by a company. The Equity
ratio measures the proportion of the total assets that are financed by stockholders and not
creditors.

It also helps the shareholders to know how much they receive in event of company- liquidation.
For SingTel, The ratio has fallen in 2008 when compared to 2007; it is a good information for
shareholders. Company is using large amount of equity to support its business operations.
Obviously, the shareholders may be benefited in liquidity.

5.3.3 Debt Equity Ratio

The ratio helps in measuring the financial leverage of the company by taking in to consideration
its liability and shareholder’s equity.

Both the dept ratio and the dept equity ratio of SingTel have increased since 2007, the high
debt/equity ratio generally means that company has been aggressive in financing its growth with
debt. The debts are used to finance increased operations (high debt to equity), and company

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generated more earnings than it would have done. It is a good sign because SingTel has been
more effective in its plan in 2008 than that in 2007.

Gearing Ratio

70
60
50
40 De pt Ratio
30 Equity Ratio
20
De pt Equity Ra tio
10
0
2008 2007

5.4 INVESTMENT ANALYSIS

Of prime concern to any investor is the return that they will receive from their investment in an
organization. Any return must be sufficient to reward the investor for the risk attached to that
investment.

Based on the SingTel’s financial statements for the financial year ended 31 March 2008, the
ratios have been calculated to assess the performance of SingTel in the 2008 financial year as
follow:

YOY
Name Formulae 2008 2007
Change (%)

Dividend per share/ Current market 5.53 3.60


Dividend yield (%) 53.36
share price (*) (**)
Dividend per share Dividend announced for the year /
21.60 11.82 82.82
(cents) number of shares issue

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Dividend payout Dividend announced for the year/


86.75 50.83 70.65
ratio (%) profit available to shareholders
Dividend cover Net profit available to shareholders /
1.15 1.97 -41.40
(times) Dividend announced for the year
Earnings per share Profit available to shareholders / 24.90 23.25
7.13
(EPS) - basic (cents) Number of shares in issue (*) (**)
Earnings per
Profit available to shareholders /
share(EPS) - diluted 24.82 23.13 7.28
Number of shares in issue
(cents)
Price/ Earnings (P/E)
Current market share price / EPS 15.70 14.11 11.28
Ratio (times)
Return on capital (Profit before interest and taxation /
employed (ROCE) (Share capital+ reserves + long-term 17.47 16.55 5.61
(%) loans))*100%

Note: * - Using share price as S$ 3.91 as on March 31st 2008

** - Using share price as S$ 3.28 as on March 30st 2007

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Look at the above chart; it is very easy to recognize that all the ratios of the 2008
financial year increased remarkably compared with the previous financial year, which implies a
good performance of SingTel Group in the 2008 financial year. Specifically, the dividend per
share in 2008 upped by 82.82 % to 21.60 cents per share and the earnings per share (basic) grew
from 23.25 cents per share (in 2007) to 24.9 cents per share ( in 2008), risen by 7.13%. These
increases reflected a significant increasing in net profit to S$3.96billion from S$3.78 billion, an
increase of 4.8 per cent from the previous year. Moreover, the return on capital employed
(ROCE) also raised from 16.55% to 17.47 % indicated the efficiency of using capital of the
Group. This effective investment gave investors a confidence in the success of company in the
future that expressed in the increasing in PE ratio from 14.11 to 15.7.

Reflecting the good result for the 2008 financial year, the SingTel’s share price rose 19
per cent on the Singapore Exchange (SGX) (from S$3.28 per share to S$3.91 per share) and 18
per cent on the Australian Securities Exchange (ASX) between April 2007 and March 2008.

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Accounting for Managerial Decision

SingTel share performance – 1 April 2007 to 31 March 2008

(Compared to StarHub and M1)

(Source: Yahoo Finance)

In conclusion, it is clear that SingTel Group delivered a very strong set of results for the
financial year ended 31 March 2008. The group met all its targets against backdrop of highly
competitive market. Based on this good result, the investors can hope to see continued growth in
the market SingTel operate in next financial years.

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Accounting for Managerial Decision

Price Earnings Ratios Analysis

The competitor of this company is named StarHub Limited. This table below shows the P/E ratio
of two companies and the comparison between these two companies in 2008.

Ratio Price/Earning based on financial statement(31 March 2008)


Change EPS (%)
EPS(cents)
P/E 07-08

(times)
Basic Diluted Basic Diluted

StarHub Limited 14.10 2.35 2.05 18.28 18.16

SingTel 15.70 7.13 7.28 24.90 24.82

P/E: Price/Earning

EPS: Earnings per Share

• The P/E ratio of a company indicates the market expectation towards the company. In
other words, a company who has a higher P/E ratio will be expected more rise in its
profits in the future than one who has lower P/E ratio.

• SingTel has 1.6 times higher than StarHub Limited in term of P/E ratio (15.70 versus
14.10, respectively). It also means that investors are likely to want to invest in SingTel
because they sense that in the future SingTel may help them earn more money than
StarHub Limited.

Now we will analyze more by the comparison between SingTel and StarHub for the vertical
view:

Date Open High Low Close Volume Adj Close

SingTel 3.95 3.96 3.9 3.9 86500 3.9


31/03/2008
StarHub 31/03/2008 3.1 3.1 3.02 3.04 2008000 3.04

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Accounting for Managerial Decision

Comparison to
SingTel StarHub Comparison
StarHub (%)

Share Price (S$) 3.91 3.04 0.87 28.6


EPS (S$) 24.90 18.28 6.62 36.2
P/E Ratio 15.70 14.10 1.60 11.3

(Source: Yahoo Finance)

• The result for such consistency is that SingTel had higher share price (28.6%),P/E
Ratio(11.3%) and higher EPS (36.2%) than its competitor, with 3.91S$ against 3.04 S$
for the former, 24.90 cents opposed to 18.28 cents for the second and 15.70 times
compared to 14.10 times for the latter. What makes SingTel has higher share price may
come from the expectation of investors regarding return on investment when they analyze
the cash flow statement of the two companies: (in millions of Singapore dollars, statics
from 2008)

SingTel StarHub
Operating Activities 2033 570
Investing Activities (1775) (219.7)
Financial Activities 4 (359.9)

• From the table, investors can know that SingTel was successful and aggressive so make
much profit than StarHub. Moreover, SingTel’ investments in non-current assets roughly
eight times than StarHub’s ($1775 million against 219.7 million), thus having more
potential than StarHub in the future. From these reasons, investors tend to invest in more
profits making company like SingTel rather than StarHub.

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