AT T Inc Financial Ratio Analysis

Document Type:Research Paper

Subject Area:Finance

Document 1

According to Goto (2010), Verizon and AT&T are the two most significant company in the telecommunication industry when ranked using the total annual revenue and the customer base. AT&T It is a multinational conglomerate that has its headquarters at Whitacre Tower in Downtown Dallas, Texas. The company has been ranked as the largest telecommunication service provider in the world. However, it is the second largest mobile phone service provider and largest provider of fixed telephone services in the world. The official website of the company is www. 84 billion. To achieve all these, the company’s total assets are$ 440. 09 billion and has total equity of 142 billion as of 2017 (NASDAQ, 2017). The company has been able to post an increase in their yearly revenues in the last three previous years.

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In 2014 the company had total revenue of 132. Market trading The stocks and equities of the company are traded on the New York securities exchanges. The company, in 2005, started to trade under the new ticker symbol T. It was previously trading as SBC. The symbol marked its return to the DOW 30 companies a benchmark for the most active 30 stocks sold in the market. As of 2004 when it entered the dow 30, the company had 3. It is an American conglomerate and also a corporate component of the Dow Jones Industrial Average. The central headquarters can be found at the 1095 Avenue of the Americans that is Midtown Manhattan New York City. However, it also has incorporated at Delaware. The American justice department mandated the breakup of the AT&T Corporation, Verizon was one of the companies, at that time referred to as Bell Atlantic (Barney, 2005) The official company website is www.

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verizon. (NYSE, 2017). Company products and services As of 2017, the company offered several vital products to the American people. The company’s products include broadband services, fixed line, cable television, Mobile, Digital television, IP TV, internet of things, and telematics (Singh, 2006). It is a company with a variety of telecommunication products. For ease and efficiency of provision of services, the company has subdivisions and subsidiaries for specific services and products that they offer. 61 billion in net income. The company also had a total asset of 257. 14 billion. Total equity of the company was 44. 69 billion as of 2017. The ratios are divided into four key categories which are liquidity ratios, solvency ratios, profitability ratios and market ratios. Liquidity ratios According to Ohlson (1980), liquidity ratios determine the company ability to pay off its short-term obligations using their current or quick assets.

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Liquidity ratios that will be used in the following analysis will be the current ratio, quick ratio, and cash ratio. When determining all the ratios for the companies, the following formulas were employed to get the results that were then tabulated Current ratio Current ratio = current ratios/current liabilities The ratio measures the ability of the company to pay off its short-term abilities by using its current assets. When a company has a quick ratio with a value of 1. 97 in 2017 from 0. 76 in 2016. The value is below one, But there is no cause for alarm as the company has a high annual revenue from the sales. It is clear from the financials that the company nets sales income increased in 2017 than in 2017.

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The increase caused an increase in the current ration. It shows that the company can pay off the short-term obligations. It is a better measurement as it gives values without the inclusion of inventory that may be difficult to convert to cash. It uses a simple rule that if it is greater than one then-then the company can easily meet the short-term obligations. A low quick ratio shows that the company is over-leveraged or its sales are decreasing, and it is also having a difficult time collecting its receivables. When the acid ratio is high, it shows that the company is experiencing revenue growth and can easily collect its receivables and quickly turn them into cash (Fleichsmann and Srikantaiah, 2011). It shows the creditors and analysts the current assets that could be converted to cash quickly and what percentage of the current liabilities the cash will be able to compensate.

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It is rarely used by the financial analysts in the fundamental analysts. The two company cash ratios are very low from both table 1 and 2. It shows that cash equivalents and other receivables are small. AT& had cash ratio of 0. It, however, does not mean that Verizon is unable to meet its short-term obligations. 2017 Table 1 Liquidity ratios for 2017 LIQUIDITY RATIO AT%T VERIZON Current ratio 0. 91 Quick ratio 0. 87 Cash ratio 0. 9 2016 Table 2liquidity ratios for 2016 LIQUIDITY RATIO AT%T VERIZON Current ratio 0. On the other hand, Verizon’s Communications Inc. had a good run with the debt to equity ratio. It improved all through from 2015 to 2016. It had 4,80 debts to equity ratio in 2016 and improved to 2. 72 in 2017. The ratio increased from 2015 to 2016 than 2017. It had 0.

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83 in 2016 then improved to 0. 73 in 2017. Interest coverage Ratio the solvency is calculated by taking the earnings before taxes then dividing it through by interest Ohlson, 1980). From the previous ratios, AT&T was more liquid than Verizon. AT&T is based towards the short-term obligations than Verizon which is biased towards the long-term obligations. The users of the information are lenders to the company and would like to see if the company will be able to pay off all their debts in the long run while paying off the interests arising from the debts. 2017 Table 3 solvency ratios for 2017 Solvency ratio AT&T Verizon communication Debt to equity 1. 72 Debt to capital 0. The gross profit margin can also be identified as the revenue as the percentage of the revenue found to be able to cater for the operating and other expenses.

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The overall gross profit of AT&T as seen from table 4 and 5, depreciated from 2015 all through to 2017. The company had a gross margin of 54. 33% in 2015, 53. 6% in 2016 and 51. The first company AT&T company was operating margin also reduced from 16. 88% to 14. 05% in 2017. Verizon communication also deteriorated from 2015 to 2016. It then finally, slightly increased in 2017. 34% in the year 2017. Verizon Inc. net profit also increased In the same way. Its values for 13. 58 in 2015, 10. The reason for the trend was the increased in operations, using technology and digitization that reduced the overall costs of operations. Return on assets It is found by dividing the net income by the total assets. The analysis shows that the ROA reduced from 10% in 2016 and then increased in 2017. The same factors that affected the ROE affected the ROA for both companies.

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From the table, it is clear that the ratios had the same trends all through as ROE. 48% Net profit margin 7. 42% Return on Equity 10. 28% Return on Assets 3. 38% Market Value ratios The ratios that will be examined in the category are the price to earnings ratio, price to operating profit, and price to sales. The ratios are very critical to investors and individuals who would like to purchases the shares of the companies. We use the sales and value of the sales of the shares. It is calculated by taking the price-earnings divided by the sales volume. 2017 Table 7market value ratios for 2017 Market value ratio AT&T Verizon Inc. Price to earnings ratio 7. 54 Price to operating ratio 10. It has also been able to use the capacity to increase the spectrum and data services (Fleichsmann and Srikantaiah, 2011).

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In addition to that, the company has a strong financial base. The company has annual revenues of more than 100 billion for three previous years. That financial security ensures that they can incur large expenses in investments and update their equipment. It is also able to advertise and create brand awareness. The company has created a strong brand image for itself. It is a factor the empowers the employees and ensures that they have loyal customers (Singh, 2006). The company has also been able to provide relatively high-quality services. The company has services in the internet and broadband services. It also offers services in the internet of things category which makes it also diversified. According to Yahoo finance, the shares had a price to earnings ratio of 12.

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06% in 2017. It is also mentioned that the stocks traded 18. 7 times earnings. It also had 13 times forward earnings and 1. It is a good investment given that, even though 2017 was a year filled with the recession, the tech giant managed to still increase the price to earnings of its stocks. The company has made huge investments in its next-generation 5G network that will see its shares rises due to customers coming on board. Investors can invest in the company as apart from having a high price to earnings ratio the stocks have been ranked alongside that of AT&T. Which shows that it is low risk. Less volatile and highly profitable. In continuation of the analysis, the company was given the rating because of its stability, competitive advantage, diversity and revenues which increased its credit rating.

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However, before lending, they should consider that the company was placed under low investment grade for its multiple shock absorbers to defend the rating given. The credit worthiness of Verizon Inc. The lenders can offer financial assistance to the company. It was given a rating of Baa1 by the Moody rating. The company will offer a great opportunity for great and progressive career development. They have a strategy of career development as an economical way of retaining employees. It offers a great opportunity to advance in education and careers. The company is the largest telecommunication company in the world. The prestige that will come from working in the company in any position is immense. Appendix Tables for calculations The calculations were based on the company’s official incomes statements, balances sheets, financial ratios and analysis that can be retrieved from.

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AT&T Balance sheet financial ratios 2017-2014 and Verizon Inc. balance sheet and financial ratios, 2017-2014 Liquidity ratios 2017 Table 9 calculations liquidity 2017 LIQUIDITY RATIO Formulas applied AT%T VERIZON Current ratio Current assets/current liabilities 79 billion/ 81 billion = 0. 97 29 BILLION /33. 03 BILLION = 0. 76 26 billion/ 30. 34 billion = 0. 87 Quick ratio Current assets- inventory/current liabilities 38. 3 billion/ 50. 8 billion= 0. 72 Debt to capital Total debt/ total capital ( 125+38)billion/ 162 +140 billion)=0. 4 billion/ 116. 73 Interest coverage1 Earning before tax/interest to be paid 15. 139/ 4,45 billion=3. 594 billion/3. 986 billion/3. 61 billion=5. 80 2017 Table 13 profitability ratios 2017 Profitability ratio Formulas AT&T Verizon Inc. Gross profit margin Gross profit/total revenue 83. 167 billion/160. 63% 30 billion/ 272 billion= 11. 71% Profitability ratio Formulas AT&T Verizon Inc. Gross profit margin Gross profit/total revenue 86billion/163 billion= 53. 06% 74 billion/ 125 billion=59. 18% Operating profit margin Operating income/total revenue 24. 21% 13 billion/147 billio5. 38% 2016 Table 14 profitability calculations 2016 Market value ratios The data used was first adjusted for splits and for stock dividends.

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before continuing we also used the close prices on the filling date for the AT&T AND the Verizon Communications Inc. Price to earnings ratio was found as EPS= net income for AT&T /number of shares 29,450,000,000/6,141,532,706= 4. 80 Price to earnings ratio= the share prices/eps= 36. 56 Table 15 market to value 2017 Market value ratio AT&T Verizon Inc. Price to earnings ratio 7. 54 Price to operating ratio 10. 19 Price to sales ratio 1. 56 2016 Table 16 market value ratios for 2016 Market value ratio AT&T Verizon Inc.  Journal of accounting research, 109-131. Meyer, J. R.  The economics of competition in the telecommunications industry. Oelgeschlager, Gunn & Hain, Incorporated. Patent and Trademark Office. Barney, J. B. Looking inside for competitive advantage.  The Academy of Management Executive, 9(4), 49-61. net/NYSE/Company/ATT-Inc/Ratios/Liquidity NASDAQ (2017) https://www.

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