Professional Documents
Culture Documents
Prepared for:
By:
Reyna Olivo
Mohammad Mirzakhani
Charles Schulze
1.0
Introduction
This report provides a quarterly financial trend analysis for Verizon Communications Inc. With
operations in over 150 countries, Verizon formerly known as Bell Atlantic Corporation
This U.S. Based organization is one of the largest telecommunications providers in the world.1 Verizons
main core business is Wireless Communications and entertainment. Trading at the New York Stock
Exchange (NYSE) under the symbol VZ, Verizon is one of Americas innovative organizations.
Our team selected Verizon to analyze for these reasons:
Verizon is currently ranked #16 among Fortune 500 companies and it is the second largest U.S.
telecommunication company. 2
Since one of our team members is working for AT&T, we would like to look deeper in Verizons
financial performance as its competitor in order to learn and explore how well the largest
wireless company is doing.
Additionally, another team member who is a Verizon user read an article where many companies
like Verizon have earned billions of dollars and NOT paid any income tax. This was very eyeopening and we decided to evaluate Verizon financial statements.
Verizon is not just a cell phone company or internet provider. They have partnerships with
competitors such as AT&T and others to provide many services to the consumer.3
Using some of the many financial websites available, our team compiled a table of important ratios from
the financial information provided. Financial information was tabulated from the four most recent
quarters ending September 30, 2013. The financial information retrieved and subsequent key ratios are
designed for the group to form a conclusion of financial responsibility of the company additionally to
provide recommendations of Verizon to investors. In addition, the team formulated a comparative
S.W.O.T. analysis from the financial information and analyzed its main competitor financial ratios to use
as a competitive comparison.
2.0
1 U.S.S.E.C. Form 10K filed by Verizon for fiscal year 2012 Pg. 2. Retrieved from
http://secfilings.nasdaq.com/edgar_conv_html%2f2013%2f02%2f26%2f0001193125-13075713.html#FIS_BUSINESS
fromhttp://money.cnn.com/magazines/fortune/fortune500/2011/snapshots/2773.html
3 U.S.S.E.C. Form 10K filed by Verizon for fiscal year 2012 Pg. 4. http://secfilings.nasdaq.com/edgar_conv_html
%2f2013%2f02%2f26%2f0001193125-13-075713.html#FIS_BUSINESS
2.1
Methodology
Our team reviewed many documents from various financial web-sites. These documents
included financial statements; cash flow reports; stock trading history; income statements and
balance sheets. The main sources for this information were:
Yahoo-finance4
Zachs Investment Research5
CNN-Money6
Verizon7
Nasdaq8
The team found the data relatively close from the various sources. For example, CNN-Money rounded
their numbers to the millions of dollars where Yahoo extracted their total out to the thousands. We
decided to use the Yahoo references with more deliberate amounts.
For the industry/competitor comparison financials, the team continued with the Yahoo material for the
same reasons. Depicted later in this report, the team used AT&T as the comparison company, as they are
number 11 on the Fortune 500 and the largest wireless s provider in the world.9
The financial data obtained was placed in a financial ratio spread sheet formulating many of the
important financial indicating ratios used in the analysis.
2.2
Data Input and Ratio Computations
The following table is a ratio summary of all the data retrieved.
Liquidity Ratios
Current Ratio
Quick Ratio
Net Working Capital Ratio
Current Liabilities to Inventory
Ratio
Cash Ratio
Operating Ratio
Asset
Q1
Ratios
Inventory Turnover Ratio
Fixed Asset Turnover Ratio
Total Assets Ratio
Asset to Equity Ratio
Profitability Ratios
Return on Asset Ratio
Return on Equity Ratio
Profit Margin Ratio
Basic Earnings Power Ratio
Earnings per Share Ratio
Debt Ratios
Total Debt Ratio
Interest Coverage Ratio
Debt/Equity Ratio
Market Ratios
Earning per Share (EPS) Ratio
Price to Earnings Ratio
Price to Cash Flow Ratio
Payout Ratio
31-Dec12
Q1
0.79
0.75
-0.03
Q2
0.8
0.78
-0.03
30-Jun13
Q3
0.75
0.72
-0.03
30-Sep13
Q4
2.43
2.39
0.16
Annual
2.43
2.39
0.16
25.08
39.46
28.07
25.39
25.39
0.11
-10.48
0.17
3.73
0.06
3.54
1.87
3.25
1.87
6.14
Q2
27.95
0.15
0.13
6.79
Q1
-0.02
-0.13
-0.14
-0.02
-1.48
Q1
0.85
-7.24
5.79
Q1
-1.48
-29.2
232.22
1.22
31-Mar-13
Q3
31.41
0.15
0.13
6.79
Q2
0.01
0.06
0.07
0.03
0.68
Q2
0.85
11.65
5.79
Q2
0.68
71.91
57.13
-0.75
Q4
28.17
0.15
0.13
6.56
Q3
0.01
0.07
0.08
0.03
0.79
Q3
0.85
13.04
5.56
Q3
0.79
64.05
34.84
-2.06
Annual
26.7
0.15
0.11
7.91
Q4
0.01
0.07
0.07
0.03
0.78
Q4
0.87
12.91
6.91
Q4
0.78
64.46
25.81
-0.66
26.7
0.59
0.43
7.91
Annual
0.01
0.06
0.02
0.06
0.77
Annual
0.87
7.32
6.91
Annual
0.77
65.36
11.34
-5.79
Liquidity Ratios
Liquidity Ratios
Analysis
Current Ratio
3
Current Ratio
Linear (Current
Ratio)
0
1
Quick Ratio
3
2.5
2
1.5
1
0.5
0
Quick Ratio
Linear (Quick
Ratio)
-0.05
Net Working
Capital Ratio
Linear (Net
Working
Capital Ratio)
Current Liabilities
Inventory
Current Liabilities toto
Inventory
Ratio
50
40
30
20
10
0
Cash Ratio
Cash Ratio
Linear (Cash
Ratio)
1.5
1
0.5
0
1
Operating Ratio
5
Operating
Ratio
0
1 2 3 4
-5
-10
Linear
(Operating
Ratio)
-15
Asset Ratios
Analysis
32
30
28
Linear
(Inventory
Turnover Ratio)
26
1
4
24
Fixed Asset Turnover RatioThis ratio is a good indicator that Verizon did not
0.2
Fixed Asset
Turnover Ratio
0.15
0.1
Linear (Fixed
Asset Turnover
Ratio)
0.05
1
4
0.14
0.13
Linear (Total
Assets Ratio)
0.12
0.11
0.1
1
10
8
6
4
2
0
Linear (Asset
to Equity Ratio)
2.33
Profitability Ratios
Profitability Ratios
Return on
Asset Ratio
Linear (Return
on Asset
Ratio)
1
4
-0.01
-0.02
Analysis
A 1.0% ROA is moderately low. For a
company with a strong financial position, the
higher the ratio better profits are being
generated without the need of more
investment. However, there is a slight upward
trend from previous quarter which is a good
indicator.
-0.03
-0.05
-0.1
-0.15
Return on
Equity Ratio
Linear (Return
on Equity
Ratio)
0.1
0.05
0
-0.05 1
-0.1
-0.15
-0.2
Basic
0.04
0.02
Linear (Profit
Margin Ratio)
1
4
0
-0.02
-0.04
1
3
1
0.5
0
-0.5
-1
-1.5
-2
Linear
(Earning per
Share Ratio)
Debt Ratios
Analysis
0.88
0.87
Linear (Total
Debt Ratio)
0.86
0.85
0.84
1
Interest
Coverage
Ratio
10
5
0
Linear
(Interest
Coverage
Ratio)
1
4
-5
-10
Debt/Equity Ratio
8
Debt/Equity
Ratio
6
4
Linear
(Debt/Equity
Ratio)
2
0
12 34
Market Ratios
Earning per
Share (EPS)
Ratio
Linear
(Earning per
Share (EPS)
Ratio)
Linear (Price
to Earning
Ratio)
1
4
80
60
40
20
0
-20
-40
1
4
Price to Cash
Flow Ratio
Linear (Price
to Cash Flow
Ratio)
Payout Ratio
Linear (Payout
Ratio)
0
-1 1
-2
-3
While there are five to ten nationwide Cellular service companies, the team felt that
AT&T would be the more prudent company to compare performances with Verizon.
Other companies such as T- Mobile and Sprint lease some of their tower space from
Verizon and AT&T. Therefore, including these much smaller companies would be simply
skewing the data.
The team has gathered data from Yahoo-Money and a few other sources, on AT&T,
(stock symbol: T) to compare this data to the Verizon data obtained.10 11 12The ratios of
each firm are tabulated in the chart below.
In the Superior Performer column in the above chart, signifies which company had the better
ratio vs. each other. Verizon performed better in 13 categories to AT&Ts (5) out of 22 ratios.
While the differences were slight, AT&T did perform slightly ahead of Verizon in 3 of the 5
Profitability categories. AT&T did excel immensely in the area of Liabilities to Inventory Ratio.
However, Verizon was far superior on Inventory Turnover Ratio. Some of the findings are
explained as follows:
With AT&T having a lower Current Liabilities to Inventory Ratio than Verizon but
Verizon smashing AT&T in Inventory Turnover Ratio, we believe that Verizon does an
exceptional job in turning over current inventories while having higher spending in
creating these inventories. Hence, we could imply that the difference between both
companies in the Current Liabilities to Inventory Ratio is that AT&T has older inventory
with less production costs.
The extremely high Current Liabilities to Inventory Ratio for Verizon is concerning.
This conceivably could be that Verizon is spending astronomical amounts of money in
COGS. Furthermore, it also could be attributed to Verizon selling their products at a
severe discounted price, perhaps at a loss to achieve higher market share in places where
AT&T is dominant.
The other two conflicting ratios with these two organizations are Price to Earnings Ratio
and Price to Cash Flow Ratio. Verizon has a two and a half times Price to Earnings
Ratio over AT&T, while AT&T has a three times the Price to Cash Flow Ratio. After
further investigation this issue does explain itself out with further study of the numbers.
The low Price to Cash Flow Ratio for Verizon indicates high Capital expenditures for the
period. A review of their Annual 10k filed with the SEC in 2013 for the period 2012
indicates Verizon had a dramatic increase in retirement benefits and healthcare costs. 13
Additionally, infrastructure and corporate acquisitions in the same period diminished
their per share earnings.
Consequently, with P/E Ratio dropping, net cash also to lowered, thus AT&T had a
better short cash flow ratio.
Debt to Equity Ratio and Payout Ratio are both relative to the companys operations and
business model. Both appear to be inline. Both companies reflect positive strengths
depending if you are looking from the shareholder or lender stand point. If you are a
shareholder, then you will invest in Verizon because the company might be financing
new project through debt resulting in higher dividend payout. If you are a lender, then
you would prefer to invest in AT&T since the lower debt to equity ratio is a good
indicator that the company has the capacity to repay its loans.
13 Verizon form 10k for 2012. Retrieved on November 20, 2013 from
http://investing.businessweek.com/research/stocks/financials/drawFiling.asp?docKey=13600011931251307571326UVPMVIICUHH1KDG94PT1DRLN&docFormat=HTM&formType=10K#D441535D10K_HTM_TX441535- page 17
3.0
Strengths
3.2
Weaknesses
14 Arney, J. (February 26, 2013) Verizon invested $627M in N.J. infrastructure in 2012. Retrieved November
20, 2013 from http://www.njbiz.com/article/20130226/NJBIZ01/130229850/Verizon-invested-$627M-in-NJinfrastructure-in-2012
15 Yahoo- News (February 19, 2013) Verizon spends $752M on Va telecom upgrades in '12. Retrieved
November 20, 2013 from http://news.yahoo.com/verizon-spends-752m-va-telecom-173322934.html
16 Verizon Corp. (March 12, 2013) Verizon Invested More Than $300 Million in Texas Wireline Communications,
IT Infrastructure in 2012 Retrieved November 20, 2013 from
http://newscenter.verizon.com/corporate/news-articles/2013/03-12-tx-infrastructure-investment/
17 Jackson, J. (Oct. 3, 2013) Verizon's next cloud services emphasize performance, granular billing. Retrieved
November 20, 2013 from http://www.solutionit.com/content/verizons-next-cloud-services-emphasizeperformance-granular-billing
3.3
3.4
Threats
4.0
Growing competition from smaller companies such as Sprint could affect profits.
Smaller companies like T-Mobile are trying to change the way the
telecommunication industry plays in the United States which has posed different
threats on Verizon traditional way of doing business.
Customers demands could pose a threat to Verizon if it does not stay up to speed
with investing in the new technology and the competition.
Government regulations could also pose a threat for future mergers and
acquisitions.
Network spectrum is vital for the growth of the wireless industry but this is a
limited resource which could pose a threat in the future when new technology
demands for more spectrums.
Corporate Ethics
Corporate ethical behavior spans many realms of activity. From the financial sector
where perhaps corporate officers profit from insider trading or destroying the
environment and covering the mess up, never more than toady with the very technology
that Verizon provides does a company live under the spotlight as they do now. Positive ethical behavior is critical to a corporations success. To date there has been no unethical
behavior reported pertaining to Verizon or any of its partnerships or subsidiaries.
Also, Verizon ethic code of business is based on the Verizon Credo which provides
guidelines and levels of integrity and accountability of actions taken every day. Verizon is
committed to do the right thing for their customers, suppliers, owners, and competitors. 24
Reviewing the leadership structure, Verizon has a Shared Success Council and
Committee and they are in charge of overseeing corporate ethics. This group reports
directly to the Chairman and CEO which demonstrate the strong commitment the
company has towards corporate responsibility. Verizon has different processes for
employees and external parties where ethical concerns could be raised. They have
24 Verizon.com 2013. Ethics and Governance. Retrieve on November 23, 2013 from
http://responsibility.verizon.com/verizon-credo/
different resources such as the Verizon Ethic EEO line for employees or the
Environmental and Safety Hotlines to report emergencies among other resources
available.25
5.0
Question 2: Would you invest $500,000 in the debt (bonds) of this company?
While it is concerning that Verizon has 35.83% Debt to Assets, it is even more alarming
when their long term debt percentage has climbed to 79%, but the companies leadership
and BBB Morningstar Bond rating is enough for our team to answer an emphatically
yes to this question. These numbers may be even more concerning without the billions in
infrastructure investments and corporate acquisitions, however with all of the
improvements in technology and branding the company, we feel confident that our
investment is secure with Verizon.
Question 3: Would you grant a $1 million line of credit for overnight or term
federal funds to this company?
Absolutely! Verizons liquidity ratios are considerably above its toughest competitor,
AT&T. Verizons Current, Quick and Net Working Capital ratios are unequivocally
industry standard, with its competitor not even in the same cloud as Verizon. This
25 Verizon.com 2013. Ethics and Governance Leadership. Retrieve on November 23, 2013 from
http://responsibility.verizon.com/ethics-and-governance/2012#leadership
business model is positive for short term debt coverage and the team sees a very good
consistency to this momentum.
Exhibit A
https://pictures.dealer.com/j/jdpower/0887/57466c640cafbfa8ccf34f739cfcbb8ax.jpg
Exhibit B
http://finance.yahoo.com/echarts?
s=VZ+Interactive#symbol=vz;range=my;compare=;indicator=volume;charttype=area;cr
osshair=on;ohlcvalues=0;logscale=off;source=undefined;