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# AT&T Company Financial Ratio Analysis

Review the AT&T financial statements from the past three years. Calculate the financial ratios for the assigned company's financial statements, and then interpret those results against company historical data as well as industry benchmarks

Compare the financial ratios with each of the preceding three (3) years (e.g. 2014 with 2013; 2013 with 2012; and 2012 with 2011).

• Compare the calculated financial ratios against the industry benchmarks for the industry of your assigned company.

AT&T Company Financial Ratio Analysis

Financial ratio analysis is the analysis of financial statements and interpretation of financial results of a particular period of operation with help of ratios. A financial statement is a formal record of the financial activities and the position of a firm, business, entity or a person.

AT&T Company has been doing very well over the last two years for profitability point of view. AT&T Company net margin increased to 37.96% in year 2014, this is considerably higher than that of 2012 and 2013. This is a good indication that the company is growing and its profit margin was increasing. The current ratio establishes the relationship between current assets and current liabilities of a firm. It measures the ability of a firm to meet its current obligations.

Current ratio = current assets

Current liabilities

AT&T Company current ratios were 0.71, 0.66, and 0.86 in year 2012, 2013 and 1014. In year 2013 the current ratio was lower than that in 2012 meaning that the ability to meet its obligation was lower compared to that in 2012. In 2014 the current ratio is very high such that the company was in a better position to meet its current obligations then in 2012 and 2013.

The profit margin of AT&T Company was at 5% in 2014, 14% in 2013 and 6% in 2012. This indicates that in year 2013, the company made more profits in 2013 that than in both 2012 and 2014. Also AT&T Company made profitability level was lower in 2014 than in 2013. In year 2013 the company focused on increasing the satisfaction of their customers and providing quality services to the hence increasing their sales which lead to realization of higher profits that 2012. In year 2014, the company focused more on production forgetting about their customers which are the lifeblood of the organization, this lead to reduction in their profit margin.

The debt equity ratio of AT&T Company was 0.72 in 2012, 0.76 in 2013 and 0.88 in 2014, the company average was 0.99. In 2014 debt equity ratio was higher than in 2012 and 2013. This could be due to lower interest rates on loans or the debt taken in year 2013 and 2012.

Asset Turnover ratio, this is the measurement of company’s ability to use the available assets to generate revenue. In 2012 and 2013 the asset turnover was 0.47 while in 2014 it was 0.46. This indicates that in year 2012 and 2013 AT&T Company had potential to generate more profits than in 2014. This asset turnover was lower than the industry average.

Quick ratio is a measure of company’s ability to meet its financial liabilities in the short run. AT&T company quick ratio was 0.55 in 2012, 0.46 in 2013 and 0.62 in 2014. This indicates that AT&T company ability to meet its short term financial obligation has been increasing. The company benchmark was 0.47 which is lower compared with 2012, 2013 and 2014.

Interest coverage ratio is a debt and a profitability ratio which is used to determine the ability of a company to pay interest on the outstanding debt. AT&T company interest coverage ratio was 4.03 in 2012, 8.05 in 2013 and 3.76 in 2014. This indicates that in year 2013, the company had higher ability and capability of paying interest on the outstanding debts than in year 2014 and 2012.

In conclusion ratio analysis facilitates the accounting information to be summarized in a simplified form. Ratios also helps the management to effectively discharge its functions such as planning, organizing, control, directing and forecasting financial requirements of the company.

References

Williams, Jan R.; Susan F. Haka; Mark S. Bettner; Joseph V. Carcello (2008). Financial & Managerial Accounting. McGraw-Hill Irwin. p. 266- 270

Ehrhardt, M., Brigham, E. (2008). Corporate Finance: A Focused Approach (3rd ed.). p. 131

AT&T Company Financial Ratio Analysis: http://financials.morningstar.com/ratios/r.html?t=T&region=usa&culture=en-US

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