T Mobile USA Case Study

Document Type:Research Paper

Subject Area:Business

Document 1

T-Mobile is based in Washington DC and has been providing its services through its headquarter and its subsidiaries which are located in other parts of the United States of America. T-Mobile is a national provider of wireless voice, messaging, money transfer and data services reaching over millions of Americans. T-Mobile has over 60,000 employees and its privately owned company and its listed in the stock exchange market and it does sell shares and at the end of the year it gives dividends to members who purchased the shares. T-Mobile is rapidly growing and its spreading to other neighboring states, it has formed a foundation that does give scholarships to needy students, creating awareness of cancer and also the corporate social responsibility to the citizens. Financial Statements Review T-MOBILE USA BALANCE SHEET JULY 31,2018 CURRENT ASSETS 2017 2018 2019 Cash $ 200,000 300,000 400,000 Accounts Receivable 260,000 280,000 300,000 Investment tax credits receivable 89,000 92,000 97,000 Inventories 33,000 38,000 45,000 Prepaid expenses 5,500 6,300 7,200 587,500 716,300 849,200 INVESTMENT IN XML LTD 120 155 180 EQUIPMENT AND SOFTWARE 120,000 90,000 60,000 INTANGIBLE ASSETS 3000 2000 1500 710,620 808,455 910,880 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Account payable and accrued liabilities 95,000 85,000 75,000 Government remittance payable 27,000 25,000 24,000 Deferred revenue 80,000 - - Current portion of loan payable 12,000 75,000 - Owing to shareholder (non-interest 10,000 29,000 33,000 bearing and due demand) 224,000 214,000 132,000 LOAN PAYABLE 75,000 - - 299,000 214,000 132,000 SHAREHOLDERS’ EQUITY Capital Stock 180,000 160,000 140,000 Retained earnings 245,000 280,345 295,645 285,620 368,110 475,235 $ 710,620 $ 808,455 $ 910,880 T-MOBILE USA STATEMENT OF INCOME AND RETAINED EARNINGS YEAR ENDED JULY 31,2018 2017 2018 2019 Revenue $ 995,000 1,200,000 1,500,000 Expenses Advertising and Promotion 6, 000 5,000 4,000 Amortization of tangible assets 55,000 65,000 75,000 Amortization of intangible assets 4,000 4,000 4,000 Bad debt expense - 2000 3,000 Interest on long-term debt 5,500 5,000 4,500 Office expenses 12,500 14,000 16,000 Professional fees 7,800 8,700 9,500 Rental 30,000 35,000 40,000 Repairs and maintenance 7,100 6,500 6,000 Salaries and wages 460,000 500,000 550,000 Supplies 140,000 180,000 195,000 727,900 825,200 907,000 Income before taxes 267,100 374,800 593,000 Income taxes 30,900 42,640 52,580 Net income 236,200 332,160 540,420 Retained earnings(deficit) (102,990) 233,285 250,340 Beginning of year 133,210 565,445 790,760 Dividends - ( 60,000) ( 80,000) Retained earnings, end of year $ 133,210 $ 505,445 $ 710,760 The ratio analysis for the last fiscal year we can calculate it using the following categories: 1.

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Current ratio Current assets Current liabilities 849,200 132,000 Equals Current ratio of 6. b. Quick ratio Current assets- Inventory Current liabilities 849,200-45,000=804,200 132,000 = 6. Calculating Return on Equity using the Duo Point System. Return on Equity=Profit margin X Total asset turnover X Financial Leverage We should take into account that each of these factors given above is a calculation in itself we can adopt a more explanatory formula as the one below. Votes from equity shareholders do carry more of leverage than the preference stockholder votes or even debenture votes do. The preference shareholders have a slightly significant less voting privilege while on the other hand the debenture holders have non-voting rights. Therefore, the firms will have a desire to retain company decision-making rights so as to ensure that they secure their funds through debenture holders than the ones who are equity holders.

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In addition to that the firm will have to issue a typically mix of securities to cater to the varying risk tolerances that may accrue. Equity investors mostly assume that substantial risk on the other hand, while the loan and debenture holders have to trade on lower returns for safety of their investments. Federal reserves have to lower their rates when there is need so as to stimulate the economic activities, like now consumer spending and the sort. This will in return make it more easy and cost effective for the businesses to get loans. When the interest rates are quite low, most enterprises tend to borrow cash and other finances for their research, development and also expansion. When federal reserves are raising rates, the businesses will tend to curtail any kind of borrowing since it becomes quite difficult to realize a return-on-investment with the high interest rate loans.

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Debt and Cash flow. Normally in the contemporary world the factor of size no longer does the assurance of economic survival like it used to be in the past. So, finance executives can attempt to consider possibilities imaginable in order to mitigate negative economic events. Economic conditions Mostly economy has an influence in stock prices and when we have the market being low, companies will tend to form a debenture and capital structures. So during the market highs, firms will maintain equity capital structures. The firms will have to secure loans which are short term from banks and other financial institutions and the long term loans by the issuing of stocks and debentures. For accurate evaluation, financial analysts will have to take a consideration of digging deeper into company records to uncover on how internal and external finances may affect the company.

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Evaluating the company’s financial policy using debt leverage: Debt leverage can be defined as an amplification of the return earned from equity when an investment is being financed partially with borrowed capital. Most of the companies have a tendency of considering debt leverage in their evaluation of company financial policies. The debt leverage is shown in decimal formats because it does show the calculation of all liabilities as a percentage of total assets. Therefore, a lower ratio is more preferred than a higher debt leverage ratio. ii. Control wedge’s positive effect on operating dividends of a company. Normally when we have a large control wedge for a given level of voting rights, then there will be a smaller consequence on the stock market reaction for the case of dominant owner’s wealth.

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Basing on this argument, the value effect will fade in relation to control effect when the control wedge has an increases. Giving a recommendation of an alternative mechanism to explain why the wedge may even lead to a higher dividend payout in return. iv. The higher dividend payout has a positive effect on operating firm value. The corporate finance theory actually has no prediction of the dividends increase creating any value at any payout level. On the other hand, the mainstream capital structure model does have the emphasize of the value of internal financing basing it on asymmetric information and other alike fractions like similar frictions like the example of transaction costs. Therefore, when we combine both the corporate governance and capital structure arguments, it’s very useful that we consider an internal optimum for the payout of all dividends.

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The recommendations that we can give to the company is that; the company should purchase stock and also have control over its dividends so that the company can have control of itself and also have an enhancement that the company gets more dividends when they are issued to its members so as to have control over liquidity. References Almeida, H. and D. Wolfenzon, 2006, “A theory of pyramidal ownership and family business groups,” Journal of Finance 61, 2637-2680. Burkart, M. Vishny, 2000, “Agency problems and dividend policies around the world,” Journal of Finance 55, 1-33. Morck, R. D. Wolfenzon, and B. Yeung, 2005, “Corporate governance, economic entrenchment and growth,” Journal of Economic Literature 43, 657-722.

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