finance

Memo

To:

From:

Date:

Subject: Financial Statement Analysis

A.) Description of Companies:

The company was formerly known as SBC Communications Inc. and in November 2005 changed its name to AT&T Inc. AT&T, Inc. was founded in 1983 and is based in Dallas, Texas. It provides telecommunications services to businesses and consumers in the United States and internationally and sells various handsets, wireless computers, and personal computer through its owned stores, agents, or third-party retail stores. Its Wireless segment offers various wireless voice, data, text, and other services. As of December 31, 2013, this segment served approximately 110 million wireless subscribers. It served approximately 12 million retail consumer access lines, 2 million wholesale access lines and 10 million in retail business. The company has relationship with IBM to provide businesses with a source for network security and threat management. Full time employees working are 243360.

T-Mobile headquarter are in Bellevue, Washington. It operates as a subsidiary of Deutsche Telekom Holding B.V. It provides services relating to mobile communications under the brand names like MetroPCS, T-Mobile, and Go Smart brands in the United States and U.S. Virgin Islands. It provides postpaid and prepaid wireless voice and provides messaging and data services. The company also provides smart phones; notebooks and tablets; and data cards. It sells services, handsets, and accessories to consumers through the company’s owned and operated retail stores, and to dealers and other third party distributor. On February 25, 2014, the company provides services to 46.7 million wireless customers through its network. Full time employees working are 40000.

Reason behind choosing these companies is that they provide services relating to telecommunication and wireless communication and relate to technology sector which is requirement of current situation as world is converted into techno field and mobiles are becoming as a necessity of today’s generation therefore research of these company would be an interesting topic of discussion.

B.) Capital Structure:

Capital structure of AT&T includes long term debt of $71575 on 31 march 2014 and total stock holder’s equity of $91369.

While capital structure of T-Mobile Company includes long term debt to affiliates $5600, long term debt $14331 and long term financial obligation of $2504 as on 31 march 2014.

And total stock holder’s equity of $14156 (Ghosh, 2012).

C.) Ratio Calculation:

Liquidity ratio:

AT&T Company

Current ratio= Current asset/Current Liability

Current Asset=$24089

Current liabilities=$39830

Current ratio= 24089/39830=0.604

T-Mobile Company

Current ratio=12957/6110=2.12

Current asset=$12957

Current Liabilities=$6110

Current ratio is used for measuring financial strength of company. Higher the current ratio more better is company is to pay its obligation. Current ratio of less than 1 is a cause of concern for company. Since current ratio of T-mobile is favorable is more than AT&T company it will be more able to pay its obligation (AT&T Inc T, 2014).

Solvency Ratio:

AT&T Company

Debt equity ratio: Debt/Equity= 0.783

Debt-$71575

Equity-$91369

T-Mobile Company

Debt equity ratio=1.58

Debt:$22435

Equity-$14156

Debt Equity ratio indicates what is the proportion of equity and debt in which company is using to finance its assets. Lower debt equity ratio is favorable since it indicates less risk since ratio of AT&T Company is less it is favorable (Tracy, 2012).

Profitability ratio:

AT&T Company:

Earnings per share=$0.70

Return on equity: (Net income- Preference dividend)/Average common stockholders’ equity

ROE=3652/91425.5*100=3.99%

Net income-$3652

Average equity shareholders: $91369+$91482/2=91425.5

T-Mobile-

Earnings per share: (0.19)

ROE-(151)/14200*100 = (1.06) %

Net loss-($151)

Average stock = ($14156+$14245)/2=14200.5

ROE measures profitability of shareholders investments and company. Higher values are considered favorable that means company is efficient in generating income on its investment. Since AT&T Company has higher ROE it is favorable. And EPS of AT&T is good as compared to other company it is favorable.

c.) Accounting policy identified in T-mobile Company is that they recognize their inventory lower of cost or market value and cost is determined using standard cost which is approximately average cost. And in AT&T Company inventory is included in other current asset and valued at lower of cost or market value.

d.) As per the ratio calculated above investment should be made in AT&T company as its solvency and profitability ratio is at advantage since its debt equity ratio is lower than of T-mobile mobile company i.e.0.783 and its profitability ratio which includes return on equity and earnings per share is also favorable then T-mobile as ROE is 3.99% and EPS is 0.70 while ROE and EPS of T-Mobile are negative. While T-mobile Company only liquidity ratio is at advantage since it is higher than that of AT&T Company (T-Mobile US Inc, 2014).

References

AT&T Inc T. (2014). Retrieved from Morning star: http://financials.morningstar.com/ratios/r.html?t=T&region=usa&culture=en-US&ownerCountry=USA

Ghosh, A. (2012). Capital Structure and Firm Performance. USA: Transaction Publishers.

T-Mobile US Inc. (2014). Retrieved from Morning star: http://financials.morningstar.com/ratios/r.html?t=TMUS&region=usa&culture=en-US

Tracy, A. (2012). Ratio Analysis Fundamentals. RatioAnalysis.net.

Appendix

A). AT&T Company

AT&T INC.
CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts
(Unaudited)
		Three months ended
		March 31,
		2014			2013
Operating Revenues		$	32,476			$	31,356
Operating Expenses
Cost of services and sales (exclusive of depreciation
and amortization shown separately below)			13,321				12,554
Selling, general and administrative			8,260				8,333
Depreciation and amortization			4,617				4,529
Total operating expenses			26,198				25,416
Operating Income			6,278				5,940
Other Income (Expense)
Interest expense			(860	)			(827
Equity in net income of affiliates			88				185
Other income (expense) – net			145				32
Total other income (expense)			(627	)			(610
Income Before Income Taxes			5,651				5,330
Income tax expense			1,917				1,557
Net Income			3,734				3,773
Less: Net Income Attributable to Noncontrolling Interest			(82	)			(73
Net Income Attributable to AT&T		$	3,652			$	3,700
Basic Earnings Per Share Attributable to AT&T		$	0.70			$	0.67
Diluted Earnings Per Share Attributable to AT&T		$	0.70			$	0.67
Weighted Average Number of Common Shares Outstanding – Basic (in millions)			5,222				5,513
Weighted Average Number of Common Shares Outstanding – with Dilution (in millions)			5,238				5,530
Dividends Declared Per Common Share		$	0.46			$	0.45

B).

CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
		March 31,			December 31,
		2014			2013
Assets		(Unaudited)
Current Assets
Cash and cash equivalents		$	3,611			$	3,339
Accounts receivable - net of allowances for doubtful accounts of $483 and $483			13,120				12,918
Prepaid expenses			1,000				960
Deferred income taxes			1,171				1,199
Other current assets			5,187				4,780
Total current assets			24,089				23,196
Property, plant and equipment			278,862				274,798
Less: accumulated depreciation and amortization			(166,053	)			(163,830
Property, Plant and Equipment – Net			112,809				110,968
Goodwill			69,720				69,273
Licenses			59,584				56,433
Other Intangible Assets – Net			6,515				5,779
Investments in Equity Affiliates			3,613				3,860
Other Assets			9,010				8,278
Total Assets		$	285,340			$	277,787
Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year		$	8,301			$	5,498
Accounts payable and accrued liabilities			22,234				21,107
Advanced billing and customer deposits			4,121				4,212
Accrued taxes			2,784				1,774
Dividends payable			2,390				2,404
Total current liabilities			39,830				34,995
Long-Term Debt			71,575				69,290
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes			36,448				36,308
Postemployment benefit obligation			30,029				29,946
Other noncurrent liabilities			16,089				15,766
Total deferred credits and other noncurrent liabilities			82,566				82,020
Stockholders’ Equity
Common stock ($1 par value, 14,000,000,000 authorized at March 31, 2014 and
December 31, 2013: issued 6,495,231,088 at March 31, 2014 and December 31, 2013)			6,495				6,495
Additional paid-in capital			91,027				91,091
Retained earnings			32,402				31,141
Treasury stock (1,300,637,055 at March 31, 2014 and 1,268,914,913
at December 31, 2013, at cost)			(46,684	)			(45,619
Accumulated other comprehensive income			7,666				7,880
Noncontrolling interest			463				494
Total stockholders’ equity			91,369				91,482
Total Liabilities and Stockholders’ Equity		$	285,340			$	277,787

C). T-Mobile Company: