Verizon Communications Inc. Financial Statement Analysis
Verizon Communications Inc. Financial Statement Analysis
This financial statement analysis project focuses on Verizon Communications Inc. Verizon Communications Inc. is a publicly traded American broadband telecommunications company with operations in about 150 countries globally and in about 2,700 cities. At the time of presenting this financial statement analysis document, Verizon Communications Inc. traded at a market price per share of $56.50 with a market capitalization of $229.21 billion (Yahoo Finance, 2016). The company’s main competitor has been AT&T. It operates in the telecommunications industry and has it main products including the telephony services, data services, and television services. The company serves about 112.6 million subscribers on the wireless networks, 5.86 million subscribers on the Fios TV, and about 7.1 million Fios internet subscribers (Verizon Communications Inc., 2015). While the financial information provided in this introductory paragraph paints the picture of a successful company, the determination of whether the company would be a good investment requires the analysis of the company’s financial statements as provided below.
Horizontal Analysis of Income Statement and Balance Sheet
Horizontal analysis is also commonly referred to as trend analysis. It looks at the company’s performance over a period. Horizontal analysis enables the investors and the analysts to determine the growth of the company over a period. The period is often discretionary and based on the time horizon chosen for investment by the investor. If the investor is concerned about investing in the company over the next 5 years, looking into the company’s financials over the last five years would be considerably appropriate (Investopedia, 2016). For the purposes of this project, the financial statements analysis will focus on the last three financial years of Verizon Communications Inc. The years covered include 2015, 2014, and 2013 (Verizon Communications Inc., 2015).
Horizontal analysis of the income statements indicates that the profitability of the company has been improving over the years. The 2015 net income was higher by 53.69% compared to that of 2014 which was lower than 2013 by 49.22% (Verizon Communications Inc., 2014). The growth in profitability is also reflected in the operating income and it was supported by various factors, which include lower selling, general, and administrative costs, lower interest expense, and lower wireless cost equipment. Additionally, the analysis indicates a positive trend in the wireless equipment revenues.
Ratio Analysis
Ratio analysis focused on three ratios that include current ratio, quick ratio, cash to current liabilities ratio, over a three-year period. The analysis indicates that the current ratio position of Verizon Communications Inc. has been weakening over the years having dropped from 2.62 in 2013 to 1.05 in 2014 and 0.64 in 2015. Normally, the required ratio ought to be at 1. The lower current ratio in 2014 indicates that the current assets of the company would not be able to cover the current liabilities when required. The quick ratio weakened in line with the current ratio. The current ratio compares the current assets less inventories and other assets held for sale with the current liabilities. In both 2015 and 2014, the ratio was below 1 similar to the cash to current liabilities ratio which indicates erosion of the company’s cash position. Overall, the liquidity position of the company has weakened. Considering that AT&T and the industry has current ratios above 1, the analysis indicates poor performance on the part of VZ (Verizon Communications Inc., 2015).
Recommendation
Based on the financial statements analysis herein completed, it is recommended that the investor considers buying the stock for investment. This is because the analysis indicates that the profitability of the firm has been growing over the period in analysis. However, the company is currently facing liquidity problems. Nonetheless, the growing profitability is set to put the company back in shape with regard to the liquidity concern.
References
Investopedia. (2016). Horizontal Analysis. Retrieved from http://www.investopedia.com/terms/h/horizontalanalysis.asp
Verizon Communications Inc. (2014). 2014 Annual Financial Report. Retrieved from http://www.verizon.com/about/sites/default/files/2014_vz_annual_report.pdf
Verizon Communications Inc. (2015). 2015 Annual Financial Report. Retrieved from http://www.verizon.com/about/sites/default/files/annual/verizon-annual-2015/downloads/15_vz_ar.pdf
Yahoo Finance. (2016). Verizon Communications Inc. Retrieved from http://finance.yahoo.com/q?s=VZ
