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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%
3.0 BALANCE SHEET ANALYSIS
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Accounting for Managerial Decision
3.1 Horizontal analysis of balance sheet
Balance sheets
Horizontal analysis of balance sheets 2008 2007
S$ Mil YOYChange
YOY Change (%) S$ Mil
Current assets Cash and cash equivalents 1,372.00 -18.10 -1.30% 1,390.10Trade and other receivables 2,540.90 81.60 3.32% 2,459.30Financial assists at fair value through profit or loss ("FVTPL investments") 11.00 -330.50 -96.78% 341.50Derivative financial instruments 2.50 -Inventories 123.60 30.20 32.33% 93.40
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% 2,562.10Reserves 18,405.80 120.70 0.66% 18,285.10 Equity attributable to shareholders of the company 20,999.50 152.30 0.73% 20,847.20Minority 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 sheets2008 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%
Total liabilities 13,712.00 39.50% 11,808.50 36.16%
Total equity 21,002.30 60.50% 20,850.00 63.84%Share capital and reserves
Share capital 2,593.70 7.47% 2,562.10 7.85%Reserves 18,405.80 53.02% 18,285.10 55.99%Equity attributable to shareholders of the company 20,999.50 60.49% 20,847.20 63.83%
Minority interests 2.80 0.01% 2.80 0.01%
Total liabilities and shareholders' equity 34,714.30100.00
% 32,658.50 100.00%
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Accounting for Managerial Decision
4.0 CASH FLOW STATEMENT ANALYSIS
2008 2007S$ Mil S$ Mil
CASH FLOW FROM OPERATING ACTIVITIESProfit before tax 4483 4152.7
Adjustments for -Depreciation and amortization 1886.9 1854.6Exceptional items 50.1 -185IDA compensation - -337Interest and investment income (net) -216.2 -87.3Finance costs 392.9 421.4Share of results of associated and joint venture companies (post-tax) -2066.5 -1537.7Other non-cash items 52.6 48.9
99.8 177.9OPERATING CASH FLOW BEFORE WORKING CAPITAL CHANGES 4582.8 4330.6
CHANGE IN OPERATING ASSETS AND LIABILITIESTrade and other receivables -35.8 -260.9Trade and other payables 177.4 143.1Inventories -30.9 46.9Currency translation adjustments of subsidiaries -6.6 -6.8
CASH GENERATED FROM OPERATIONS 4686.9 4252.9
Payment to employees in cash under performance share plans -11.7 -5.5Dividends received from associated and joint venture companies 1113.5 672.7Income tax paid -335 -335.4
NET CASH INFLOW FROM OPERATING ACTIVITIES 5453.7 4584.7
CASH FLOWS FROM INVESTING ACTIVITIESDividends received from other investments 2.1 4.8Interest received 51.9 125.9Payment for acquisition of a subsidiary, net of cash acquired - -0.2Investment in associated and joint venture companies -1189.3 -3.3
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Accounting for Managerial Decision
Long term loans repaid by joint venture companies 2.1 85.1Proceeds from sale of joint venture companies (net of withholding tax paid) 87.8 86.7Proceeds from capital reduction of joint venture companies 86.1 -Long term loans to joint venture companies - -0.1Investment in AFS investments -1.1 -1Proceeds from sale of AFS investments 1.3 12Proceeds from capital reduction of AFS investments 14 -Net sale proceeds from FVTPL investments 330.8 520Payment for purchase of property, plant and equipment -1879 -1789.8Advance payment for purchase of property, plant and equipment -75 -Proceeds from sale of property, plant and equipment 0.9 304.8Purchase of intangible assets -3.1 -2.9Withholding tax paid on intra-group interest income -177.7 -
NET CASH OUTFLOW FROM INVESTING ACTIVITIES -2788.2 -658
CASH FLOWS FROM FINANCING ACTIVITIESProceeds from term loans 4927.7 1313.5Repayment of term loans -3748.7 -602.5Bonds repaid -12.2 -1329.4(Decrease)/Increase in finance lease liabilities -0.6 0.2Repayment of other borrowings - -5.8 Net proceeds from /(Repayment of) borrowings 1166.2 -624Settlement of swap for bonds repaid - -88.1Net interest paid on borrowings and sways -410.9 -412.6Dividends paid to minority shareholders -0.4 -0.3Final dividends paid to shareholders of the company -2544.7 -1336.4Interim dividends paid to shareholders of the company -890.7 -584.5Payment for cancellation of shares on capital reduction - -2271.6Proceed from issue of shares 31.6 59Purchase of performance shares -62.5 -51.5
NET CASH OUTFLOW FROM FINANCING ACTIVITIES -2711.4 -5310
Net decrease in cash and cash equivalents -5.9 -1383.3Exchange effects on cash and cash equivalents -12.2 3Cash and cash equivalents at beginning of year 1390 2770.3
CASH AND CASH EQUIVALENTS AT END OF YEAR 1371.9 1390
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Accounting for Managerial Decision
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%
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.
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Accounting for Managerial Decision
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
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
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Accounting for Managerial Decision
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
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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Accounting for Managerial Decision
5.3 FINANCIAL GEARING
Ratios Formulas 2008 2007
Debt ratio (%) Total liabilities/Total assets*100 39.50 36.15
Equity ratio (%) Capital & reserves /Total assets*100 60.49 63.83
Debt equity ratio (%) Total liabilities/capital & reserves *100 65.29 56.64
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