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Portfolio AT&T Horizontal and Vertical Analysis - Essay Example

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Portfolio AT&T Horizontal and Vertical Analysis

AT&T had a net margin of 11.93%. In comparison with the industry average net margin of 7.8% the firm’s net margin is 4.03% higher (Dun & Bradstreet, 2012). As of September 30, 2012 the total assets of AT&T were $266,849 million dollars. In comparison with fiscal year 2011 the total assets of the firm decreased by 1%. ”Total assets include cash and other items of value that can be converted into cash that are owned by a person or company” (Crutchfield, 2012).The current assets of the company in 2012 were $18,958 million which represents a decline in current assets of $4,069 million in comparison with the previous year. Based on the vertical performed the current assets of the company represent 7% of total assets. The current and total liabilities of the company during 2012 were $30,758 million and $165,575 million respectively. The current ratio shows the ability of the company to pay off its current debt. AT&T’s current ratio during 2012 was 0.62. The current ratio of the company is bad considering the fact that a good current ratio is above the 1.0 threshold. The formula to calculate current ratio is current assets divided by current liabilities. AT&T must improve its current ratio; otherwise the company might face liquidity problems. The return on assets (ROA) metric measures how profitable a company is in relation to its total assets (Investopedia, 2012). A high ROA is the preferable outcome. During 2012 the return on equity of the company was 4.24%. In comparison with the industry average of 17% AT&T is not exploiting and generating sufficient income from its assets (Dun & Bradstreet, 2012). The return on equity of AT&T in 2012 was 11.17%. Return on equity (ROE) is calculated by taking a year's worth of earnings and dividing them by the average shareholder equity for that year (Fool, 2012). The firm’s debt ratio is 0.62. A debt ratio is a financial metric that measures how much debt a company has in relation to its assets. The firm’s debt to equity ratio is 1.63. The debt to equity ratio is calculated dividing total equity by the total assets of the company. The financial analysis performed on AT&T shows that the company has good profitability, but the firm seems to be using too much debt to finance its operations. The low current ratio of the company is a warning sign. Assuming the company enjoys the same revenue growth of 1% in the following fiscal the projected sales of the company in 2013 are $95,162 million. Credit Worthiness The creditworthiness of a corporation can be evaluated in a variety of ways. Corporations just like individuals have credit scores from the major credit agencies. This information is private and not accessible to the general public. Banking institution gain access to a firm’s credit scores whenever a firm applies for a loan or others financial instruments. An investor can evaluate the credit worthiness of a firm using a combination of ratios. The current ratio measures a firm’s ability to pay off its current or short term debts. The debt to equity and debt ratio are two good indicators of how much leverage a firm has in the long term. Comparing these ratios to the industry standard is a good way to determine the credit position of the firm. Management Discussion and Analysis Four key findings for the MD&A section of the annual report of AT&T are: The future of wireless growth depends on the ability of companies to provide new innovative services and devices. The managerial staff ...Show more

Summary

The total revenues of AT&T during fiscal year 2012 were $94,220 million. The firm’s revenues increase by 1% in comparison with the previous year. AT&T’s operating expenses in 2012 went down by $111 million. The vertical analysis illustrated that in comparison to its sales operating expenses are 80% in 2012…
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Portfolio AT&T Horizontal and Vertical Analysis essay example
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