Use ending share price for the previous and this financial year as stated in the annual report. If they are not presented there, you have to source them. Use closing unadjusted prices. Take the full year of the reporting period; for example, 1st July 18 - 30 June 19. To determine the one-year change in share price of the stock, use discrete return. Use the dividend paid for the financial year as stated in the annual report. If the share is franked, you will have to gross it up to account for franking credits and include special dividends. Look at the payment date of the dividends. Dividends stated on the annual report are often the declaration date. Use All Ordinaries (AORD) as your index. Take discrete returns and follow the same period as your annual report. If you do not obtain a return of more than 5%, you have to try the following steps in sequence: 1. Use cumulative return 2. Use a total return market index 3. Use a sector specific index 4. Use the financial year as your time period if your company has different reporting period 5. Use the average 2 or 3 years return (last resort) Calculating the total returns for the shareholder must be done paying particular attention to the following: Time frames must match your annual report and index returns The same index returns must be used in the next section You have to include both the interim and final dividend and any special dividends paid for the period. Look at payment date You have to gross the dividends up to include the franking credits. Franking credits are only applicable for this section. Do not include them in your cost of capital section Use the following formulas: Franking Credit = ( Dividend 1- Corporate Tax Rate - Dividend) Franking Proportion Gross Up Dividend = Franked Dividend + Franking Credit 4 Review of capital projects Finally, you have to review ALL capital projects undertaken in the reporting period. Risk return discussions must always be done in relation to future capital projects. How are the risks identified affect the profitability of the future projects? Page 9 of 16 If the shareholders deemed that the risk are too high, they would demand a higher return and this will often result in the lower share price upon the project announcement. Capital projects are not cost savings; such as staff cuts, efficiencies, reduced cost of inputs, etc. You should look for announcements of investments into projects like acquiring a business, machinery, new premises, etc. For Telstra, this is mention on page 24 and 25. Capital investments into 5G, mobile sites and merger of Foxtel and Fox Sports The market did not view these investments well as the future revenue may he easily disrunted by notential Risk-return analysis guide 1 2 3 Review of listed risks In this section, you need to review the risks listed in the annual report. Avoid making up your own risks. We are after external risks. Investment decisions, financing decisions, health and safety, compliance and human resource management are all internal risks; ignore them. For Telstra, this is on page 12. Key risks that should be discussed in depth would be 'Major Regulatory Change' and Network resilience'. Telstra's monopolistic grip on the market is constantly being eroded by government intervention. This is the result of efforts of lobby groups and perceived public pressure. Competitors of course benefit from these changes as they are able to carve out their little niche to play in. Network resilience/reliability is constantly an issue when the company is operating on such a large scale and having limited staffing resource due to budget constraints. Competition is not a risk; it is the reason the company is in business. Climate change is not a risk. Evidence of risk Identifying the risk is only part of the story. You have to now show evidence of the risk. The evidence that you provide are for the risks identified in the previous section. No marks are awarded for risks that are identified without clearly showing evidence that they have impacted the company. This can be done in a few ways; relevant newspaper articles, correlation with identified variables, trend analysis, and comparison with competitors, etc. Share price decrease can be visual way to show the impact of the risk in the past. This is where you obtain the majority of the marks allocated to this section. For Telstra, you are able to find many articles discussing the impact of regulatory changes and network resilience. Do not address the steps taken by the company to address the risks. Please take time to investigate and document your findings. Review of shareholder returns The total return to the shareholder is the capital growth plus the dividend received.