At&T Financial Analysis

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AT & T Financial Analysis
A company’s past performance is a good indicator of its future outlook. Investors give proper attention to different ratios. In this report I am analyzing the financial position and financial performance of AT & T to conclude whether it is better to invest in the company or not. AT & T Inc. is the United States largest telephone services provider. Its main business involves local, long distance telephone services, DSL internet, digital television and wireless services. In this analysis I have used the balance sheet, the income statement and the statement of cash flows given in the financial statements for the year ended 2006, 2007 and 2008. Initial Review

The external auditors in their report say that in their opinion, the company’s financial statements present fairly in all materials respects. The company’s financial position, results of its operations and cash flows. The auditors also report that they have evaluated the internal controls system of the company and according to them there is no material weakness in its system and hence they give an unqualified opinion. The management’s discussion and analysis:

Reports the variance in the main income statement and balance sheet accounts and the reasons thereof. Presents an analysis of performance and position in different dimensions, for example territory, products, etc. Explains the impact of extraordinary important transactions on the company’s performance and positions for example BellSouth’s acquisition. Discloses major uncertainties and contingencies such as litigation, etc. Analyzes the past environment faced by the company, its stock performance, risks associated, etc. Looks forward to the future environment facing the company and presents their plan to optimize on opportunities, minimize risks, etc. Explains the changes in accounting pronouncements and their impact on the financial statements. Liquidity Analysis

Liquidity represents a company’s ability to pay its short-term obligations. In the following schedule is the calculation of the ratios that are indicators of the liquidity position of a company. LIQUIDITY RATIOS

(1)Current Ratio200820072006
Current Assets22,556.0024,686.0025,553.00
÷ Current Liabilities42,290.0039,274.0040,482.00
Current Ratio0.530.630.63

(2)Quick Ratio (Acid Test Ratio)200820072006
Cash and Short Term Investments1,792.001,970.002,418.00
Total Receivables, Net16,047.0016,185.0016,194.00
÷ Current Liabilities42,290.0039,274.0040,482.00
Quick Ratio (Acid Test Ratio)0.420.460.46

(3)Average Sales per Day200820072006
Annual Sales124,028.00118,928.0063,055.00
÷ Days in the Period365365365
Average Sales per Day339.80325.83172.75millions

(3)Collection Period200820072006
Average Accounts Receivables16,116.0016,189.5012,772.50
÷ Average Sales per Day339.80325.83172.75
Collection Period47.4349.6973.93(days)

(4)Cost of Goods Sold per Day200820072006
Cost of Revenue, Total49,895.0046,705.0028,854.00
÷ Days in the Period365365365
Cost of Goods Sold per Day136.70127.9679.05 millions

The company’s nature of business is such that it receives a continuous stream of cash flows from its customers because most of the customers either prepay or pay the bill at the end of the month. Keeping this in view, the company’s liquidity requirements are limited. But still the company should at least the current ratio at 1. The liquidity situation has in fact deteriorated keep in view the decline in the current ratio and the quick ratio over the years. The company is selling more and more each days; this is represented by the increasing sales per day and costs of goods sold per day ratios. The company has succeeded in reducing the collection period from 73.93 days in 2006 to 47.43 in 2008 which tells that the...
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