Executive Report to the CFO - Research Paper Example

Executive Report to the CFO This report evaluates financial and stock performance of Sprint Nextel Corporation in order to determine if HTC should enter into a contractual agreement with the company for a period of two to three years for the purchase of wireless communication products. The report studied Sprint’s financial and stock performances for the period from 2009 to 2011. However, recommendation to HTC was given based on current and upcoming business activities of Sprint Nextel. In conducting past performance, the report only paid attention to the trend and phenomenon instead of investigating values and numbers associated with company’s past performance. In order to evaluate past financial performance, the report studied how Sprint established relationship between Revenue and Expenses, as well as Cash flow and debt. In order to evaluate past stock performance, the report studied dynamics of stock and EPS. The report paid substantial attention to Sprint’s upcoming projects. Table of content Title Page Introduction 4 Sprint financial performance: Years 2009 – 2011 4 Revenue – Expense relation 5 Cash flow – Revenue – Debt relations 6 Profitability Analysis 7 Sprint stock performance: Years 2009 – 2011 7 Dynamics of stock prices 8 Dynamics of EPS 8 Dynamics of price multiple 9 Conclusion 10 Recommendation 14 Figure 1. Revenue SPRINT NEXTEL 18 Table 1. Revenue - Operating Income 18 Table 2. Revenue – Net Income 18 Figure 2. Expense – Revenue relation 19 Table 3. Expense – Revenue relation 19 Table 4. Net income vs. OCF 19 Table 5. Cash flow against Revenue 19 Table 6. Short-term solvency 20 Figure 3. Short-term debt 20 Table 7. OCF/Revenue – Current ratio 20 Figure 4. Debt to Capital ratio 21 Table 8. Debt to Capital ratio 21 Figure 5. Profitability analysis 21 Figure 6. Sprint stock price 21 Figure 7. Sprint stock trading 22 Figure 8. Sprint annual stock trading 22 Figure 9. Dynamic movement of stocks 22 Table 9. Stock fundamentals 22 Figure 10. Net income distribution curve 23 Figure 11. EPS distribution curve 23 Figure 12. P/S ratios of three companies 24 Figure 13. Sprint recent stock prices 24 Figure 14. Earning growth forecast 25 Figure 15. Estimated Price / Earning ratio 25 Bibliography 26 Introduction Sprint Nextel Corporation (Sprint) is a communication company that operates in two segments: Wireless and Wireline. In the United States, Sprint is the third largest wireless carrier company after Verizon and AT&T (FORM 10 – K, 2010). It serves about 55 million customers with mobile voice, data, and web service under the Sprint corporate brand, which includes retail brands of Sprint, Nextel, Boost Mobile, Virgin Mobile, and Assurance Wireless on networks that utilize the third generation (3G) code division multiple access (CDMA), integrated Digital Enhanced Network (iDEN), or Internet protocol (IP) technologies (Company Information, 2013). High Technology Corporation (HTC) is a new fully integrated wireless communication service provider for the international market. HTC after competitive technical and economical product evaluation has determined to select Sprint as a potential supplier. This report intends to evaluate Sprint’s past financial and stock performances, analyze current and future business aspects in order to recommend if Sprint would remain financially strong to enter into a long-term contract with the HTC. Sprint financial performance: Years 2009 – 2011 On February 7, 2013, the Associated press reported that Sprint lost $1.3 billion in the preceding fourth quarter, about the same as a year ago. In the period from October to December, the company lost 44 cents a share. The loss is steady as in the previous year, but revenue went up 3.2 percent from 8.7 billion to 9.0 billion during the same period a year ago. This increase was attributed to customers changing regular phones to smart phones. The long ailing Sprint needs the capital infusion, which is about to come from Japanese carrier SoftBank. Sprint is selling 70 percent of the company for $ 20 billion. The deal is expected to close in the summer 2013 (Sprint’s Loss is Steady, 2013). This section evaluates Sprint’s financial performance for the years from 2009 to 2011. The evaluation criterion is the study of performance, and position ratios. Performance ratios establish a company’s profitability, and position ratios show liquidity. The report used both GAAP and non-GAAP methods as evaluation technique. Variables for evaluation are Revenue, Net income, Operating cash flow, Short-term solvency, Debt to capital ratio, Profitability. We opted to examine the cause and effect through examining interaction among different variables. Revenue – Expense relation Results of business operations are reflected in revenue and expense relations. We intended to understand how Sprint maintained this relationship. Figure 1 and table1 display revenue to expense relationship (Sprint Nextel Income Statement). Sprint maintained steady revenue during the years from 2009 to 2011, however, the cost of revenue was on the constant rise. This resulted the reduction of gross profit in 2011 by 7 percent with respect to 2009. Sprint during the years from 2009 to 2011 maintained positive gross profit, however, operating income was either negative or close to zero. The company’s losses for this period are shown in the table 2. Sprint explained their revenue to expense relationship in the following way (FORM 10 – K, 2011): 1. In 2009, the company was charged with $ 389 millions before taxes related to severance and impairments. 2. In 2010, the company improved operating loss for $803 million due to the increase in net operating revenue plus decreases in operating expenses. 3. In 2011, the company improved operating income $ 703 million due to the increase in net operating revenues of $1.1 billion and decrease in depreciation and amortization 4. The Company experienced an increase in the valuation allowance on deferred tax assets affecting the income tax provision by approximately $1.2 billion, $1.4 billion, and $281 million for the years ended December 31, 2011, 2010 and 2009, respectively. We also studied the company’s expenses with respect to revenue from sales. As expense categories, we selected the cost of revenue, general and administration expenses. Depreciation was not included since it is not considered as a direct cost. The results of expense to revenue from sales are shown in figure 2 and table 3. It demonstrated that for the years from 2009 to 2011 sprint spent from 80 to 85 cents to make the one-dollar sale. In the 2011, Sprint’s direct expenses to revenue were 83 %. We noted that the company needed to find out the proper relationship between revenue and expenses to maintain positive net income. Cash flow – Revenue – Debt relations The Operating Cash Flow (OCF) trend, shown in table 4 demonstrates a reduction of OCF from 2009 to 2011 regardless of the fact that non-cash items remained in the same range (Sprint Nextel Cash Flow). Twenty-five percent reduction of OCF in 2011 with respect to 2009, we attributed to the increase in changes in assets, and liabilities. Examination of the company’s balance sheet and cash flow showed 1.2 billion reduction of OCF in 2011 was due to the increase in the account receivable, increase in inventory, and decrease in depreciation. We reviewed the OCF and revenue relationship of Sprint’s business. Table 5 represents the OCF to Revenue relationship. There is no industry standard to categorize OCF to revenue; however, a higher ratio indicates the company’s ability to turn the large percentage of its revenue into profit and net cash flow. In case of Sprint, these values are significantly small. We noted the trend that cash flow at the end of the year increased with respect to the cash flow at the beginning of the year. That is why; we studied the company’s long-term liability and current debt issues. Study showed 8 - percent increase in long-term liabilities in 2011, with respect to 2010 (Sprint Nextel Balance Sheet). Short-term solvency shown in table 6 indicated the company’s current debt was quite large with compare to assets. The large amounts of account payable and acquired expenses were the primary source of the current debt. Character of this debt displayed in figure 3 and table 7 demonstrates its continual growth. That is why; we analyzed the company’s financial leverage via debt to capital ratio. The total debt was calculated only by adding the company’s long-term debt and liabilities. Formula for calculation: Debt to capital = Total long-term debt / Shareholders’ equity + total long-term debt. Figure 4 and table 8 illustrates the findings. They show that the company mainly used debt financial structure, and it was on a constant rise. Sprint’s debt to capital ratios for period from 2009 to 2011 should be considered high, compared to the industry average, and serves as an indicator of poor financial support because the cost of these debts may constitute pressure on the company which may increase the company’s default risks. Profitability analysis Return on equity (REO) accounts for all three basic activities performed by the company that is financing, investing and operating. We used this model. Variables for analyses are Profit margin (PM), Asset turnover (ATO), and Return on equity (REO). Figure 5 presents the result. PM ratios show that Sprint could not recover from losses (Sprint Nextel Profit Margin). The ROA analysis loss rate remained in minus 6-percent range (Sprint Nextel Return on Assets), which indicated the company was loosing money and could not efficiently use its assets. Sprint’s REO was dropping year by year (Sprint Nextel Return on Equity). In 2011, the drop was over 40 percent with respect to 2009. This analysis showed Sprint failed to recover from losses. Sprint stock performance: Years 2009 – 2011 Sprint Nextel Corp. is a NYSE registered public company. Stock performance evaluation criteria include the dynamics of stock price, Earning per share (EPS), and Price multiples. Dynamics of stock price Figure 6 illustrates the dynamics of the monthly stock price for a period from 2009 to 2011(Sprint Nextel Corporation). The year 2009, Sprint started with 2.43, this was lower than the book value, and then it rose to the maximum 5.15 in May. Yearly average stock price for 2009 was 3.80. Sprint started with 3.28 in 2010, and then rose to 5.13 in May. The annual average stock price in 2010 was 4.11. Sprint stock from January to June of 2011 was on a constant rise. It started the year with 4.52 then it went up to 5.85 in May. The annual average stock price in 2010 was 4.04. The average annual trading volume exhibited steady decline. In 2009, it was 49.715 million, and in 2010, it dropped to 44.154million. This is 11- percent drop. In 2011, it was 37.392 million, and it was a drop by 15 percent. October 3, 2011 noted highest daily trading volume, which was over, 100 million when stock price dropped to 2.57. This is 56 % drop with compare to 5.85 May 2011 price. Figure 7, and figure 8 display trading volume trends. We compared the dynamics of Sprint stock with its competitors Verizon, and AT&T (AT&T Inc. , Verizon Communications Inc.). Figure 9 characterizes the dynamics of stock prices of these three companies. Table 9 provides with the fundamentals. Unlike Sprint, Verizon and AT&T stocks were on a constant rise. Sprint’s small PM and continuous losses had an adverse effect on its stock. Dynamics of Sprint stock prices showed erratic and unpredictable behavior. In the years from 2009 to 2011 stock prices erratically bounced back and forth between 2.34 and 5.85, while both AT&T and Verizon stocks showed the constant, steady rise without any erratic fluctuation. We concluded that Sprint stock demonstrated unpredictable behavior in the years from 2009 to 2011. The Dynamics of EPS Character was studied using graphical display of EPS distribution curves shown in figure 11. In order to understand the industry trend, we also used competitors’ EPS information, which is displayed in figure 11. The Sprint curve showed negative values for the total period. AT&T and Verizon curves also showed negative values in the first 3 quarters of 2009. However, it then rose sharp until March 2009. AT&T maintained the increase until June 2011, which was later replaced by a rapid decline starting from September 2011. Verizon curve character is different from AT&T; it started dropping in June 2010 that continued until Dec 2010, which then picked upward movement until September 2011, then was replaced by a sharp decline like AT&T curve. This study demonstrates strong competition and overall difficulties in the wireless industry in general. Earning per share (EPS) directly depends on the company’s net income. Our goal was to understand the behavior of EPS and net income dependency of these companies. We divided the EPS distribution curves shown in figure 3, in three segments: Segment 1 represents period January 01 until September 30, 2009, Segment 2 represents period October 01 until June 3 2011, and segment 3 represents period July 01 until December 30, 2011. Figure 10 illustrates the nature of net income distribution. We observed similarities in character of both curves: EPS distribution, and Net income distribution. We noted that regardless of tough competition that existed in wireless and wireline business sectors, Sprint’s closest competitors were able to come out of the loss while Sprint failed to do so. Dynamics of Price multiple Price to earning (P/E) and Price to sales are two fundamental metrics used in the evaluation of stock performance. Aforementioned analyses showed that Sprint incurred a net loss for the period 2009 to 2001. That is why; information about P/E ratio is not available in public domain. This report used Price to sales (P/S) ratio instead. Sprint’s and two competitors’ P/S distribution curves are illustrated in figure 12 (Spring Nextel Valuation). The characteristics of these curves indicate that Sprint stockholders paid a significantly low price for one-dollar sale, which fluctuated from 0.21 to 0.43 during the period from 2009 to 2011. In contrast, both Verizon and AT&T stock paid much higher values to generate the same one-dollar sales. P/S values of AT&T varied from 0.8 to 1.4 while Verizon’s P/S values ranged from 0.74 to 1.17. The lower P/S values of Sprint stock is obviously an attractive parameter for investment, but without the P/E ratio price metric cannot provide the entire picture. Sprint’s lower P/S ratio could be attributed to higher productivity associated with the implementation of effective technology. This is a positive factor in evaluating Sprint stock performance. Conclusion Aforementioned analyses presented the company’s economic and stock performance. This section focuses on the company’s current financial aspects and future growth. In order to understand current and future aspects, we need to have an understanding of the company’s products and services that generate revenue. Revenue is the function of these products and services. Sprint conducts business in two segments: wireless and wireline. Wireless offers postpaid and prepaid basis services to retail and wholesale consumers. Postpaid services include consumer third-party relationships through the company’s portfolio of machine-to-machine solutions. Prepaid services include data and voice communication services, using a wide variety of multi-functional devices, including smartphones, mobile broadband devices such as aircards and hotspots, and embedded tablets and laptops manufactured by various suppliers for use with voice and data services (FORM 10 – K, 2011). The core business of wireline segment is to provide voice and data communication services to other communication companies, business, and subscribers. Service and products include domestic and international data communications using various protocols such as multiprotocol label switching technologies (MPLS), IP, managed network services, Voice over Internet Protocol (VoIP), Session Initiated Protocol (SIP) and traditional voice services (FORM 10 – K, 2011). The above description shows, Sprint is in the position to offer high-tech products and services used in the wireless commutation business. We can conclude Sprint has the necessary technical capability. To recognize the future growth we focused on Sprint’s current business activities. In 2012, Sprint agreed to buy half of Clearwire Corporation (CLWR), a wireless broadband provider (Spring Nextel loss widens on charges). Further investigation noted that Sprint was going to take full control of Clearwire communication. This implies that Sprint would utilize Clearwire’s radio frequency spectrum ranging 2.5 Ghz, which could provide services using 4G 802.16e mobile WiMAX standard (Spring seals deal with Clarewire). Sprint is in negotiation with DISH Network Corporation (DISH) to establish a partnership, which would allow DISH use Sprint’s network to offer its own mobile services. This agreement is vital for DISH, which would allow the company to offer mobile Internet, voice and video services using its newly acquired satellite airwaves acquired from a bankrupt DBSD North America Inc. and TerreStar Networks Inc (Spring seals deal with Clarewire). This deal at the same time would allow Sprint to access the DISH network spectrum in deploying nationwide super-fast Long Term Evaluation (LTE) network (Sprint seals deal with Clarewire), which is associated with Sprint’s mega program Network Vision. Spring is a communication company, and it generates earning by selling wireless and wireline communication product and services. Communication industry business is highly competitive based on price, types of services, the quality of services, and offered devices. The company experienced significant losses of subscribers in the postpaid wireless market since the 3rd quarter of 2006, and it could regain subscriber losses only at the beginning in 2009. This aspect had an adverse effect on Sprint stock prices during the years from 2009 to 2011. Year 2010 report mentioned that the company had oriented its future growth by improving the customer experience, strengthening the brands, and generating cash flow (FORM 10 – K, 2010). This strategy is paying Sprint off. Full year 2012 consolidated net operating revenue, was reported to be 35.3 billion, which was a 5-percent increase over the previous years. The company reported highest ever Sprint platform wireless service revenue of 27.1 billion, which is 15-percent increase. Spring has postpaid and prepaid subscribers. For eleven consecutive quarters, the postpaid subscriber base grew, and in 2012 net addition was 18 percent, which is the, highest since 2007. At the same time, the 4G LTE smartphones sales increased significantly; as of the end of the fourth quarter of 2012 Sprint had sold more than 4 million (The Sprint QUARTERLY INVESTOR UPDATE, 2013). Prepaid customers, net addition was 525,000, which was best ever recapture the rate of 50 percent. Sprint sold 2.2 millions of iPhones in the fourth quarter of 2012. The postpaid ARPU growth of $3.01 and continuous subscriber growth increased wireless service revenues for the Sprint platform by 14 percent over the year (The Sprint QUARTERLY INVESTOR UPDATE, 2013). Investors and the company management appreciated the news of wireless service revenue growth, for the Sprint platform. Dan Hesse, the sprint CEO commented on this achievement saying, “The Sprint platform performed well, with strong net subscriber additions, record third quarter postpaid and prepaid churn and robust revenue growth, contributing to Adjusted OIBDA of $1.28 billion even as we continue to invest in Network Vision and position the company for future growth. The Sprint platform performed well, with strong net subscriber additions, record third quarter postpaid and prepaid churn and robust revenue growth, contributing to Adjusted OIBDA of $1.28 billion even as we continue to invest in Network Vision and position the company for future growth” (Spring Loss widens, 2012). In December 2010, Sprint announced a multi-year network infrastructure. It intends to provide subscribers with an enhanced network by improving voice quality, coverage, and data speeds. In addition to multi-mode base stations, the program encompasses next generation push-to-talk technology with broadband capabilities and the integration of multi-mode chipsets into smartphones, tablets and other broadband devices, including machine-to-machine products. This will enable Sprint to migrate to a single nationwide network through consolidation and optimization of 800 megahertz and 1.9 gigahertz spectrum (FORM 10 – K, 2011). Sprint’s Network Vision is gaining momentum. Feb 7, 2013, Sprint’s quarterly investor update informs that more than 19,500 sites are under construction. Some site constructions are finished. Currently 8,000 sites are on air and meeting speed and coverage enhancement targets. As a part of the Network Vision program, the company has launched 4G LTE in 58 cities and expects in coming months make it available in 170 cities (The Sprint QUARTERLY INVESTOR UPDATE, 2013). As a part of this program, Sprint is shutting down the Nextel platform, which would yield savings to the company. As of now, the company has shutdown 9,600 Nextel sites and total shut down will take place by the middle of 2013. In the 3rd quarter of 2012, the company surpassed the sales of push-to-talk devices by 1.2 million (News Release: Sprint Nextel Reports Third Quarter 2012). The principal risk of this business as stated by the company in the Risk section of the Form 10-K is “If we are not able to retain and attract wireless subscribers, our financial performance will be impaired” (FORM 10-K, 2010). The company recognizes that marketing and sales strategies including service delivery, customer care activities play a vital role in generating sales from revenue. Out of numerous metrics, the dynamics of stock market price measures current and future perspectives of a public company. Media information, regarding Sprint’s current and upcoming activities had an impact on company’s stock price. The figure 12 displays dynamics of stock prices during February 14, 2012 to February 15, 2013. During this period, Sprint stock was on a constant rise; it started with 2.31 on February 14, 2012 and rose to 5.87 on February 15, 2013. This attributes to the 154 % increase in 12 months. During this period, Verizon and AT&T stock rise corresponds to 17 %, and 18 %. Mean of 26 analysts the current recommendation on Sprint stock is valued as Overweight (Analyst recommendations). Analysts that follow the company predicted 36.83-percent growth in 2013, 79.78 percent in 2014, 199.05 percent in 2015, and 210.58-percent in 2016 (Forecast Earning Growth). The analyst’s estimated price to earning ratio (P/E) for 2015 is going to be 34.53 % (Price / Earning Ratio). The Sprint Quarterly Investor Update (2013) mentioned the increase of Sprint Platform postpaid and postpaid Chum, postpaid and prepaid ARPU. The financial analysis section of this report noted about the company’s higher expenses and mentioned that company needed to find an optimal position between revenue and expenses. The Sprint Quarterly Investor Update (2013) indicates that the company recognizes this fact and moving forward to solving this issue. Sprint’s 4th quarter 2012 wireless cost of services is reduced to 2.21 billion from 2.291 billion in 12 months. Report also mentions that the company expects 2013 adjusted Operating Income before depreciation and amortization to be between $5.2 billion and $5.5 billion (The Sprint QUARTERLY INVESTOR UPDATE, 2013) Recommendation The purpose of the report was to evaluate Sprint’s past financial and stock performance, analyze current activities and future growth in order to determine if HTC could enter into two to three years product supply agreement with the company. We recommend HTC to enter with Sprint product supply agreement. We believe that HTC will receive a product that meets technical parameters with competitive price. Our recommendation is based (Spring has rocketed our estimate, 2013) on the company’s technical ability, upcoming business activities, current stock performance, analysts’ evaluation and information on discounted cash flow (Discounted cash flow analysis, 2012). 1. The company offers an integrated package of wireless and wireline communication services to 56 million customers. The company is widely known for developing innovative technologies, including first wireless 4 G service. Sprint owns extensive wireless networks, all digital global long-distance network and Tier 1 Internet backbone (Form 10 – K, 2010). Company’s technical evaluation is characterized as bullish (Spring has rocketed our estimate, 2013). 2. Sprint’s $ 20 B deal with the Japanese company SoftBank will help with cash. 3. Sprint’s partnership with Clarewire will optimize spectrum assets’ value creation. This will give Sprint full control of spectrum resource and LTE deployment. 4. Sprint’s deal with DISH will generate substantial cash from the use of Sprint’s platform by DISH. 5. Sprint’s mega project Network Vision will revolutionize the wireless industry and generate large profit. Through this plan, the company is concentrating on the core Sprint platform, which includes CDMA, WiMAX and Long-Term Evolution (LTE) technologies (Sprint seals deal with Clarewire). 6. The Valuentime Security identifies Sprint stock as the most attractive (Spring has rocketed our estimate). 7. Sprint’s cash flow generation is characterized as strong (Spring has rocketed our estimate). The figure 16 shows company’s past cash flow analysis, which has averaged 8.8 %. This is a positive indicator. Sprint’s excess cash was 3.924 billion, 5.473 billion, and 5.597 billion respectively in 2009, 2010, and 2011. Table 10, shows, future values of Sprint’s financial parameters (Discounted cash flow analysis, 2012). Figure 16. Cash flow analysis 2009 – 2011 2013 2014 2015 2016 2017 Revenue 35.730 B 36.802 B 37.906 B 39.043 B 40.214 B Gross profit 15.557 B 16.024 B 16.504 B 17.000 B 17.510 B EBITDA 6.072 B 6.076 B 6.074 B 6.067 B 6.054 B Free cash flow 2.153 B 2.039 B 1.916 B 1.784 B 1.643 B PV of cash flow 1.757 B 1.504 B 1.277 B 1.074 B 0.893 B Industry WAC = 11 % used for PV calculation. Table 10. Predicted financial parameters (Discounted cash flow analysis, 2012) 8. Sprint’s return on invested capital (ROIC) in 2009, 2010, and 2011 was respectively 3.4 %, 6.1 %, and 8.4 %. Analysts predict by 2016 worst-case scenario of this value to be 5.6 %, best-case scenario to be 15.6 % , and most-likely case to be 10.6 %. 9. Analysts predict that capital structure will consists of 54.9 % from debt and 45.1 % from equity. WACC is predicted to be 9.9 %, which is lower than industry average 11 %. 10. Valuation analysis indicate compound annual revenue growth rate for next five years to be 1.8 % against 3-year historical growth of minus 1.9 % (Spring has rocketed our estimate). Total equity value for the next five years is predicted to be 7.426 billion, and for the period from year 6 to year 20 to be 15.222 billion. Tables and Figures Year Revenue Operating Operating Expenses Income 2009 32.26 B 33.66 B -1.4 B 2010 32.56 B 33.16 B -0.6 B 2011 33.68 B 33.57 B 0.11 M Table 1. Revenue - Operating Income Figure 1. Revenue SPRINT NEXTEL Year Revenue Operating Net Income Income 2009 32.26 B -1.4 B -2.436 B 2010 32.56 B -0.6 B -3.465 B 2011 33.68 B 0.11 B -2.890 B Table 2. Revenue – Net Income Year Revenue Expenses Expenses / Revenue 2009 32.26 B 25.893 B 80 % 2010 32.56 B 26.928 B 83 % 2011 33.68 B 28.612 B 85 % Table 3. Expense – Revenue relation Figure 2. Expense – Revenue relation Year Net Depreciation, Non-cash Total non-cash Operating Income Amortization Items items Cash flow 2009 -2.436 B 7.463 B 0.01 B 7.474 B 4.891 B 2010 -3.465 B 6.373 B 1.947 B 8.32 B 4.815 2011 -2.890 B 4.936 B 2.457 B 7.393 B 3.691 B Table 4. Net income vs. OCF Year Cash flow Cash flow OCF Revenue OCF/ at the beginning at the end Revenue 2009 3.691 B 3.819 B 4.891 B 32.26 B 15 % 2010 3.819 B 5.173 B 4.815 B 32.56 B 15 % 2011 5.173 B 5.447 B 3.691 B 33.68 B 11 % Table 5. Cash flow against Revenue Year Cash flow Cash flow OCF/ Average at the beginning at the end Revenue Current ratio 2009 3.691 B 3.819 B 15 % 1.37 2010 3.819 B 5.173 B 15 % 1.18 2011 5.173 B 5.447 B 11 % 1.20 Table 6. Short-term solvency Year OCF/ Average Revenue Current ratio 2009 15 % 1.37 2010 15 % 1.18 2011 11 % 1.20 Table 7. OCF/Revenue – Current ratio Figure 3. Short-term debt Year Long-term Shareholders Debt to debt plus equity capital liabilities ratio 2009 10.251 B 18.1 B 36 % 2010 10.682 B 14.55 B 42 % 2011 11.191 B 11.43 B 49 % Table 8. Debt to Capital ratio Figure 4. Debt to Capital ratio Figure 5. Profitability analysis Outstanding share: 3.0 B Market cap: 17.76 B Book value / Share: 2.36 Market price as of February 13, 2013 : 5.86 Inst. ownership: 87 % Gross margin : 41 % (Sharehold. – Pref. equity):7.152B Figure 6. Sprint stock price Figure 7. Sprint stock trading Figure 8. Sprint annual stock trading Figure 9. Dynamic movement of stocks Market Cap. Revenue Gross EBIDTA Net income Margin AT&T 197.68 B 127.43 B 0.57 31.14 B 7.26 B Verizon 127.28 B 115.85 B 0.60 29.62 B 0.875 B Sprint 17.62 B 35.34 B 0.41 2.41 B -4.32 B Table 9. Stock fundamentals Figure 10. Net income distribution curve Figure 11. EPS distribution curve Figure 12. P/S ratios of three companies Figure 13. Sprint recent stock prices Figure 14. 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