Telus is a major Canadian telecommunications company that provides both wireless and wired phone, internet, video, and IT services. The document analyzes Telus' industry, strategy, financials, and compares it to Manitoba Telecom Services (MTS). Telus' strategy focuses on growth markets, integrated solutions, infrastructure expansion, and internal investment. Financially, Telus has higher profitability than MTS but also more debt. While MTS has stronger liquidity and solvency, Telus generates more free cash flow and has a higher times interest earned ratio, indicating it manages debt better to reinvest and grow.

1. JRE300H1F – Foundations of Accounting and Finance – Project Part I
FIRST NAME Alexander
LAST NAME Blum
STUDENT # 1000067713
FIRST NAME Chuanrui
LAST NAME Li
STUDENT # 1000010846
PROJECT PART 1 1
I. INDUSTRY
Telus is in the Canadian telecommunication industry. It provides both wired and
wireless phone, internet, video, and IT services on home, small business, and industrial
scales. Telus’ wireless network operates throughout the country, but has a particularly
strong wired presence in Alberta, British Columbia, and Eastern Quebec.
II. STRATEGY, POSITION, CUSTOMERS, SUPPLIERS, AND COMPETITORS
Strategy
Telus’ has six main strategic focuses:
1) Growth Data Markets—In the past year, Telus acquired 3 smaller, specialized,
healthcare IT firms in order to better service the healthcare industry.
2) Integrated Solutions—By leveraging the considerable number of
telecommunication products it offers, Telus can offer customized, integrated
solutions that it hopes will differentiate itself from the competition.
3) Expanding Infrastructure—Telus is focusing on broadening its national data, IP,
and wireless capabilities. In addition to expanding and maintaining its existing
physical infrastructure, Telus bought 30 spectrum licenses last year to allow for
further development.
4) Focus on Core Business—Telus will acquire and partner with outside companies,
and even divest in certain areas of its own company in order to accelerate the
implementation of their strategy.
5) Departmental Continuity—Telus offers services under a common brand with a
common strategy.
6) Internal Investment—Telus is focusing on investing in its own employees,
structure, and capabilities, to promote an efficient operation.
1
Most of the information in this report comes from Telus’ 2014 annual report (Telus, 2015)
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2. In addition to its main six points, Telus has a strong commitment to customer service,
which informs every aspect of its business.
Position
These six main strategic focuses, pared with Telus’ customers first commitment, is what
Telus believes can give it a competitive advantage, and has led Telus to become
Canada’s second largest telecom company.
Customers
Telus has three different customer segments--family, small business, and enterprise.
Most of Telus’ customers for wired services are in British Columbia, Alberta, and Eastern
Quebec. For its wireless services, its customers are spread country-wide.
Suppliers
Telus’ major suppliers for smartphones and tablets are Apple, Samsung, HTC, and
Blackberry. Various broadcasters supply content for TELUS TV. Additionally, Telus is
supplied by Trylon, Tower Power, and other companies to build and maintain its cell
tower infrastructure. Telus also has outside companies to supply infrastructure for its
wired service.
Competitors
Telus has national telecommunications competitors like Rogers Wireless, Bell Mobility
and Wind, along with regional competitors, such as SaskTel, MTS, Eastlink, Videotron,
Mobilicity and Tbaytel. International VoIP services also compete with Telus’ phone
service (See Appendix A for a more detailed list).
III. BUSINESS AND BUSINESS ENVIRONMENT—IMPACTS ON OPERATIONS AND PROFITABILITY
Telus’ Business
Telus primarily earns revenue through the operations of its two core business—Wireless
and Wireline. Each of these of business has a unique focus in how it generates profits
for Telus, and each is described in detail below.
1) Telus Wireless
• Delivering leading network and mobile devices, covering 99% of Canadians
over a coast-to-coast, advanced wireless network, and offering a wide range
of smartphones and tablets.
• Providing fast internet access speed, with social networking, messaging
systems, and mobile applications.
2) Telus Wireline
• Providing telecommunication products and services, including home phone
service, email, security solutions, Telus TV, and IP networks.
• Delivering innovative, integrated businesses solutions with dynamic
communications technology.
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3. • Focusing on new growth markets of healthcare, security, and cloud-based
services.
Telus’ Business Environment
Telus operates within a complex business environment with fluctuations in Canadian
economics, government regulations, and pricing competition. The key points are
discussed below.
1) The Change of the Canadian Economy: Various economic factors, including
fluctuating oil prices and foreign trade, can influence consumer spending.
2) Canadian Telecommunication Industry Growth: The Canadian
telecommunication industry has not grown much in the past few years.
Especially within the Wireline industry, growth has been stagnant.
3) Regulatory Developments: The Canadian Government stated its intention to
further increase wireless competition in order to reduce roaming costs on
wireless networks in Canada. Governmental regulation of the wireless spectrum
and the telecommunications industry in general have a continued impact on
Telus’ business.
4) Competition in Current Market: Competition affects pricing strategies and
reduces Telus’ profit.
5) International Market: Fluctuations in the international market, especially
currency fluctuations, affect Canadian consumer spending, and also affect the
cost of smartphones and other equipment produced internationally.
IV. FINANCIAL REPORTING OBJECTIVES AND KEY STAKEHOLDERS
Financial Reporting Objectives
Telus’ financial reporting objectives are to provide accurate information about its
current financial health and changes over the past year. Its report is meant to reassure
its current shareholders and attract new investors by promoting its growth and
profitability, while providing accurate financial information to satisfy government
reporting standards.
Key Stakeholders
1) Shareholders
• Interested increased dividends and cash returns from Telus
• Interested in Telus’ growth, along with increased share prices
2) Government
• Wants to maximize the revenue received from taxes on Telus’ business
• Want to make sure interested parties, including consumers, others using the
wireless spectrum, the Canadian economy, and the environment, are
protected, through Telus’ compliance with regulations
3) Customers
• Want a high quality telecommunication service, at a good value
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4. 4) Suppliers
• Want to increase revenue from sales of their products and services
5) Employees
• Want a stable job and a high salary
6) Bondholders
• Want to earn interest and reassurance that their loans will be paid back
7) Competitors
• Want to increase their own customer base and prevent loss of revenue
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5. PROJECT PART 2
I. RATIOS
Liquidity Ratios
Ratio2
2014 2013
Working Capital $-1,313,000,000 $-970,000,000
Current Ratio 0.625 0.706
Inventory Turnover 5.07 4.54
Days in Inventory 71.99 days 80.40 days
Receivables Turnover 8.04 7.76
Average Collection Period 45.40 days 47.04 days
Cash to Current Debt Coverage 0.974 0.984
Solvency Ratios
Ratio3
2014 2013
Debt/Total Assets 0.679 0.628
Free Cash Flow $804,000,000 $914,000,000
Time Interest Earned 5.22 4.96
Profitability Ratios
Ratio4
2014 2013
Profit Margin 0.119 0.114
Return on Assets 0.0614 0.0600
Asset Turnover 0.514 0.526
Return on Common Shareholder’s
Equity
0.191 0.161
Earnings per Share $2.31 $2.02
Payout Ratio 0.649 0.655
Dividend Yield 0.0364 0.0366
EBITDA Margin 0.351 0.352
Market Capitalization $25,414,589,600 $23,185,450,900
Common Share Price/EPS Ratio 18.06 18.41
2
The calculation of liquidity ratios can be found in Appendix B
3
The calculation of solvency ratios can be found in Appendix C
4
The calculation of profitability ratios can be found in Appendix D
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6. II. FINANCIAL HEALTH AND PERFORMANCE
Telus has a working capital deficit and decreasing current ratio from 2013 to 2014,
which indicates the company may not be able to afford its current liabilities. However,
Telus is a huge corporation in telecommunication industry, and would have easy access
to financing. In order to earn revenue, it must invest a lot of money into long term
assets—its total assets are 10 times its current assets. Therefore, Telus can easily pay
the short-term debt, and working capital cannot accurately describe its financial health.
Furthermore, the speed of inventory turnover and repayment of accounts receivable
has become faster from 2013 to 2014, according the Inventory Turnover and
Receivables Turnover ratios, respectively, which is a positive indication of growing sales
and a more efficient debt collection strategy.
Telus is a service-based telecommunication company, and thus has invested in a large
amount of long-term infrastructure in order to generate revenue. For
telecommunications service providers, long-term solvency, which recognizes these long
term assets, is a better indicator of financial health than short-term liquidity. There is a
slight increase in the Debt to Total Assets ratio from 2013 to 2014. However, the ratio
stays around 0.6, indicating that company has continued to grow and has a stable net
income. While Telus’ free cash has decreased from 2013 to 2014, this mainly due to
increased investment in long-term assets—important for Telus’ long-term survival.
Most importantly, Times Interest Earned has increased, from 4.96 in 2013 to 5.22 in
2014. This is a good sign; compared to their growing Debt to Total Assets ratio, this
means that Telus has invested this debt well, and that its profits, compared to its
interest expense, are increasing. This indicates that Telus is in a better position to
manage its debt, and is spending its money wisely.
Telus’ profitability ratios suggest that it is currently growing. Most of its profitability
ratios have been stable over the past two years, with its Profit Margin, Return on Assets,
Return on Common Shareholder’s Equity, and Earnings per Share growing slightly from
2013, while its Asset Turnover, Payout Ratio, Dividend Yield, and EBITDA margin have
decreased slightly from 2013.
Most significantly, its Market Capitalization has grown by more than 2 billion (9.6%),
highlighting Telus’ recent growth. However, investors are not very confident that this
pace of growth will continue, as its P/E ratio has decreased from 18.41 in 2013 to 18.06
in 2014. This is not a large concern, as Telus’ profitability is stable.
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7. PROJECT PART 35
I. RATIOS: TELUS AND MANITOBA TELECOM SERVICES (MTS ALLSTREAM, OR MTS), 2014
Liquidity Ratios
Ratio6
Telus Manitoba Telecom Services
Current Ratio 0.625 0.625
Receivables Turnover 8.04 10.18
Cash to Current Debt Coverage 0.974 1.029
In terms of liquidity, MTS is in a better position. While both companies don’t have great
current ratios, they are about equal. MTS has a bit more cash to cover their debt than
Telus, though both companies’ ratios are close to 1. Although both Telus and MTS have
low current ratios, they are still financially healthy. Because they are both service based
telecom companies, only approximately 10% of their total assets are current, and both
have a sizeable amount of telecommunication infrastructure and technology patents.
Due to their credibility and size, both companies can easily access financing to cover
their maturing debt. On top of that, both companies have a huge portion of liability
from advance billings and payments that comes from prepaid bills. As national
corporations, they will continue to provide service based on account payable in the
future. MTS is better at collecting on their accounts receivable, which gives them a bit
of an advantage over Telus.
Solvency Ratios
Ratio7
Telus Manitoba Telecom Services
Debt/Total Assets 0.679 0.391
Free Cash Flow $804,000,000 $14,700,000
Times Interest Earned 5.22 3.78
In terms of solvency, both companies have their pros and cons. MTS has a significantly
larger amount of assets compared to debt than Telus, which it means it will be much
easier for MTS to pay off future financial obligations. However, Telus has a much larger
free cash flow and times interest earned than MTS, which means that Telus is in a much
better position to re-invest in its company and grow without having to worry about
spending a lot of their money on loan interest. Telus may want to use some more of its
free cash to pay down their debt to improve their solvency. Conversely, MTS may want
5
Most of the information in this section of the report comes from MTS Allstream’s 2014 annual report
(MTS Allstream, 2015)
6
The calculation of liquidity ratios can be found in Appendix E
7
The calculation of solvency ratios can be found in Appendix F
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8. to take on some more debt in order to have more free cash, so that they can invest
more money back into the company and hopefully improve revenues.
Profitability Ratios
Ratio8
Telus Manitoba Telecom Services
Profit Margin 0.119 0.0817
Return on Assets 0.0614 0.0490
Return on Common Shareholder’s
Equity
0.191 0.080
Common Share Price/EPS Ratio 18.06 15.28
In terms of profitability, Telus has performed better than MTS for the Profit Margin,
Return on Assets, Return on Common Shareholder’s Equity and Common Share
Price/EPS ratios, which are good indicators of profitability. Looking at Profit Margin in
particular, it becomes evident that MST generates less profit of per sale. As a result,
MST returns less Return on Common Shareholder Equity according to their net earnings.
Furthermore, the Common Share Price/EPS Ratio (P/E) shows that investors have more
confidence in Telus’ growth than MTS’.
II. INVESTOR GOALS: GROWTH V. INCOME
In general, the “Big Three” telecom companies (Telus, Bell, and Rodgers) have
dominated the Canadian telecom industry (Brownell, 2014). MTS, while not part of the
“Big Three”, is the dominant, established carrier in Manitoba, and the 4th largest
telecom company nationally. As 87% Canadians are already subscribed to wireless or
wireline plans (CIRA, 2015), there is not a whole lot of growth in the industry, and any
potential investors would be more focused on profit. However, within the larger
telecom companies, Telus is growing. In 2013, Telus surpassed Bell to become the 2nd
largest national telecom company. As the solvency ratios show, Telus has a much higher
amount of debt compared to its assets than MTS, yet its times interest earned is much
higher, indicating that Telus has better managed to take on debt and invest back into its
business than MTS has. This has allowed Telus to grow in the past year, increasing its
Market Capitalization from 23 to 25 billion. This is also reflected in both companies P/E
ratios. Telus has a P/E ratio 18% larger than MTS’ P/E ratio, indicating that investors are
more confident in Telus’ growth than MTS’.
III. RESTATED STATEMENTS
Due to structural changes and acquisitions at Telus and at MTS Allstream, both
companies have re-stated some of their previous annual reports to allow for fair
comparisons of items from year to year. As the companies have acquired new
businesses, the current financial report includes current financial data for the newly
acquired business. By re-stating past reports to include historical data for newly
8
The calculation of liquidity ratios can be found in Appendix G
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9. acquired businesses, investors can better compare numbers from the current annual
report to numbers in previous reports.
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10. REFRENCES
Brownell, Claire. (2015). The Globe and Mail, Online. CRTC Hears Canada’s Big Three
Telecoms Distorting Market by Charging Small Rivals Exorbitant Rates. Retrieved
from http://business.financialpost.com/fp-tech-desk/crtc-hears-canadas-big-
three-telecoms-distorting-market-by-charging-small-rivals-exorbitant-rates?
__lsa=a5e9-2320
Canadian Internet Registration Authority (CIRA). (2015). CIRA Factbook 2014: the
Canadian internet. Retrieved from http://cira.ca/factbook/2014/the-canadian-
internet.html
MTS Allstream. (2015). 2014 annual report. Retrieved from
http://www.mtsallstream.com/wp-content/uploads/2015/04/MTS-Allstream-
2014-annual-report-ENGLISH-April-2015.pdf
Telus. (2015). 2014 annual report. Retrieved from
http://ar.telus.com/files/pdf/en/ar.pdf
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11. APPENDIX A: COMPETITORS
Below is a more in-depth list of Telus’ competitors.
• Some companies (e.g. Vonage) offer resale or VoIP-based local, long distance
and Internet services.
• Skype, Netflix and Shomi offer Over-the-top (OTT) voice and entertainment
services.
• Bell Canada, Shaw Communications and Xplornet offer entertainment and
Internet services.
• Convergys, Sykes and Verizon LiveSource provide contact centre services
• CGI Group Inc., EDS division of HP Enterprise Services and IBM offer customized
managed outsourcing solutions competitors, such as system integrators CGI
Group Inc., EDS division of HP Enterprise Services and IBM.
• System integrators, BCE, Cerner, Express Scripts, GE Health, Katz Group, Kroll and
McKesson provide integrated health IT services similar to Telus’.
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12. APPENDIX B: CALCULATION OF LIQUIDITY RATIOS
Working Capital = Current Assets - Current Liabilities
2014: $-1,313,000,000 = ($60,000,000 + $1,483,000,000 + $97,000,000 + $320,000,000
+ $199,000,000 + $27,000,000) - ($100,000,000 + $2,019,000,000 + $2,000,000 +
$244,000,000 + $753,000,000 + $126,000,000 + $255,000,000)
2013: $-970,000,000 = ($336,000,000 + $1,461,000,000 + $32,000,000 + $326,000,000 +
$168,000,000 + $6,000,000) - ($400,000,000 + $1,735,000,000 + $102,000,000 +
$222,000,000 + $729,000,000 + $110,000,000 + $1,000,000)
Current Ratio = Current Assets / Current Liabilities
2014: 0.625 = ($60,000,000 + $1,483,000,000 + $97,000,000 + $320,000,000 +
$199,000,000 + $27,000,000) / ($100,000,000 + $2,019,000,000 + $2,000,000 +
$244,000,000 + $753,000,000 + $126,000,000 + $255,000,000)
2013: 0.706 = ($336,000,000 + $1,461,000,000 + $32,000,000 + $326,000,000 +
$168,000,000 + $6,000,000) / ($400,000,000 + $1,735,000,000 + $102,000,000 +
$222,000,000 + $729,000,000 + $110,000,000 + $1,000,000)
Inventory Turnover = Cost of Goods Sold / Average Inventory
2014: 5.07 = $1,621,000,000 / $320,000,000
2013: 4.54 = $1,480,000,000 / $326,000,000
Days in Inventory = 365 / Inventory Turnover
2014: 71.99 days = 365 days / 5.07
2013: 80.40 days = 365 days / 4.54
Receivables Turnover = Net Credit Sales / Average Accounts Receivable
2014: 8.04 = $11,927,000,000 / $1,483,000,000
2013: 7.76 = $11,336,000,000 / $1,461,000,000
Average Collection Period = 365 / Receivables Turnover
2014: 45.40 days = 365 days / 8.04
2013: 47.04 days = 365 days / 7.76
Cash to Current Debt Coverage = Cash Provided by Operating Activities / Average
Current Liabilities
2014: 0.974 = $3,407,000,000 / ($100,000,000 + $2,019,000,000 + $2,000,000 +
$244,000,000 + $753,000,000 + $126,000,000 + $255,000,000)
2013: 0.984 = $3,246,000,000 / ($400,000,000 + $1,735,000,000 + $102,000,000 +
$222,000,000 + $729,000,000 + $110,000,000 + $1,000,000)
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13. APPENDIX C: CALCULATION OF SOLVENCY RATIOS
Debt/Total Assets = Total Liabilities / Total Assets
2014: Total Liabilities = $100,000,000 + $2,019,000,000 + $2,000,000 + $244,000,000 +
$753,000,000 + $126,000,000 + $255,000,000 + $342,000,000 + $9,055,000,000 +
$931,000,000 + $1,936,000,000 = $15,763,000,000
Total Liabilities / $23,217,000,000 = $15,763,000,000 / $23,217,000,000 = 0.679
2013: Total Liabilities = $400,000,000 + $1,735,000,000 + $102,000,000 + $222,000,000
+ $729,000,000 + $110,000,000 + $1,000,000 + $219,000,000 + $7,493,000,000 +
$649,000,000 + $1,891,000,000 = $13,551,000,000
Total Liabilities / $21,566,000,000 = $13,551,000,000 / $21,566,000,000 = 0.628
Free Cash Flow = Net Cash Provided by Operating Activities – Net Capital Expenditures –
Dividends Paid
2014: $804,000,000 = $3,407,000,000 - $2,359,000,000 - $244,000,000
2013: $914,000,000 = $3,246,000,000 - $2,110,000,000 - $222,000,000
Time Interest Earned = Earnings Before Interest Expense and Income Tax Expense (EBIT)
/ Interest Expense
EBIT = Net Income + Financial Cost (Interest Expense) + Income Taxes
2014: 5.22 = ($1,425,000,000 + $456,000,000 + $501,000,000) / $456,000,000
2013: 4.96 = ($1,294,000,000 + $447,000,000 + $474,000,000) / $447,000,000
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14. APPENDIX D: CALCULATION OF PROFITABILITY RATIOS
Profit Margin = Net Earnings / Net Sales
2014: 0.119 = $1,425,000,000 / $11,927,000,000
2013: 0.114 = $1,294,000,000 / $11,336,000,000
Return on Assets = Net Earnings / Average Total Assets
2014: 0.0614 = $1,425,000,000 / $23,217,000,000
2013: 0.0600 = $1,294,000,000 / $21,566,000,000
Asset Turnover = Net Sales / Average Total Assets
2014: 0.514 = $11,927,000,000 / $23,217,000,000
2013: 0.526 = $11,336,000,000 / $21,566,000,000
Return on Common Shareholder’s Equity = (Net Earnings - Preferred Dividends) /
Average Common Shareholder’s Equity
2014: 0.191 = $1,425,000,000 / $7,454,000,000
2013: 0.161 = $1,294,000,000 / $8,015,000,000
Earnings per Share = (Net Earnings - Preferred Dividends) / Weighted Average Number
of Common Shares
2014: $2.31 = $1,425,000,000 / 616,000,000
2013: $2.02 = $1,294,000,000 / 640,000,000
Payout Ratio = Cash Dividends / Net Earnings
2014: 0.649 = 609,024,434 * $1.52 / $1,425,000,000
2013: 0.655 = 623,432,398 * $1.36 / $1,294,000,000
Dividend Yield = Dividend per Share / Market Price per Share
2014: 0.0364 = $1.52 / $41.73
2013: 0.0366 = $1.36 / $37.19
EBITDA Margin = EBITDA / Revenue
2014: 0.351 = $4,216,000,000 / $12,002,000,000
2013: 0.352 = $4,018,000,000 / $11,404,000,000
Market Capitalization = Total Number of Shares Outstanding * Price per Share
2014: $25,414,589,600 = 609,024,434 * $41.73
2013: $23,185,450,900 = 623,432,398 * $37.19
Common Share Price/EPS Ratio = Price per Share / Earnings per Share
2014: 18.06 = $41.73 / $2.31
2013: 18.41 = $37.19 / $2.02
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15. APPENDIX E: LIQUIDITY CALCULATIONS FOR MTS
Current Ratio = Current Assets / Current Liabilities
0.625 = $241,100,000 / $385,800,000
Receivables Turnover = Net Credit Sales / Average Accounts Receivable
10.18 = $1,612,000,000 / $158,300,000
Cash to Current Debt Coverage = Cash Provided by Operating Activities / Average
Current Liabilities
1.029 = $396,900,000/ $385,800,000
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16. APPENDIX F: SOLVENCY CALCULATIONS FOR MTS
Debt/Total Assets = Total Liabilities / Total Assets
0.391 = $1,052,300,000 / $2,688,000,000
Free Cash Flow = Net Cash Provided by Operating Activities – Net Capital Expenditures –
Dividends Paid
$14,700,000 = $396,900,000 - $288,300,000 - $93,900,000
EBIT = EBITDA - Depreciation and amortization
$248,800,000 = $565,900,000 - $317,100,000
Times Interest Earned = EBIT / Interest Expense
3.78 = $248,800,000 / $65,900,000
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17. APPENDIX G: PROFITABILITY CALCULATIONS FOR MTS
Profit Margin = Net Earnings / Net Sales
0.0817 = $131,700,000 / $1,612,000,000
Return on Assets = Net Earnings / Average Total Assets
0.0490 = $131,700,000 / $2,688,000,000
Return on Common Shareholder’s Equity = (Net Earnings - Preferred Dividends) /
Average Common Shareholder’s Equity
0.080 = $131,700,000 / $1,646,200,000
Common Share Price/EPS Ratio = Price per Share / Earnings per Share
15.28 = $25.97 / $1.70
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