Question

Financial Statement is the use of different calculations and formulas to determine the financial health of an organization. Lean Manufacturing and Activity Analysis is about eliminating waste and focusing on the movement of goods and services in respect to customer demand. In regards to financial statements, please pick out four ratios that would best analyze a telecommunication company ( Jio telecommunication company as example). Discuss why these are the best calculations for the company you chose and in detail explain how they effectively analyze the financial health of that firm.

Answer 1

To effectively evaluate a telecommunications company, it's important to look at metrics that specifically affect the telecommunications sector. Evaluating any stock requires specific knowledge about the company's sector and industry, as well as knowledge of the particular forces that impact companies in the same category.

Fortunately for investors, telecommunication companies report various performance metrics that are specific to their industry,

To evaluate a company in the telecommunications sector, it's important for investors to review key metrics that are unique to the industry.

Three key metrics used to analyze a telecommunications company are average revenue per user (ARPU), churn rate, and subscriber growth.

The average revenue per user (ARPU) measures the average revenue a company generates per user over a given time.
The churn rate is a metric that measures the number of subscribers that cancel their subscriptions.
Subscriber growth measures how many new customers a company adds over a given time.
When analyzing a company's financial statements, investors will review a variety of metrics, including assets, liabilities, stockholders' equity, debt, and free cash flow. When taken alone, any one of these fundamental indicators will generally not be enough to confirm a company's viability as a potential investment. However, when combined, these metrics can paint a clear picture to an investor of a company's financial well-being and potential for profitability.

ARPU

This average revenue per user (ARPU) is calculated by dividing the total revenue for a period by the average number of users. This is an important metric in the telecommunications industry as it illustrates the company's operational performance. The ability to maximize profits and minimize costs associated with servicing each end user is key to these companies.

CHURN RATE

The churn rate is a metric that measures the number of subscribers who leave and is often reported quarterly or annually. Internet providers, cable and satellite TV providers, and telephone service providers (both landline and wireless service) track their churn rate, which is usually reported as a percentage. For example, if two out of every 20 subscribers of a wireless phone service cancel their subscriptions in a year, the company would report an annual churn rate of 10%.

SUBSCRIBER GROWTH

A telecommunications company's future revenue growth has much to do with its ability to grow its customer base and add new subscribers. Subscriber growth is, therefore, an extremely important metric. A steady subscriber growth rate indicates a competitive telecommunications company that is keeping up with technology trends, thereby keeping customers happy and attracting new customers. When reporting subscriber growth, telecommunications companies will often report what is called "net additions" and will break down this category by product line.