What Is The Capital Structure Of Verizon Company

Brief Description of Verizon Company
Verizon communications Inc is an American company that was established in June 2000 when bell Atlantic merged with GTE and the merger took 2 years to close. In 2004 it was added to the Dow Jones industrial average. In 2006 Verizon became the primary provider of advanced communications to large businesses and government sector. Verizon offers the largest high speed 3G and 4G network in America and delivers solutions that allow customers to connect securely.
Corporate Governance Analysis
The interest of shareholders is protected by the corporate governance frame work which is rooted deeply in company's core values and these values are incorporated in the company's corporate governance guidelines. Board of
For example recession can affect customers’ ability to spend which will result in low demand for Verizon’s products and services.
• Verizon’s profits can reduce significantly due to competition in the telecommunication industry as development of new technologies can bring new competitors to this market.
Verizon is exposed to many types of market risk such as interest rate and foreign exchange rate which has an effect on Verizon’s earnings.
Below figure 5 summarizes the capital structure of Verizon; it is obvious that company is increasingly depending on debt to finance its overall operations. This approach can be attributed to its deal with Vodafone to obtain the 45% stake in Verizon’s using the low interest rate offer to fund this acquisition. Verizon financed this deal by 50:50 split of cash and stock. Verizon’s debt level could have negative impact on it operations as the firm will have to utilize its cash flow from its operations to pay its debt which will make financing for working capital very expensive. Also any increase in the interest rate could increase the borrowing cost for Verizon. Currently 3.66% is the cost for the company to maintain share price to satisfy the
WACC= Total Equity/Total Firm Value*Cost of equity +Total Debt/Total Firm Value*Cost of Debt*(1-Tax Rate) = 3.25%
Beta for Verizon is 0.03 as reported by Yahoo Finance and since it is a good measurement of systematic risk; when Beta increases WACC will increase as well and investors can expect higher rate of return. Since Beta is 0.03 we can conclude that its security price will be less volatile than the market.
Figure 6: Element from Financial Statements
Cost of Debt 3.66%
Corporate Tax Rate 10.78%
Total Debt 72,789,000,000
Total Equity 213,120,000,000
Total Firm Value 285,909,000,000
Cost of Equity 3.24%
Source: Verizon Annual