At&T Industry Ratio Comparison

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Five-Year Ratio Comparison
Liquidity

There was a slight improvement in current ratio between 2005 and 2007, from 0.58 to 0.63. It then dropped to 0.53 in 2008, but increased again over the following two years, ending 2010 at 0.59. This measures AT&T’s ability to pay its short-term liabilities with short-term assets. In general, a current ratio over 1 is desirable because when it falls below one, it could mean that the company is unable to pay off its short-term liabilities, due to a shortage of cash on hand.

The quick ratio also experienced slight increases between 2005 and 2007. It started at 0.42 and ended 2007 at 0.46. It then decreased to 0.42 in 2008; peaked in 2009 at 0.52; and, dropped back down to 0.44 in 2010. Again, a common rule of thumb is that companies with a quick ratio over one are sufficiently able to to meet their short-term liabilities. This low quick ratio suggests that AT&T may be over-leveraged, struggling to maintain or grow sales, paying bills too quickly, or collecting receivables too slowly.

There were slight decreases in working capital per share between 2005 and 2007, from -2.8 to -2.4. It then plummeted to -3.35 in 2009; and, lastly, ended 2010 at -2.37. This ratio indicates that the company is not likely to be able to cover its short-term debt. This declining working capital ratio could be a red flag that warrants further analysis. This ratio also gives investors an idea of the company’s underlying operational efficiency, possibly due to slow collection of receivables, for example.

The cash flow per share saw a significant increase between 2005 and 2010. It started 2005 at 3.21 and ended 2010 at 6.51. This measures AT&T’s financial flexibility; it signals their ability to pay debt, pay dividends, buy back stock and facilitate the growth of business. As a general rule, a 10:1 ratio is good, so they are on their way to reaching that goal.

AT&T experienced a steady increase in available cash flow per share from 2005 through 2010. 2006 was the low point for this ratio at 2.77; 2007 through 2009 was around 5.5; and, 2010 ended at 6.5. This measure signals a company’s ability to pay debt, pay dividends, buy back stock and facilitate the growth of business. This can also be used to predict future share prices, because when cash flow is on the rise, the odds are good that earnings and share value will soon be on the up, because a high cash flow per share means that earnings per share should potentially be high as well.

There was a significant decline in inventory turnover for the three years of that data that is presented. In 2007, it was 82 times per year; dropped to 50 times in 2008; and, rose to 58 times in 2009. This relatively high ratio implies the possibility of strong sales for the company, but the Sales in the Income Statement show that this is not likely the case. Some alternative explanations are inadequate inventory levels or ineffective buying.

The accounts receivable turnover experienced moderate increases from 2005 through 2007. Starting at 6 times per year in 2005, and ending 2007 at 7 times. The ratio then rose ever so slightly over the following three years, ending 2010 at 9 times per year. This improving ratio indicates the possibility that AT&T’s collection of accounts receivable is becoming more efficient. It also suggests that the company is likely making efficient use of their assets.

Total asset turnover experienced minimal increases between 2005 and 2010. It ended 2005 at 0.35 and 2010 at 0.46. This ratio is used to measure the firm’s efficiency at using its assets in generating sales or revenue. This relatively low ratio could be attributed to AT&T’s pricing strategy because they have a higher profit margin, which is often associated with a low asset turnover.

The average collection period experienced slight decreases from 2006 through 2010. The period was 73 days in 2006 and 41 days in 2010. This decrease in collection time is...
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