Financial analysis on AT&T

AT&T Inc. is the largest provider of both local and long distance telephone services, wireless service, and DSL Internet access in the United States with 71.4 million customers. As it is expanding a look into its financial statements is important, hence this essay will further evaluate and analyze its financial performance.

Its operating revenues and operating income keep increasing during 2003 until 2007. In 2003 operating revenue was $40498 billion, rising to $118928 billion in 2007; creating an increase of 193.664%3. As well, operating income increases from $6284 billion in 2003 to $20404 billion in 20073; meaning an increase of 224.697%.

This means that AT&T are able to attract more customers to use their services, which could result from an effective marketing plan and strategy, special offers and discounts, better service, etc. But AT&T didn’t manage its expenses efficiently, since its expenses demands 84.48% of sales in 2003, while in 2007 expenses demands 82.84% of sales3. Although it shows a little improvement, but expense ratio is still high; since its operating revenue is high while operating income is low. Not to mention that there are other expenses, such as interest expenses (which demands 17.188% of operating revenue in 20073) and income taxes (which demands 30.646% of operating revenue in 20073), hence creating an income of $11951 billion in 20073. Hence the company should identify, analyze and control its fixed and variable costs. This could be exercised by developing cost centers, which are particular areas, departments or sections of a business to which costs can be directly attributed to4; hence enabling the business to compare sales with each individual costs and thus allows AT&T to identify excessive costs. Costs could also be reduced by providing training to employees, while it will increase costs in the short-term, profits would be enhance in the long term since productivity and quality of service would increase.

But it accounts receivable turnover ratio of 7.35 days (in 2007) is well managed3, since debtors usually have 30 days to pay their debts. Managing its accounts receivable effectively means the company has effectively managed its credit policy as well as showing that it is efficiently collecting its debts. But is has worsened if compared to 2006, where its account receivable ratio was 3.89 days3. The company could provide discounts in order to encourage debtors to pay sooner or it could also use factoring where accounts receivable for a discounted price to a finance or factoring company (the business will receive 90% of amount of its receivables within 48 hours)5. An improved accounts receivable will also enhance its current ratio or liquidity.

Moreover its current ratio showed 0.248:1 in 2006 improving to 0.287:1 in 20073. Nevertheless it still shows risk of not being able to finance its current liabilities. Not being able to finance its debts shows risk of bankruptcy, as financial institutions have first claim of any money in the business in the event of liquidation. One way of improving this is to increase sales by improving its marketing strategies, such as redesigning its advertisements, creating closer relationships with customers, improving its service, etc.

Furthermore its debt-to-equity ratio in 2006 showed 0.559:1 and 0.553:1 in 20073. A debt-to-equity ratio shows the extent to which a firm is relying on debt or outside sources to finance the business6 and showing the ratios above, AT &T is solvent and thus encourages investors to invest in the company since it involves less risk. In fact diluted earnings per share increase from 1.89 to 1.94 from 2006 to 20073.

A gross profit ratio represents an amount of sales that is available to meet expenses resulting in net profit6. It also shows changes from one accounting period to another and indicates effectiveness of planning policies concerning pricing, sales, discounts and valuation of stock6. AT&T’s gross profit reached 16.316% in 2006 increasing to 17.157% in 20073. This is relatively low, since it does not include the other expenses yet and it also shows risks of creating a deficit, since other expenses demands 47.834% of its operating revenue3.  In fact its net profits showed 6.367% in 2006 rising to 10.359% in 20073. Although an improvement is shown, its net profit is still low. A higher net profit would enable AT&T to invest and expand, hence increasing its sales, profits and market share.

Nevertheless it share performance was stable until it dropped in December 2007 to approximately to $36.2 but then improved up to $42.1 until it dropped again in mid January 2007 to $36 but increased again in April 2008 to $407.

These up and downs affect the company’s available funds for investments as well as its equity. At lower prices, shareholders are more likely to buy shares and thus increasing its available funds for investments and equity and higher prices will create an opposite effect. But the problem is that if a low price occurs, hence demand and thus share price will increase; hence then investors will sell their shares; resulting in a lower price and so on.

In fact AT&T reached the second place, after Sprint Nextel Corp. (S) for year over year quarterly stocks revenue growth of approximately 55% between 2006 and 20078. (T in the diagram)

8 Chart: Telecom stocks-quarterly revenue growth. http://seekingalpha.com/article/13150-chart-telecom-stocks-quarterly-revenue-growth. [online], ‘cited 6.5.2008’

Overall AT&T has performed well in their financial section but they need to be more efficient; especially in managing expenses in order to obtain higher net profits. They also need to improve its liquidity, which could also be improved by reducing expenses; since they would have more profits and thus cash.

  1. [1] AT&T, http://en.wikipedia.org/wiki/AT%26T. [online], ‘cited 6.5.2008’
    [2] The Regulatory Inefficiency Theorem .http://longorshortcapital.com/regulatory-efficiency-theorem.htm, [online], ‘cited 6.5.2008’
    3 AT&T Inc. financial review 2007. http://www.att.com/Investor/ATT_Annual/downloads/07_ATTar_Complete10K.pdf, [online]. ‘cited 6.5.2008’
  2. 42005. Stephen Chapman, Cassy Norris, Natalie Devenish, Llian Merritt.
  3. Business Studies in Action, chapter 8
  4. 5 2005. Stephen Chapman, Cassy Norris, Natalie Devenish, Llian Merritt.
  5. Business Studies in Action, chapter 6
  6. 6 2005. Stephen Chapman, Cassy Norris, Natalie Devenish, Llian Merritt.
  7. Business Studies in Action, chapter 7
  8. 7 http://chart.finance.yahoo.com/c/1y/t/t. [online], ‘cited 6.5.2008’

Calculate the price
Make an order in advance and get the best price
Pages (550 words)
$0.00
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Upload your instructions
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with MyStudyWriters
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
Testimonials
See why 20k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
English 101
IThank you
Customer 452631, April 6th, 2021
Human Resources Management (HRM)
excellent work
Customer 452773, July 3rd, 2023
Managerial Accounting & Legal Aspects of Business ACC/543
excellent work
Customer 452773, February 7th, 2024
Business and administrative studies
excellent job!
Customer 452773, May 25th, 2023
Business and administrative studies
perfect
Customer 452773, February 23rd, 2023
Business and administrative studies
Excellent work ,always done early
Customer 452773, February 21st, 2023
Business and administrative studies
excellent job
Customer 452773, March 12th, 2023
Business and administrative studies
excellent job! got an A, thank you
Customer 452773, May 24th, 2023
Business and administrative studies
Thanks
Customer 452773, March 3rd, 2023
Business and administrative studies
Thank you for your hard work and help
Customer 452773, February 21st, 2023
Human Resources Management (HRM)
excellent, great job
Customer 452773, June 19th, 2023
10th grade English
very good
Customer 452773, March 26th, 2023
11,595
Customer reviews in total
96%
Current satisfaction rate
3 pages
Average paper length
37%
Customers referred by a friend
OUR GIFT TO YOU
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat
Close

Sometimes it is hard to do all the work on your own

Let us help you get a good grade on your paper. Get professional help and free up your time for more important courses. Let us handle your;

  • Dissertations and Thesis
  • Essays
  • All Assignments

  • Research papers
  • Terms Papers
  • Online Classes
Live ChatWhatsApp