Financial Management: AT and T - Case Study Example

Financial Research Report Introduction and Brief background of the company adopted Most companies are increasingly opening their doors for investors with the aim of raising more capital for infrastructural development and market expansion. The companies attract investors who have the capacity of financing particular projects they undertake in return of unit earnings. The companies do everything within their power to inform the public about their potentials, the reason for partnership and performance levels. Such information is vital for potential investors in ensuring effective decision-making on whether to invest or not. Ideally, the decision to invest in a company is reached after the potential investor has made various considerations (Reich, 2002). The considerations are made to guarantee safety and ensure that the capital injected accrues good returns in the long-run. The notable considerations that investors make before injecting cash in a company include but not limited to profitability index, earnings per share value, current ratio, liquidity ratio, customer base, asset capacity, and future growth plans. As indicated in the New York Times, Such information is crucial for investors to enable them ascertain the stability of the company and its viability going forward. They also assist them in establishing the sustainability of the services and the potential returns expected. Investors are people whose concern revolves around the value of the return they are able to acquire from an investment (Reich, 2002). Variably, they value continuity of the company and its stability in the market in terms of competition. The highlighted aspects are critical factors that any potential investor must consider without reservations. This paper provides reliable information on key factors that influence investment decisions that investors should consider. It focuses on AT & T Inc that is a leading telecommunication corporation in the US. The company produces electronic and telecommunication equipments that it sells globally. The products include phones, radio and broadband services. Since its inception the company has been performing exemplarily in terms of profitability, asset value and customer base. In May 2014, the company was named the second largest corporation by revenue and market share. Currently, it has a strong EPS value, profitability ratio, liquidity ratio and quick ratio New York Times. The positive performance trend the company has been recording is noble for making investment decisions. Potential investors cannot have difficulties in establishing whether to invest or not to invest in the company since its performance indicators are depicting positive returns. Therefore, as an investment advisor, it is prudent for a potential investor to consider investing in the company. The rationale for choosing the company AT & T has been chosen for the study whose aim is to provide pertinent information pertaining to its performance in advising a potential investor to make investment in the company. Its financial and general performance is dissected to facilitate effective investment decision-making. The rationale for choosing the company as an investment destination that investors can consider is its strategic position in the telecommunication sector and performance (Reich, 2002). The company’s performance is evaluated based on key performance indicators that include liquidity ratio, profitability index, current ratio, asset base value, market share, among others. The evaluation is to establish the trend of performance to aid accurate decision-making by investors. Ideally, investors rely on such information to enable them build confidence about a company and its future growth. They consider the performance parameters to avoid possible risks involved in making irresponsive investments. As noted, investor’s interest is majorly dependent on the earnings per share and returns expected including continuity. This makes them to invest in companies with reputable performance where the realization of good returns is guaranteed. No one would like to invest in a company that record dismal performance due to the risks involved. Such companies may collapse or go under easily leaving investors in huge loses (Geisst, 2000). Hence, the reason why investment decisions must be based on clear-cut performance parameters. Major factors that drive the decision to consider AT & T as a viable company for investment include The company’s earnings per share that stand at 3.26% indicate how lucrative it is, to invest in the company. The value of the EPS is significant for investors since it measures the return on investment they are bound to make. From a financial perspective, a positive EPS figure is an indication that things are right in the company and that it gives investors value for their money. However, a company with diminishing EPS value depicts poor management and performance (Geisst, 2000). The EPS figure of 3.26 indicates that AT & T Inc is determined towards given its investors value for their investment. Secondly, the company’s market capital is upbeat based on the current rate that stands at 176.0%. The figure shows that the company has developed viable marketing strategies and promotional mix aspects. The company reaches out to many customers as globally that in turn leads to the expansion of its market capital. Thirdly, the company’s current ratio that measures that its responsiveness in managing assets and liabilities stands at 72%. The positive figure shows that the company’s current assets value surpasses its current obligations. That is, the company’s liability is lower than the asset base that is noble for business. The company also has appositive liquid ratio that measures that liquidity capacity of the institution. The figure shows that the company is liquid enough to sustain its activities and that it may not undergo liquidation in the near future. These aspects give clear indications why most investors prefer investing in this company. Determination of an investor’s profile Any company seeking for a strategic partner or an investor must carefully study the profile of the interested investor. The study is vital in establishing the credibility and reliability of the entity given that investors play a critical role in the performance of companies. Geisst (2000) noted that, experiences indicate that investors have contributed to success and downfall of most companies globally. In particular, investors cause downfall if they join with an ulterior mission. Such entities may be rivals within the sector the company operates that comes with the aim of destabilizing the competitiveness of the institution. Therefore, it is prudent for companies such as AT & T to profile those with interest in investing in the company effectively. The companies must establish the income base, value in terms of assets and liabilities, passion in the business, and past activities. AT & T Inc must establish the profile of the potential investors that can join its portfolio of investors. The company must establish their past dealings, whether they are rivals, their passion in the business, sector of interest, income levels, asset base and age. The company should also establish the category of the potential investors whether they are defensive investors, conservative, moderate, balanced or growth investors (Geisst, 2000). The idea is to get an investor who believes in seeing the company grow to higher levels and value its products. Secondly, it is essential in bringing onboard a partner who can protect the integrity of the institution towards the realization of its objectives. Subsequently, investor profiling is noble since it will enable the company to bring onboard an investor with immense financial capability who can finance the company at times of financial difficulties. Investor profiling is also important since it facilitate knowledge of the principal interest of the investors, in terms of return on investment, the advancement of company growth or destabilization of the company. Analysis of the financial ratios As established from the financial statements, AT & T Corporation has been recording positive financial ratios over the years. The financial ratios depict how successful the company has been in the management of its affairs that in turn leads to good performance. In particular, the company has been recording improved revenue amounts yearly. For instance, its revenue level for the years 2011, 2012 and 2013 stood at $126,723, 127,434 and 128,752 respectively. The company’s exemplary performance is also depicted by the amount of annual profits that it recorded in the years 2012 and 2013 that stood at $272,235 and 277,787 respectively (Geisst, 2000). The high profitability index and revenue value shows that the company manages its cash inflows and outflows effectively. This leads to the realization of surplus amounts that it uses to finance various expansion activities. In terms of ratios, the company’s five major ratios that determine performance capacity include EPS ratio, current ratio, quick ratio, gross ratio and cash ratio records positive figures. Investors evaluate the viability of a company before making any investment using the ratios. The positive figures recorded gives hope to most investors whose interest lies on the earnings they can salvage in an investment plan. In particular, the current EPS figure of the company stands at 3.39 in the year 2013, 1.25 in 2012and 0.97 in 2011 (The New York Times, 2014). The figures show a steady increase in the value of shares or returns that investors receive every year. The growth in EPS is good for the company since it passes a positive message on the company’s ability to manage investor’s needs appropriately. EPS is one of the foremost ratios that investors check given that it determines the decisions they make. Low EPS ratio attracts few investors while high EPS value attracts more investors to a company. Current ratio forms another key factor that determines investment decisions in most settings. The company’s current ratio for the three years stood at 74% in the year 2011, 71% in the year 2012 and 66% in the year 2013. The positive results indicate that the company’s asset base is stronger than its obligations. This is good for business since a company that operates in huge liabilities cannot sustain its activities in the long-run. On the other hand, the company’s quick ratio for the years 2011, 2012 and 2013 also stood at 74%, 71% and 66% while its cash ratio for the same periods stood at 10%, 15% and 10% for the years respectively (Geisst, 2000). AT & T also recorded a high gross margin fin the three consecutive years, which shows high prospects for the investors. The company’s financial health Based on the presented figures, the company’s financial health is highly sound and encouraging. The company’s financial statements depict a viable institution that is bound to attain greater heights in terms of performance. The figures show a well-managed institution that operates with the objective of value addition to its stakeholders (Khan & Jain, 2004). It was founded under a solid financial management system and that trend has become the inseparable norm that everyone works towards upholding. From the perspective of a financial expert, a company that registers more than +0.1 in its major financial ratios such as EPS ratio, quick, current, price earnings and cash ratios holds the capacity to expand. Such companies provide investors with the best investment opportunities due to sustainable performance. However, companies that reports –ve figures in their ratios, present immense risks that investors must be weary of especially in the current competitive environment. The risk level of the company Despite the good performance of the company, various risks that must be mitigated effectively are eminent. The risks are attributed to emerging management challenges, production systems, diminishing resources, marketing complications, increased cost of production, other overhead costs and competition (Khan & Jain, 2004). These challenges are presenting financial diminishing risks, increase in liability, operational risks, and financial control risks. The risks may impede the company’s ability to sustain its performance since they are major determinants of high returns. In particular, the company should be concerned about the increase in liability levels that may jeopardize its current ratio strength. The increase in liability may also expose the company to huge bills hence affect its profitability capacity. Likewise, the fluctuating nature of the current ratio and increase is worrying since it threatens the sustainability of performance (Khan & Jain, 2004). To avoid the eminent risks, the company must formulate effective ways and approaches to streamline operations. Firstly, the management of the company should integrate effective financial management system to eradicate wastage of resources. The system is vital in ensuring that finances are used in executing activities they are allocated without deviation. High level of responsibility within the financial handlers leads to optimization of the available capital and in turn advances profitability index (Pandey, 1999). Similarly, the company should reduce the expenditure levels to ensure that operations are executed at a breakeven point. The company should also protect its competiveness by producing customer-oriented products with high functional capacity. The strategy would enable it retain and attract more customers hence increase performance levels. To achieve optimal returns in investment To achieve optimal returns out of an investment, investors must know what they want to achieve and why they consider an investment plan. This is imperative given that some investors have unrealistic expectations from the investments they make. They invest with the sole mind of getting rich by making more money. Unfortunately, most individuals with unrealistic monetary expectations have received unmatched disappointment and frustration. In this regard, an investor must understand that some of the investments do not yield quick returns and that patience is a vital principle in investment circles (Pandey, 1999). They should understand the parameters of effective investment that facilitates quality returns. Without proper study of the company, an investor can end up investing is a sector with immense challenges that holds no prospects of success. Understanding the company and the sector of investment is imperative since it gives them the opportunity to make the right decisions at the right time. According to xx some companies may look promising on the surface yet they are not competitive enough to maintain good performance. Due to this, a potential investor should execute his homework well about the prospective institution that he seeks to invest in by interviewing other investors and stakeholders. Recommendations of this stock as an investment opportunity Indeed, AT & T Corporation remains a vibrant institution that any potential investor should consider. The company that is known for production of telecommunication products and services has been reporting good performance over the years. It has well managed financial system, business product, marketing system, production system and superior management structures. Likewise, the company has a strong market base, financial capacity, high profile business partners, and income levels. It treats its stakeholders with immense decorum and respect in full knowledge that its performance is dependent on their input. Based on financial performance, the company has been named one of the largest corporations by revenue globally. The positive performance over the years has contributed in the strengthening of its financial ratios that include quick ratio, EPS, current ratio among others. Therefore, the company is recommended for a potential investor who is keen to receiving reasonable return on capital. The investor can consider purchasing the company’s shares through the stock market or through strategic partnership. Investment can also be made through subsidiary arrangement where the investor agrees to finance the opening of a new branch or a distribution outlet to aid sales of the company’s products and services. The recommendation is based on the company’s key strengths that include Positive current ratio Positive EPS value Effective management strategies Good marketing plan Strong market base High profile business partners Exemplary profitability index Conclusion Indeed, AT & T Inc remains a renowned telecommunication cooperation whose performance iis propelling its attractiveness to potential investors. The company that was formed in the year 1983 with the mission to be the leading telecommunication solution provider has been reporting exemplary performance as contained in its books of accounts. Over the years the company that produces mobile phones and broadband services, has been attracting investment from various quarters of the world. Investors have always kept an eye on its performance in the stock market and internal profitability. Currently, the company has several shareholders who affirm its future sustainability in the market. Its market base and strong performance has made most financial advisors to cite it, as one of the best companies to invest in, in this century. Its attractiveness is attributable to its strong revenue base, market share and competiveness. The attributes are evident since the institution was awarded for its good reputation and performance. It emerged the second largest company by revenue and market base in the telecommunication sectors according to the Forbes report released in may 2014. The performance makes the company to stand out as one of the best institution an individual should invest in. References AT&T Inc. The New York Times. (n.d). Retrieved from http://topics.nytimes.com/top/news/business/companies/at_and_t/index.html Geisst, C. R. (2000). Monopolies in America: Empire builders and their enemies from Jay Gould to Bill Gates. New York: Oxford University Press. Khan, M. Y & Jain, P. K. (2004). Financial management ; Text, problems and cases. New Delhi: Tata McGraw-Hill. Pandey, I. M. (1999). Financial management. Delhi: Vikas Publishing House. Reich, L. S. (2002). The making of American industrial research: Science and business at GE and Bell, 1876-1926. Cambridge: Cambridge University Press. Read More