👉 Background: Telstra is the biggest of the telco networks in Australia. While it started back in 1901, it began its privatisation in 1997 when it listed on the ASX. But, over the past few years, the Big T has been struggling with a whole heap of costs and competitors eating into its market share.

👉 What happened: Now, Telstra has announced a 13% slide in its annual net profit to just under $1.8 billion. In good news for the Big T, its earnings from its mobile division jumped more than 9%.

👉 What else: But, there were a whole heap of expenses in the business as well:

• $247 million in redundancy costs for the 2,800 jobs it plans to cut this year
• Writedowns to its Enterprise business, retail energy business and building leases as well.
  

But despite this huge drop in profit, its share price still rose mainly because these writedowns are helping them get back on track.

What's the key learning?

💡Writedowns might look like a red flag on a company’s Profit and Loss statement, but in reality, they’re not as bad as they seem.

💡A writedown occurs when a company reduces the value of an asset that it owns. This is often because it has previously been overvalued compared to its current market value.

💡In Telstra’s case, it wrote down the value of its Enterprise business by $311 million, but this doesn’t mean $311 million in cash is leaving the business. But it does reduce Telstra’s reported profits, and ultimately the amount of tax that it needs to pay.