Summary for Data Comparison of Sprint and TMobil - Case Study Example

There can be different types of leverage involved in a financial sector. It can be a financial leverage, operating leverage, combined stand-alone or even correlation leverage. Leverage is generally measured by leverage ratios. For example, financial leverage can be determine either by debt-to-equity ratio, debt-to-value ratio or interest coverage ratio. Sprint Nextel and T-Mobile.USA (a subsidiary of T-Mobile International AG) are the third and fourth largest carrier in the United States, serving over 82.

8 customers across United States. Being close competitors both companies are trying to surpass each other both in terms of investment and its returns. On Feb 28th, 2008 SmartBrief Inc.released the fourth quarter and full year 2007 results of both companies. According to press leases, for fiscal year 2007, Sprint Nextel revenues decreased about 2.2% reaching to $40.1 billion versus $41.0 billion in 2006. The decline in revenue was due to a reduced contribution from Wireless, partially offset by an improved contribution from Wireline, an investment gain and an income tax benefit in the fourth quarter of 2007.

Its net assets declined to $64,109 millions in 2007 compared to $97,161 millions in previous year. Compared to Sprint Nextel "T-Mobile continues to drive strong year-over-year growth by pioneering innovation that matters to consumers," said Robert Dotson, CEO and President, T-Mobile USA. In years 2007, T-Mobile total revenues and asserts have raised to $19,288 millions and $43,359 - a 1.2% and 1.7% increase compared to 2006. The major contributing factors for an increase in revenue were contract, equipment sales, roaming and few other services, while short-term affiliate receivable loan and current portion of net deferred taxes resulted an increase in assets.

For 2007, Sprint Nextel's debt to equity ratio - a measure of financial leverage - remained 0.34 compared to 0.22 for 2006. The total decrease in liabilities was 4.4% ($42,110 millions, for 2007, $44,030 millions for 2006) .This decrease was due to a decrease in accrued expenses liabilities, Long-term debt and capital lease obligations, deferred tax and other current year liabilities. Overall the for 2007, average financial leverage was 2.91 compared to 1.83 in previous year (Sprint Nextel Corporation: Profitability, 2008).

During year 2007, T - Mobile total liabilities reduced too $5,297 millions compare $5,648 for 2006 (T-Mobile USA Reports Fourth Quarter and Full Year, 2008). Sprint Nextel's total operating costs for 2007, has increased to $69,056 million compared to $38,519 millions for 2006. Costs of services increased 3% annually and 1% sequentially. The increase is primarily due to a larger number of cell sites on air. Cost of products was 7% below the fourth quarter of 2006 due to the decrease in the cost we pay for handsets.

Cost of products in the quarter was flat with the third quarter. The ratio of fixed costs to total costs- an operating leverage measure was recorded to 0.78 compared to 0.60. The difference between