AT&T corporation was originally known as the American Telephone and Telegraph Company.
Alexander Graham Bell’s invention of the telephone in 1876, lead to the Bell Telephone company. The Bell Telephone Company was founded in 1877 by Bell’s two financial backers, Gardiner Hubbard and Thomas Sanders. AT&T was brought in as a subsidiary to Bell in 1885. Their current headquarters are in Dallas, Texas. They provide voice, video, data, and internet telecommunications. This corporation provides service to families, businesses, and government agencies. AT&T is a corporation that has a net worth of $200 billion. As of 2017, AT&T is the largest telecommunication company in the world, making them the second largest provider of mobile telephone services. AT&T currently has 400 million mobile subscribers, 3.5 million business customers, 38.8 million video subscribers. They currently have 273,000 employees. In a way to expand their corporation, AT&T recently bought Time Warner Cable in June 2018, which also gave them ownership of HBO, Cartoon Network, DC Entertainment, and many more television companies. In September 2018, AT&T made the world’s first standards-based mobile 5G millimeter wave connection. They currently have plans to launch mobile 5G in twelve cities across the country and by early 2019, they plan to introduce mobile 5G in an additional seven cities to make a total of nineteen, and continue to expand from there.
Analysis:
The current ratio is a widely used measure for evaluating a company’s liquidity and short-term debt-paying ability. The 2016 current ratio of 0.76:1 means that for every dollar of current liabilities, AT&T has $0.76 of current assets. AT&T’s 2017 current ratio of 0.97:1 was an increase compared to the year before. If a company has a high ratio then they are capable of paying their short-term obligations. If the company's current ratio is below 1, this suggests that the company cannot pay off their short-term liabilities with cash. The quick ratio is a measure of a company’s immediate short-term liquidity. The 2017 quick ratio of AT&T was 0.82:1, which was an increase from the previous year of 0.45:1. AT&T’s quick ratio of 0.82:1 means that a company has $0.82 of liquid assets available to cover each $1 of current liabilities. The ratio used to assess the liquidity of the receivables is the accounts receivable turnover. It measures the number of times, on average, the company collects receivables during the period. AT&T’s accounts receivable turnover went from 9.8 times in 2016 to 9.6 times in 2017. A popular variant of the accounts receivable turnover is to convert it to an average collection period in terms of days. To do so, we divide the accounts receivable turnover into 365 days. For example, the accounts receivable turnover of 9.6 times divided into 365 days gives an average collection period of approximately 38 days. This means that accounts receivable are collected on average every 38 days. The general rule is that the collection period should not greatly exceed the credit term period (the time allowed for payment). Inventory turnover measures the number of times, on average, the inventory is sold during the period. Its purpose is to measure the liquidity of the inventory. AT&T’s inventory turnover of 36.3 times in 2017 was a great improvement compared to 25.3 times in 2016. Generally, the faster the inventory turnover, the less cash a company has tied up in inventory, and the less chance a company has of inventory obsolescence. Profit margin is a measure of the percentage of each dollar of sales that results in net income. AT&T had a profit margin of 7.9% in 2016. It experienced an increase in its profit margin in 2017 as it went up to 18.3%. Asset turnover measures how efficiently a company uses its assets to generate sales. Asset turnover shows that in 2016 and 2017, AT&T generated sales of $0.40 for each dollar it had invested in assets. The ratio stayed the same from 2016 to 2017 at 0.4 times. An overall measure of profitability is return on assets. AT&T’s return on assets improved from 3.2% in 2016 to 6.9% in 2017. Another widely used profitability ratio is return on common stockholders’ equity. It measures profitability from the common stockholders’ viewpoint. This ratio shows how many dollars of net income the company earned for each dollar invested by the owners. In 2016, their rate of return on common stockholders’ equity was at 199.8%, and in 2017 it increased to 453.4%. Times interest earned provides an indication of the company’s ability to meet interest payments as they come due. For AT&T in 2016, their interest expense was covered at 5 times, while in 2017 it was covered at 3.3 times. The debt to equity ratio compares a company’s total debt to total equity. The debt to equity ratio shows the percentage of company financing that comes from creditors and investors. In 2016, AT&T’s debt to equity ratio was 227.9% and in 2017 it was 215.3%. A higher debt to equity ratio indicates that more creditor financing (bank loans) is used than investor financing (shareholders). Gross margin ratio is a profitability ratio that compares the gross margin of a business to the net sales. This ratio measures how profitable a company sells its inventory or merchandise. AT&T’s gross margin ratio went from 53.1% in 2016 to 51.8% in 2017. In 2016, they were selling their inventory at a higher profit percentage compared to 2017.
Conclusion:
I would not recommend investing into AT&T because they do not have complete control of the market in telecommunication. The media business experiences benefits of scale since it costs the same to produce a series or film, but Warner Media isn't any bigger than other big cable media companies. Time Warner saw declining operating margin in 2017 as well as its cost of content increased at Turner and HBO, but revenue didn't keep pace. AT&T has a barrier around its wireless business, its largest segment, but its other businesses aren't as well positioned. AT&T faces a tough situation in pay TV. While it's starting to add subscribers once again, thanks to its DIRECTV Now streaming service, those subscribers are coming at a much lower margin. The tough competitive climate in the wireless service space and cord-cutting in TV land have put the business on a low growth trajectory. As the trend accelerates in 2018, AT&T will have trouble growing revenue from its pay TV subscription business as well as Warner Media affiliate fees. After acquiring DIRECTV and Time Warner, AT&T has racked up a hefty amount of debt. With the high level of debt and new shares outstanding, AT&T may continue the trend of extremely low dividend increases, but if it faces any unexpected challenges in any of its main businesses, investors could see negative consequences in the capital return program. Investors shouldn't expect much growth from the company's top line over the next few years, as competition in the wireless industry remains fierce and replacing TV subscribers with DIRECTV Now subscribers that bring in less revenue will put pressure on the top line in the entertainment segment. I think AT&T's debt and its positions in the highly competitive wireless market and declining pay TV market make the company unattractive.