Financial Analysis of AT &T
Introduction
As one of the most developed in the world, the American telecommunications industry has grew to be among the most profitable and traded industries. With the invention and growth of mobile telephony, most corporations in this industry have increasingly become highly profitable and fastest developing in the United States (Poblet, 2012). However, the industry is a highly competitive, with large companies taking active measures to ensure that they lock in as much customers as possible and making it difficult for new entrants. With its headquarters in Dallas, Texas, AT&T provides telecommunication services to American public, consumers, corporations, business, institutions and other entities. According to Luckerson (2012), AT&T is considered as a highly diversified telecommunication services. In fact, it is one of the oldest companies of its kind, given that it traces its roots to the Bell Company founded by Alexander Graham Bell, the telephone inventor, in 1876. It has grown to be the largest and the leading landline and mobile service provide in North America. With the invention of the internet technology, AT&T has been providing Universe, an ultrahigh speed internet connection to its customers. Moreover, it provides high definition cable pay TV services. In addition to the American consumers, the company has gown global, providing wireless phone and mobile data service in more then 200 countries throughout the world (Poblet, 2012). The company’s leadership is well developed, with a clear focus on sustaining competitive advantage over its competitors such as Verizon and others (Luckerson, 2012).
The purpose of this paper will provide a clear financial analysis of AT&T Company in order to determine its potential as a base for investment. As shown by the balance sheet, income statement and cash flow statement over the last four years, the company has the potential to attract outdo its competitors in a highly competitive market, which further provides the investors with a clear platform to compare the performance at AT&T and its competitors. Arguably, the company’s performance over the last four years, its ability to withstand financial crisis and the ability to maintain a competitive advantage over its competitors provide enough proof that the company is the best choice for investors to make good use of their investments.
Company Overview
AT&T Company traces its origins back to 1875 when Alexander graham bell invented his telephone. Sometimes in 1885, the company was formed as a subsidiary of the mother company, the American Bell company, with an aim of establishing a comprehensive network for communication over long distances in North America (AT&T Inc, 2012). Around 1892, the company reached Chicago from New York, and by 1915, it had covered San Francisco. Towards the end of 19th century, the company acquired the majority stake at Bell Company, becoming the parent company (Poblet, 2012). After the expiry Bell’s patent for telephony, it became free and opened to other companies to invest in the relatively new industry. Despite the entry of new companies, AT&T remained profitable, especially with its invention of loading coils for enhancing signal quality (Luckerson, 2012).
Services
Currently, the company provides a wide range of services, from landline connection to wireless telephony, mobile internet and data services, high-speed internet connection and pay-TV services.
One of the main products at AT&T is the Local Phone Service, which supports normal daily telephone calls to its customers. Despite the advancement in mobile technology, local communications and telephone services remain an important means of communication in the United States (Luckerson, 2012). This service comes with a package of plans available for consumers, including call waiting, caller ID, three-way calling, call forwarding and other services (AT&T Inc, 2012).
Secondly, long distance service is an important product for AT&T. it provides the consumers with the AT&T Unlimited Plus Plan, which allows for long distance calling at reduced prices.
High-speed internet connection is a service provided by AT&T that features a wide range of internet connection speeds at varying prices (AT&T Inc, 2012). The Universe internet plan is included in this category, and alongside the AT&T Elite high-speed internet package, provides the consumers with a fast intent connection to their PCs (AT&T Inc, 2012).
The AT&T VoIP phone service is provided through the AT&T U-verse plans. This service allows the consumers to receive unlimited long distance as well as local calls at any time within the North American region as well as in Puerto Rico (Luckerson, 2012).
The AT&T Wireless phone service offers its customer with unlimited calls for mobile-to-mobile users at varying prices.
Finally, AT&T TV service is a relatively new product the company offers to the public, focusing on entertainment through high-quality TV programs. In this category, AT&T/DIRECTV and AT&T U-verse TV are available to the American public (AT&T Inc, 2011).
Financial performance
Review of financial statements
Since 2006, the company has gone under economic stress, especially due to the impact of economic crisis in the United States, increasing competition and a slowed economic growth. However, its competitiveness is significantly an important strategy that have seen it survive the harsh economic period, which proves its ability to provide good returns to its investors.
This analysis will consider AT&T’s financial statements between 2007 and 2011. This provides the analysis with the chance of comparing the company’s financial performance over the entire period during the financial crisis in North America in order to have a view of how the company survived the economic hardships. The focus will be on the company’s balance sheet, the income statement and the cash flow. In addition, there is need to compare and contrast these financial statements with those of competitors such as Verizon, T-mobile and Sprint Nextel.
From a review of the company’s balance sheet, it is evident that the total assets between 2007 and 2011 fiscal years decreased by 1.95%, while its total liabilities increased by 2.66%. Similarly, the company’s stockholders equity experienced 9.32% decrease within the same period (AT&T Inc, 2012). Despite the fact that these changes are significant t to the company’s books of accounts, they should not be considered as a huge change in the company’s overall performance at the period, considering that the period spans over five fiscal years. In fact, it is worth noting that while this change may seem insignificant, it was recorded during the economic crisis, when most companies in the region experienced heavy losses and poor performance.
By 2011, the company’s current ratio stood at .75, compared to the same ratio of .65, 1.59 and 1.01 for T-Mobile, Sprint and Verizon respectively. In fact, it is worth noting that there is no need to increase AT&T’s ratio to 1.0. This ratio provides an indication that for every liability worth $1, the company has 0.75 cents of liabilities in its assets (AT&T Inc, 2012). Diversified telecommunication services, unlike other types of companies, do not have general indebtedness one of their main financial characteristics. When focusing on the American telecommunication industry, it is surprising to note that only T-Mobile and AT&T have their current rations well below 1.0. However, recent financial statements indicate that Sprint Mobile is almost reaching this mark.
Despite this, there is need for AT&T to focus on its performance by adjusting a number of issues in its financial statements. For instance, incase of its balance sheet, there is need for adjustments by lowering liabilities and simultaneously increasing its assets by a significant margin in order to fix the current problem in its balance sheet. Despite this small problem, it is financially worth arguing that the balance sheets obtained from the company over a period of five years provide some proof that the company has a health state of finances and that if it keeps this momentum, its financial state will remain healthy and attractive to investors over the next decade.
Stock analysis
Turning to the income statement for AT&T over a five-year period is important in determining the future of both the company and its industry. First, the volume of sales between 2007 and 2011 fiscal years grew from $118,928 million in 2007 to $126,723 million by the end of 2011 financial year. This is actually a 6.55% increase in sales, which further proves that the company was still growing despite the economic crisis and a saturated market. Verizon recorded an enormous growth of 18.62%. However, it could not match with AT&T because its volume of sales was considerably lower (AT&T Inc, 2012). Verizon’s sales increased from $93,469 million in 2007 to 110,875 in 2011. Between the top two competitors, Sprint and T-Mobile have been shown to be the least growing companies. For instance, Sprint recorded decrease of -16.11% in its sales within the same period. In fact, Sprint’s sales decreased from a record of $40,146 million in 2007 to $33,679 million at the end of year 2011. On its part, T-Mobile recorded a decrease of -16.90% in sales, whose value dropped from $93,694 million in 2007 to $77,857 million in 2011 (AT&T Inc, 2012).
The net income analysis indicates that AT&T experienced a reduction of 67% in its net income over a span of five years. In actual sense, this is a loss of the same percentage, which is dangerous if taken at face value. However, it is worth noting that the company’s net income increased from $11,951 in 2007 to $19,684 million in 2011, a recorded increase by 66.2%. From an in-depth analysis of the company’s performance in 2011, it is worth noting that the last quarter recorded a little higher income than the preceding 3 quarters. For instance, the total revenue increased rapidly along an even increase in its cost of sales. In fact, the quarterly average sales more than doubled in this period, followed by an increase in the administration expenses. Thus, the net income of the last quarter of 2011 financial year underwent a loss of about $6,678 million. According to analysts, this loss can be attributed to the attempted but failed merger between the company and one of its main challengers in the industry, the T-Mobile, in 2011. In this case, it is evident that the company had to take a loss of about $4.1 million used in paying T-Mobile in form of wireless spectrum as well as cash. This event was caused by the government decision that forced the company to pay T-Mobile after the attempted merger deal collapsed (Goldstein, 2012). Despite this troubling event, the company did well over the entire five-year period, which further provides an indication that AT&T is still an attractive company for investors who seek to invest in ventures at minimum risks.
The cash flow statement for AT&T over the five-year period provides further clarification that investing in the company will not be risky. For instance, there have been little fluctuations in operating activities, financial liabilities as well as in investing activities. The company’s net cash flow stood at $34,648 as at 2011, which proves an ability to maintain growth over a period affected by a stiff competition and a financial crisis (AT&T Inc, 2012). It is worth noting that the company’s outflow of cash due to investing activities and an inflow of cash caused by operating activities are important in determining the state of financial health over a given financial period. In this case, it is clear that AT&T’s state of health is good for such a company that operates in a competitive and highly dynamic industry.
Finally, to make a good comparison between the performance of AT&T and that of its competitors, it is important to review of key metrics in each company. First, the long-term solvency ratio analysis is important in describing the financial advantage for each company. In addition, it shows the level of aggressiveness for each company in using debt to fiancé growth. The lower the aggression, the healthier the company is. In this case, AT&T had a solvency ratio of 61.27% compared to its competitors that had 165%, 143% and 133% for Sprint, Verizon and T-Mobile respectively. With such a large ratio, it is clear that AT&T is stronger than the others are, meaning that it is less indebted than its competitors are.
Secondly, the ratio of receivable turnover describe the rate at which a company collects debts from its clients- the higher the figure, the healthier the company. Here, there is only a thin line of differences between the flour companies. For example, AT&T has a turnover ratio of 9.47 for the five years, which compares to 9.71, 9.28 and 10.86 for Verizon, T-Mobile and Sprint receptively. The closeness of these figures indicates an inherent characteristic of the industry.
The profit margin ratio is a critical aspect in comparing performances of difference companies. In fact, the ratio is more informative than other ratios as it clearly describes the performance of a company (Goldstein, 2012). In this case, AT&T’s profit margin for the five-year period stood at 3.24%, compared to the competitors at -9.72%, 2.36% and 4.45% for Sprint, Verizon and T-Mobile respectively (AT&T Inc, 2012). From this analysis, it is clear that AT&T is the best performing company, followed by Verizon, but Sprint is the worse in performance.
Vulnerability to threats
From the above analysis of the company and its competitors in the industry, it is clear that AT&T has emerged victorious from the recent economic crisis in the North America. In fact, it has outdone its competitors in financial performance and profitability. It was able to sail through the difficult economic crisis, despite massive companies closing business due to financial difficulties. Recent trends, recorded in 2011 performance, indicate an increasing growth in all aspects, which means that the company’s future is now safe.
References
AT&T Inc. (2011). A Five-year financial review, 2006-2010. Dallas, TX: AT&T.
AT&T Inc. (2012). Annual report 2011. Dallas, TX: AT&T.
Goldstein, P. (2012). Verizon’s McAdam: AT&T, Sprint and T-Mobile all ‘playing catch up’. Retrieved from http://www.fiercewireless.com/story/verizons-mcadam-att-sprint-and-t-mobile-all-playing-catch/2012-12-04
Luckerson, V. (2012). Unlimited Data Plans: Are They Coming Back From the Dead? Business times. Retrieved from http://business.time.com/2012/08/23/unlimited-data-plans-are-they-coming-back-from-the-dead/
Poblet, M. (2012). Mobile Technologies for Conflict Management. New York, NY: Springer
