Telstra CaseQuestion one:The investing activity in the statement of Cash flows is basically a line of investment actions, which the company has done during the report of the year. It is including in the financial statement section. It contains the information of the period investment gain or loss; the financing activity in the statement is the external activities that allow company to increase the capital or repay the investors by issuing dividends or stock. It indicates the financial “healthy” of the company.  In the case of Telstra, by reviewing on the 2015 annual report, the two largest investing activities are 1. Payments for property, plant and equipment with the amount of $2845M. (Telstra annual report 2015) It includes “building the nation’s largest Wi-Fi network, continuing investment in growth areas (such as network access services and cloud services) and supporting the accelerated rollout of mobile 4G and 4GXTM networks.” (Telstra annual report 2015). 2. Payments for intangible assets with the amount of $2257M. (Telstra annual report 2015) This is from “the acquisition of spectrum licenses and an increase in goodwill resulting from acquisitions of controlled entities and businesses.” (Telstra annual report 2015)
However, the two largest financing activities are: 1. Repayment of borrowings with the amount of 3,368M. (Telstra annual report 2015) “Lower average debt levels resulting from debt maturities, which were funded out of existing liquidity”. (Telstra annual report 2015) 2. Dividends paid to equity holders of Telstra entity with the amount of 3,699M. (Telstra annual report 2015) “Dividends paid are fully franked at a tax rate of 30 per cent, as the final dividend for financial year 2015 was not determined or publicly recommended by the Board as at 30 June 2015, no provision for dividend have been raised in the statement of financial position. The final dividend has been reported as an event subsequent to reporting date.” (Telstra annual report 2015)
5. Conclusion:
After many years of work, the Telstra debt is still standing. Its financial instruments are still growing, as is its long-term debt and its ability to maintain the credit rating as the only lender to consistently sell the debt at market rates. The only way this debt will be repaid is by raising the interest rate on the debt. The cost to Telstra in raising the interest rate should be minimal as the government has already reduced the rates it charges. The average payment made to shareholders by the telco was only 0.45% for financial year 2015 (1 March, 2015). Despite this, the government’s decision to borrow money at a lower rate and raise that rate to 3.64% by the 30 June 2013 was a major positive, raising the share share price of the company to a record high value. However, the value of the $10.6 trillion debt and the outstanding debt for capital spending, a fact that has not been disclosed publicly, may not have been an issue until late-2016.
As described in my earlier post, a large portion of the capital spending (mainly in the operating segment) is undertaken through the acquisition of the TSL and the sale of the assets of the acquisition partner. If the current tax treatment applies (which is currently not available), the transaction is considered tax-paying and there is no reason to believe there is a tax liability for the tax to any other corporation. The interest rate on the initial payment must be in the vicinity of 45% to be regarded as a tax-paying transaction.Â
7. Capital Requirements:
• the company must be able to raise the interest rate on the debt on reasonable terms and conditions “
The government may need to hold on to any debt of more than 4.4 trillion kyari (in 2014, it was 6.6 trillion kyari), which was 6.2 trillion kyari (2015).
The government’s mandate for making the debt subject to taxation is that only the interest-bearing capital (excluding interest paid on the shares of the Company, as discussed in detail below) shall be taxed under the Income Taxes Act (as amended) “
The government has yet to explain the tax treatment this will carry. However, the actual tax treatment that the government had to give the holders of the shares of the Company was not given a fair appraisal. The Government did not provide the necessary technical analysis to ensure that “it is true that there is a tax-paying transaction in the carrying value of more than 4.4 trillion kyari”. The government did not answer to the shareholder, with Mr. Li, asking for a reply to Mr. Li’s questions and with Mrs. Li saying they had not yet answered. It appears that the government sought to give the shareholders of both the subsidiary holding company (Telstra) and the holding