Analysis On Financial Statements Economics Essay

Analysis On pecuniary Statements Economics EssayATandT Inc. (NYSE T) is a United States telecommunications corpo balancen headquartered in Texas. Founded in 1983 as SBC Communications, it became ATT Inc. upon purchase of ATT Corporation in 2005. It is the leading U.S. provider of wire-line and tuner communications. ATT delivers 3G wireless services through ATT Mobility LLC, a wholly-owned subsidiary. Other major divisions admit broadband inter last(a), digital television, directory publishing, and argumentation communications.In 2006, ATT Inc. acquired BellS kayoedh communications corporation, take to bed at $86 gazillion, absorbing its wire-line, wireless, and broadband interests. ATT has stated specific rising goals in 4G wireless, speech recognition, telehealth, and digital convergence. Recently, ATT selected Alcatel-Lucent and Ericsson as equipment providers for its LTE (4G) wireless deployments. ATT has over 150 one million million million customers and 280,000 employee s. ATT reported a $124 million operating revenue and $23 meg terminate income as of Dec. 31, 2008.Verizon Communications Inc. (NYSE VZ) is a United States telecommunications corporation headquartered in New York. It was founded in 1983 as Bell Atlantic. Bell Atlantic acquired GTE Corp. in 2000 and changed its name to Verizon Communications Inc. It is the second largest U.S. provider of wire-line and wireless voice services. Verizon wireless is a joint venture, with Vodafone Group holding 45 percent ownership. with its FiOS product, Verizon provides fiber-optic delivery of internet, television, and digital voice. Other major operations parcel out IP networks, applications, and professional services for business line.In 2008, Verizon stated its goal to make it ATT as the U.S. market place leader in wireless voice and data communications in the United States. It is aggressively pushing fiber-optic deployments to assail industry-wide access-line losses. Verizon has over 91 m illion customers and 220,000 employees. Verizon reported a $97 one million million operating revenue and $6.5 billion net income as of Dec. 31, 2008. relaxation airplane unusual breaker pointsATTAt Dec. 31, 2008, ATT reported a current ratio of 0.53, and a long-term assets / long-term liabilities ratio of 1.92. This mismatching indicates that also much short-term fiscal support has been used to acquire long-term assets. ATT may have problems meeting its short-term obligations without supererogatory re fiscal backing. If additional financing batchnot be obtained, a lack of asset liquidity poses a bankruptcy risk.At Dec. 31, 2008, ATT reported good result at $71.8 billion, accounting for about 27% of their total reported assets. This stems from ATTs aggressive learnedness strategy. The towering measuring rod poses a great asset impairment risk. however losses, not gains, can be enter for goodwill. If the acquired entities lose value, as judged by an yearly impairment test, the loss of preserve assets and corresponding write-offs against stockholders equity can be substantial.VerizonAt Dec. 31, 2008, Verizon reported wireless licenses valued at $62.0 billion. These ar indefinite-lived intangible asset which account for 30.6% of Verizons total assets. Wireless licenses atomic number 18 super important for a telecommunications comp both, besides placing much(prenominal) large valuation on an intangible is a undecomposed risk. Estimating average value is very subjective, and any significant write-offs (as judged by a periodic impairment test) could affrighten stockholders corporate trust.At Dec. 31, 2008, Verizon reported funds and cash equals of $9.8 billion. Having much(prenominal) a large amount of cash and cash equivalents (investments with a maturity of 90 days or less) is good for liquidity. However, a significant portion of this $9.8 billion could be reborn to less-liquid, extravagantlyer-interest investments that mature within a year, or even long-term investments. Having so much cash-on-hand is a problem because it is not being invested to generate additional value to the business.Income Statement unusual itemsATT At Dec. 31, 2008, ATT reported basic earnings-per- helping of $2.17. During the said(prenominal) period, their nearest market competitor, Verizon, reported $2.26 basic earnings-per-share. To the common stockholder, this is one of the closely important factors to suck in and maintain investment. Unless ATT can achieve high earnings-per-share, investors will be much likely to invest in their competitors, posing a threat to ATTs future(a) growth.At Dec. 31, 2008, ATT recorded a net new(prenominal) income (expense) of -$589 million (versus +$615 million in 2007). A closer look at tone 4 to the financial didacticss reveals that this is entirely attri merelyable to Consolidation and excrement expenses. Reorganization due to acquisition and restructuring has been a significant part of A TTs market-growth strategy, but they must take care not to incur excessive expenses for the pastime of growth. That could lead to an general loss of competitiveness and lack of stockholders confidence.VerizonAt Dec. 31, 2008, Verizon recorded a net income of $6.4 billion. Their nearest market competitor, ATT, posted a net income of $12.9 billion. In terms of absolute numbers, this gives Verizon less power in the market and also serves as an indication to investors that Verizon might not be managing its contribute well enough. Income is essential to future value creation and expansion, so Verizon should hand to im substantiate operational efficiency and attain an income thats more than aligned with (or break out than) its competitor.At Dec. 31, 2008, Verizon recorded a net profit margin (ratio of net income to revenues) of wholly .066, up from their 2007 profit margin of .059, but still get off than their 2006 profit margin of .070. In general, Verizons profit margin seems l ow compared to separatewise U.S. telecommunications corporations (especially ATT), a sign of managements in tycoon to recall strong returns. This weak financial performance should raise concerns for shareholders and financers, and it poses a survival risk to Verizon.Cash carry Statement unusual itemsATT In 2008, ATT issued $9.5 billion in dividends to stockholders (which has been increasing piecemeal since 2004). Consistent dividends are good to attract sustained stockholders confidence and investment, but a dividend payout of $9.5 billion is unusually high. By paying out too many excess funds to stockholders, ATT may be missing out on more lucrative investment opportunities that would generate better returns. In 2008, ATT reported $5.6 billion in accounts payable and accrued liabilities. This amount, due to ATTs suppliers or banks, must be paid off within 12-months in request to avoid default. This significantly high amount is a constraint against ATTs on the job(p) capita l. If the attach to is not able to fully pay off the debt in time, its future operations could be hindered.Verizon In 2008, Verizon reported net $15.9 billion in acquisitions of licenses, investments, and businesses. Such a substantial investment introduces a high level of business risk. If Verizons investments do not demonstrate profit susceptibility, not only will significant funds have gone to waste, but more doubt will be cast on the corporations future investing decisions by investors and financers.In 2008, Verizon accumulated net cash inflows from financing activities of $13.6 billion. In particular, $21.6 billion were proceeds from long-term borrow, objet dart there was a refund of only $4.1 billion in long-term borrowing and capital take obligations. It seems that Verizon is using this leverage to achieve their investing activities discussed previously. Such aggressive financing this fiscal year can put heavy constraints on Verizons ability to acquire additional financ ing in future years. Verizon is in a precarious position where, if they cannot repay the financing in a punctual manner, they enter a high risk of declining into bankruptcy.Notes to Financial Statements unusual itemsATT At Dec. 31, 2008, ATT reported that $14.1 billion of its outstanding debt would mature within one year, compared to just $6.9 billion in the previous year (see Note 8). This current debt introduces a liquidity problem, since ATT must be able to generate enough cash in the next year to repay its financers. This is a significant business risk for AT&T if it is futile to dressing its debts in time, its future financing options will be limited and its business operations could be in jeopardy.As of Jan. 1, 2007, ATT indicated a loss of $123 million in goodwill related to the settlement of IRS audit in its wireless segment (see Note 6). Excess goodwill is already a problem because a high risk of asset impairment is introduced, but devaluation due to an IRS audit raise s serious concerns about managements judgment for proper accounting. Investors are cautious about missteps such as this, and a recurring incident could further unsettle their confidence in ATT.VerizonOn Jan. 9, 2009 (beyond the reporting date of the financial arguments), Verizons wireless segment closed the acquisition of Alltel Corporation, paying $5.9 billion for its equity, but also getting $22.2 billion of its debt obligations (see Note 2). Acquiring such a massive debt puts Verizon at a significant financing risk. The notes reveal that Verizon has relied on credit to straight cover the acquisition cost and debt prepayments, with $2.5 billion debt that remains outstanding. Verizon faces emf insolvency in other words, a high risk of adequate repayment and future refinancing.At Dec. 31, 2008, Verizon reported obligations for all defined benefit pension plans at $29.4 billion (see Note 15). The future collection of this large liability poses a financial risk to Verizon, should they not be suitably prepared to cover the costs. Along with Verizons already large debt obligations, this is a noteworthy threat to the participations viability.Balance Sheet differencesAt Dec. 31, 2008, ATT had a debt-to-equity ratio of 1.75 (total liabilities / total equity) and Verizon had a debt-to-equity ratio of 3.85. ATT and Verizon hold similar levels of total liabilities ($169 and $161 billion, respectively), but ATT has a great count more stockholders equity ($96.3 versus $41.7 billion, respectively). ATTs much larger stockholder interest provides change magnitude financial flexibility and an ability to service its debt, in comparison to Verizon which should be more cautious in its debt accumulation, at risk of being unable to generate enough cash to satisfy its debt obligations. ATTs dismount debt-to-equity ratio may boost stockholders confidence since their investments are better protected in the incident of business decline. On the other hand, ATTs lower debt-to -equity ratio may hint that it is not taking advantage of enough financial leverage to generate increased profits.At Dec. 31, 2008, ATT lists Customer Lists and Relationships as a long-term asset valued at net $10.6 billion. Verizon does not such an item listed on their balance sheet, but Note 4 to the financial statements reveals that customer lists and relationships are a net $820 million component of Other Intangible Assets. This item is a limited-life intangible asset, and is subject to amortization accumulation. The relatively similar size of it of each companys customer base suggests that these valuations shouldnt be so drastically different. Estimating fair value of customer lists and relationships is very subjective, based on how each company judges the ability to generate returns. ATTs high valuation compared to Verizon leads to higher annual write-offs of the asset. Stockholders confidence could be shaken by too high write-offs arising from higher valuations, so Verizon s more conservative valuation may be safer in the long-term.Income Statement differences As of 2008, ATTs income statements divide operating revenues into five segments wireless service, voice, data, directory, and other. Verizons income statement only specifies a catch-all operating revenues item, but Note 17 to the financial statements identifies two segments domestic wireless and wireline. Both companies wireless segments are equivalent in scope. Verizons wireline segment is the equivalent of ATTs voice data segments combined. Notably, ATT has a more diversified business portfolio, including its directory services which include the publishing of print directories, directory advertising, internet-based advertising, and topical anesthetic search and the other segment which includes information services, payphone, and corporate operations. The presentation of ATTs income statement emphasizes their diversity of operations in comparison to Verizon. This shows two different approach es to business diversification. For Verizon, if one of its two segments were to fail, the financial impact would be catastrophic. For ATT, the failure of a single segment would be less severe on the company as a whole. Verizon lists nonage interest as a searching item under operating income with a recorded expense of $6.16 billion. ATT does not list a distinct item, but Note 4 to its financial statements indicate that $256 million of minority interest expense is part of its other income (expense) item. Minority interest expense refers to the share of profit belonging to minority shareholders. In this case, Vodafone owns a 45% interest in Verizon Wireless and receives that share of the generated income. For Verizon, this is a very large amount of income that it could be collecting for itself, if it was to take full control of its wireless subsidiary. If Verizon recognized the full income of its wireless subsidiary, its overall net income would be more competitive with ATT. Also, by giving Vodafone such a large stake in its wireless subsidiary, there is the potential for a future takeover.Cash Flow Statement differences In 2008, Verizon recorded $13.6 billion in net cash provided by financing activities, magic spell ATT recorded $4.7 billion in net cash used in financing activities. That is, Verizon acquired net debt in its financing activities, while ATT was able to pay back more financing that it acquired. Because of this, ATT shows more financial solvency than Verizon, as its ability to repay previous financing activities boosts shareholder confidence and enhances its record as a reliable borrowing partner for future financing. Verizons big borrowing introduces significant business risks and a potential for bankruptcy if their operations dont return considerable income. On the other hand, Verizons aggressive financing activities may prove beneficial if it uses the finances to successfully grow its market-share, which would be a threat to ATT. In 2008, Veri zon recorded $1.4 billion of purchase of common stock for treasury, while ATT recorded $6.1 billion of the same. The goal of these treasury stock repurchases is to increase the value of the shares held by stockholders. Both ATT and Verizon have repurchased shares over the past 5 years, with ATT averaging $4.3 billion in repurchases per year versus Verizons $1.3 billion per year. ATTs consistently larger repurchasing may signify that it views its shares as undervalued, or that it wants to improve its reported earnings-per-share. As noted earlier, ATTs 2008 earnings-per-share were $0.09 lower than Verizons, so this might be a legitimate strategy to attract future stockholder investment. However, the consistent treasury stock repurchases may be a sign that ATT is struggling to obtain legitimate interest from investors, so they are instead just acquiring their own shares to inflate the stocks value.ReferencesATT Inc. 2008 annual Report. ATT Investor Relations. Online. .ATT Inc. Form 1 0-K 2008. Rep. no. 1-8610. Washington, DC United States Securities and Exchange Commission. Online. .ATT Investor Relations. ATT Official Site. Web. 16 Feb. 2010. . ATT. Wikipedia, the free encyclopedia. Web. 12 Feb. 2010. .Top 10 Profit Margins by Industry, telecommunication Domestic. The Online Investor. Web. 20 Feb. 2010. .Verizon Communications Inc. 2008 Annual Report. Verizon Investor Relations. Online. .Verizon Communications Inc. Form 10-K 2008. Rep. no. 1-8606. Washington, DC United States Securities and Exchange Commission. Online. .Verizon Company Profile. Verizon Investor Relations. Web. 17 Feb. 2010. .Verizon Communications. Wikipedia, the free encyclopedia. Web. 12 Feb. 2010. .