The French government created France Telecom in 1988. The company was privatized in 1997, and in the following year lost the state monopoly as the telecommunications industry opened up to competition.
Given the context, the company then began to expand through a number of partnerships and acquisitions. The Global One partnership formed in January 1996 with Sprint (US) and Deutsche Telekom created an international communication network which was fully acquired by France Telecom in 2000. Growth continued in July 1999 when France Telecom acquired an equity interest in British cable operator NTL. This was followed in October 1999 by France Telecom's launch of its European Backbone Network.
The company expanded into the Internet in 1998 with the development of Wanadoo. In 2000, Wanadoo extended its operations into the UK, buying leading ISP Freeserve. The company also operates in Denmark, Spain, Belgium and the Netherlands amongst others.
France Telecom made a major expansion in the mobile market in June 2000 by acquiring UK-based mobile operator Orange. The acquisition completed the company's interests in mobile companies and made it one of the largest mobile providers in Europe.
Our analysis will focus on the cash flows generated by France Telecom during two periods [from 2000 to 2002] and [from 2008 to 2010]. What was the financial situation at the end of 2002 and 2010?
[...] So France Telecom had to focus more on profitability. This could explain why the number of employees decreased over the decade even if the company was broadening its activities in France and Europe. France Telecom's stock (illustrated below in blue) underperformed the stocks of its main European competitors (Deutsche Telekom, Telefonica) and also the main French Index over the last 12 years. This bad performance will make France Telecom's management focus on profitability and increase the net profit while maintaining its strategic investments. [...]
[...] [pic] In 2008 and 2009 there was no leverage effect since the ROE of the company was lower than its ROA. This means that the increase in the debt level creates no additional profitability. In 2010, there was no leverage effect either but it was getting better and close to achieving a positive leverage effect. This improvement was due to a higher net income resulting from a reduction in the net financial expenses related to lower short-term borrowings. [pic] Given the nature of its business - which requires continuous asset investments - and industry trends such as mergers and acquisitions, it is fair to say that France Telecom has been able to maintain its debt-to- equity ratio relatively stable throughout the three-year period despite the slight increase in the ratio. [...]
[...] Cash flows statement 2. Operating cash flows 3. Investing cash flows 4. Financing cash flows II. Profitability assessment III. Debt level IV. Trainee report analysis PART 2 : ANALYSIS OF FRANCE TELECOM CASH AND CASH FLOWS IN 2010 I. Cash flows analysis 1. Cash flows statement 2. Operating cash flows 3. Investing cash flows 4. Financing cash flows II. Key indicators and ratios III. Report to investors CONCLUSION INTRODUCTION The French government created France Telecom in 1988. The company was privatized in 1997, and the following year lost the state monopoly as the telecommunications industry opened up to competition. [...]
[...] The return on equity collapsed and became irrelevant in 2002 because of negative equity. The return on assets was lower than the return on equity in 2000; this means we have a leverage effect. But the return on equity plummeted in 2001 due to a net loss while the return on assets slightly increased. Return on equity became lower than return on assets; so we do not have any leverage effect. We cannot conduct this kind of analysis in 2002 because the return on equity is irrelevant (Equity > 0). [...]
[...] These figures show that France Telecom gained market share on growing markets. Moreover, the company succeeded in keeping its gross margin stable through good management of cost of goods sold. But the operating risk was real because of an exponential rise of financial expenses (+100% over 3 years). The heavy debt and high amortizations / depreciations and provisions made the net income plummet in 2002. The series of acquisitions that France Telecom realized (Orange, MobilCom, Wind, Equant and NTL) were largely amortized in its accounts after the telecommunications industry crisis. [...]
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