Airtel annual report 2017 pdf

Comparing Capital Expenditures

1) Select a company and access the last three years’ annual reports.

2) Next, select a company that is a direct competitor and download the previous three years’ annual reports.

Tip: For help with reading an annual report access this handy guide from Money Chimp: http://www.moneychimp.com/articles/financials/fundamentals.htm)

3) Using the annual reports of both companies, complete the following in a three- to five-page paper, excluding title and reference page(s):

- For each company, report the amount of capital spending for the past three years.

- Quantitatively determine whether the amount of capital spending has been consistent or if it has fluctuated. Be sure to provide the calculations used to determine your answer.

- Describe the capital expenditures of each firm and the factors that impacted the companies’ debt capacities and capital structures.

4) Next, compare the level of capital spending across the two firms.

- Point out how the spending was similar and/or different and speculate why the similarities or differences might exist.

You must use at least three scholarly sources in addition to the text. Support your comparison with evidence from the text, external sources, and articles/reports

Format the paper according to the APA 6th edition style guide. Be sure to properly cite your resources using APA.

Comparing Capital Expenditures 1

Name

BUS650/Managerial Finance

Instructor

October 16, 2017

Comparing Capital Expenditures

Introduction

Webster Dictionary (2016), defines capital expenditures as “an amount paid out that creates a long-term benefit (as one lasting beyond the taxable year); especially: costs that are incurred in the acquisition or improvement of property (as capital assets) or that are otherwise chargeable to a capital account” A business or organization could use these funds to either acquire or maintain fixed assets, including things like land, buildings, and equipment. As you can imagine different companies; those within the same industry and those that are not; have a plethora of reason for using such funds within the business. Today, we are going to compare two global communication companies competing in Kenya; Safaricom company and Airtel Kenya company and by examining and taking a closer look at their financial annual reports for the last three years we will get a better understanding of how the two networking companies handle each of their own expenditures annually.

Safaricom Company Vs Airtel Network Company

When observing the trends in the capital expenditure of each company from the annual reports, it is clearly seen that their capital has been fluctuating over the previous three years. In today’s day and age, we are living in a digital world thus people need access to the internet, and various global communication devices with a reliable network service. Safaricom company and Airtel Kenya aim to do that.

Amount of Capital Spending for The Past Three Years

In the year 2015, we find that the total equity and non-current liabilities for Safaricom company for the owners was $104,767,293 generated from the financial annual report (Safaricom, 2014). This data displays improvement from the previous year which was only $96,338,359 (Safaricom, 2013). On the other hand, looking at the Airtel company we find they were lower with annual equity and non-current liabilities at $29,670,509 (Airtel, 2014). This information provides an indication of needed improvement in customer base and reliability as well as the profitability of the company, in comparison to its competitor Safaricom company.

In the year 2016, there was a drastic change for the Safaricom company as they received a huge number of clients, increasing their customer and subscription services, making them to be more reliable in terms of the speed of the network and ease of access, and convenience of customer services throughout the day (Beyer, Herrmann & Rapley, 2015). This helped increase their capital plus the non-current liabilities to be $117,552,810 presenting as an increase in the company’s equity and allowing them to become “the most influential and trusted network company of the year” (Safaricom, 2015). On the other hand, Airtel company was not far behind with its positive changes and increasing revenue. With the search to expand their customers and customer base they were also forced to improve on some of their services, leading them to acquire $36,924,510 of the annual equity and the non-current liabilities of that year (Airtel, 2015).

In the year 2017, there was a huge increase in the number of subscribers in both the companies but obvious as we observe the trend as the years go by, Safaricom company shows an impressive improvement in the capital expenditures. The total equity and non-current liabilities for the year as per now is at $130,634,201 which makes it have high expectations at the end of the year (Safaricom, 2016). In comparison, the Airtel company for the period of that year had a total capital and non-current liabilities of $45,537,482 which reflects an apparent increase in the company’s services (Airtel, 2016). It is apparent Airtel company is stopping at nothing to try to compete with Safaricom and to improve themselves as a business, they are being quite competitive and have come up with strategic business ways to grasp the attention of more customers, improving their business and attracting more business for them to their networking firm, as well as increase their expenditures.

Capital Calculations for The Companies

Purchase price

$36,000,000

Sales price

$45,000,000

Your Federal Tax Bracket:

35%

Time from purchase to sale:

One year or Less

More than one year

Tax rate:

35%

calculate

Federal capital Gains Tax Rate:

35%

15%

Total Tax Due:

$3,150,000

$4,500,000

Net Sale after Tax:

$41,850,000

$40,500,000

Advantage of waiting

-3.23%

Factors That Impacted the Companies’ Debt Capacities and Capital Structures

There are many different factors that can impact a company’s debt capacity and capital structures outside of capital expenditures. According to Byrd, Hickman & McPherson (2013), debt capacity implies “the maximum amount of debt that can be safely serviced”

Things such as controlling interest, economic conditions, debt and equity financing, emergency preparedness and nature and size of the business. Controlling interest: we find that companies that desire to maintain their decision-making rights mostly secure funds through the debentures and not the equity holders. Both Safaricom and Airtel usually mix the securities to cater to varying risk tolerance.

Economic conditions: As the financial market is constantly fluctuating, as you can see through the data we have examined, this can be apparent for the companies as well. Economic conditions can play a vital role on the success and decline of a business.

Debt and equity financing: with debt financing, a company is able to retain its management and ownership and we find that a big company like Safaricom seems to assume the high risk for benefits (Wirth, Chi & Young, 2013). They may tend not to realize loses especially when dealing with small amounts of money since they make large amounts of profit daily, since they operate with millions of customers. Emergency preparedness: This is why there are the availability of those workers responsible for customer services all through the day so that if a customer may any case have a problem he/she can a have a solution at hand anytime he contacts the person concerned.

Capital Spending Across the Two Firms

In accordance with the statistics showing the capital expenditures between these two companies, we find a similar spending rate for both the companies. However, according to the annual report, Safaricom company shows remarkable and asymptotic measures when it comes to their spending of capital because their services are more reliable starting from the communication services to transaction services (Safaricom, 2016). All in all, these companies have similarities in how they spend their capital, but as shown here, different ways in which they approach that spending and how often they accumulate expenditures.

Conclusion

Expenditures are accumulated in variety of ways, depending on the needs of a business. As annual reports have shown this can directly impact the capital plus the non-current liabilities for the company’s overall annual year. Safaricom has more customers than Airtel, hence the need for a higher average spending than that of Airtel, as a means to service and the needs of their consumers. This would be because large customer bases would need to have a higher expectation from the company itself, therefore the leaders need to spend more of the capital and perfect on the areas that need improving to increase business and profit.

References

Airtel. (2014). Airtel Bharti Airtel Limited Annual Report 2014-15. Retrieved from

http://www.airtel.in/airtel-annual-report-2014-15/pdf/Airtel%20DLX%20AR%202014-15.pdf

Airtel. (2015). Airtel Bharti Airtel Limited Annual Report 2015-16. Retrieved from

http://www.airtel.in/airtel-annual-report-2015-16/pdf/annual-report-2015-16.pdf

Airtel. (2016). Airtel Bharti Airtel Limited Annual Report 2015-16. Retrieved from

http://www.airtel.in/airtel-annual-report-2016-17/pdf/Annual-report-2016-17.pdf

Beyer, B., Herrmann, D., & Rapley, E. (2015). Disaggregated Capital Expenditures. SSRN

Electronic Journal. http://dx.doi.org/10.2139/ssrn.2587124

Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial Finance [Electronic version].

Retrieved from https://content.ashford.edu/

Wirth, C., Chi, J., & Young, M. (2013). The Economic Impact of Capital Expenditures:

Environmental Regulatory Delay as a Source of Competitive Advantage? Journal of

Business Finance & Accounting, 40(1-2), 115-141. http://dx.doi.org/10.1111/jbfa.12009

Safaricom. (2014). Safaricom Annual Report 2015. Retrieved from

https://www.safaricom.co.ke/annualreport_2015/

Safaricom. (2015). Safaricom Annual Report 2016. Retrieved from

https://www.safaricom.co.ke/annualreport_2016/

Safaricom. (2016). Safaricom Annual Report 2017. Retrieved from

https://www.safaricom.co.ke/gonext/

Webster Dictionary. (2016). Capital Expenditure. Retrieved from https://www.merriam-

webster.com/legal/capital%20expenditure