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All numbers in thousands The DuPont system of analysis with application to AT&T and Verizon The DuPont analysis showed that Verizon did a much better job than AT&T at maximizing shareholder wealth from years 2006-2008. This observation was concluded by looking at the 2006-2008 Income Statements and Balance Sheets of each company. Using this data, the DuPont analysis was then applied to each company which included cross-sectional as well as time-series analysis. The following is a summary of these results. In 2006, AT&T had Total Revenue (Sales) of $63.055 billion and a Net Income of $7.356 billion. Comparatively, Verizon showed Sales of $88.144 billion and a Net Income of $6.197 billion. This created a Net Profit Margin of 11.7% for AT&T and 7.0% for Verizon. AT&T had $270.634 billion in Total Assets, owing $155.094 billion in Total Liabilities. Verizon on the other hand posted $188.804 billion in Total Assets, owing $140.269 billion in Total Liabilities. This allowed the Total Asset Turnover to be 0.23 for AT&T and 0.47 for Verizon. By dividing the Total Assets by the Common Stock Equity, the Financial Leverage Multiplier (FLM) was found for each company. AT&T’s FLM was 2.34 while Verizon’s was 3.89. We also calculated each company’s Return on Total Assets (ROA), which equaled 2.7% for AT&T and 3.3% for Verizon. Finally, the Return on Common Equity (ROE) was found for each company by multiplying its FLM by its ROA. AT&T posted a 2006 ROE of 6.4% while Verizon had a ROE of 12.8%. This concludes that in 2006 Verizon shareholders earned $0.128 on every dollar the company made while AT&T shareholders earned $0.064 on each dollar. During 2006, Verizon did a much better job at maximizing shareholder wealth because it had a much higher FLM (3.89) than AT&T (2.34). This difference allowed Verizon to have a 6.4% better ROE than AT&T. In 2007, AT&T had Sales of $118.928 billion and a Net Income of $11.951 billion. Comparatively, Verizon showed Sales of $93.469 billion and a Net Income of $5.521 billion. This created a Net Profit Margin of 10.0% for AT&T and 5.9% for Verizon. AT&T had $275.644 billion in Total Assets, owing $160.277 billion in Total Liabilities. Verizon on the other hand posted $186.959 billion in Total Assets, owing $136.378 billion in Total Liabilities. This allowed the Total Asset Turnover to be 0.43 for AT&T and 0.50 for Verizon. AT&T’s FLM was 2.39 while Verizon’s was 3.70. We also calculated each company’s ROA, which equaled 4.3% for AT&T and 3.0% for Verizon. AT&T posted a 2007 ROE of 10.4% while Verizon had a ROE of 10.9%. This concludes that in 2007 Verizon shareholders earned $0.109 on every dollar the company made while AT&T shareholders earned $0.104 on each dollar. During 2007, Verizon had the slight edge at maximizing shareholder wealth with a 0.5% lead on AT&T because it had a much lower Common Stock Equity ($50.581 billion) than AT&T ($115.367 billion). This then resulted in a 1.31 higher FLM (3.70) for Verizon, which gave them a slightly higher ROE (10.9%). In 2008, AT&T had Sales of $124.028 billion and a Net Income of $12.867 billion. Comparatively, Verizon showed Sales of $97.354 billion and a Net Income of $6.428 billion. This created a Net Profit Margin of 10.4% for AT&T and 6.6 % for Verizon. AT&T had $265.245 billion in Total Assets, owing $168.898 billion in Total Liabilities. Verizon on the other hand posted $202.352 billion in Total Assets, owing $160.646 billion in Total Liabilities. This allowed the Total Asset Turnover to be 0.47 for AT&T and 0.48 for Verizon. AT&T’s FLM was 2.75 while Verizon’s was 4.85. We also calculated each company’s ROA, which equaled 4.9% for AT&T and 3.2% for Verizon. AT&T posted a 2008 ROE of 13.4% while Verizon had a ROE of 15.4%. This concludes that in 2008 Verizon shareholders earned $0.154 on every dollar the company made while AT&T

All numbers in thousands shareholders earned $0.134 on each dollar. This means that during 2008, Verizon did a better job at maximizing shareholder wealth because it had a much higher FLM (4.85) than AT&T (2.75). This difference caused Verizon to have a ROE that was 2.0% better than AT&T. Looking at AT&T from 2006-2008, we see that both Sales and Net Income have increased over time. However, with this increase we notice that AT&Tâ€™s Total Liabilities have also increased. Total assets have stayed about the same and Common Stock Equity has decreased. The most important statistic for the company is that its ROE has consistently improved each year, from 6.4% in 2006, 10.4% in 2007, and 13.4% in 2008. This means that while stockholders are not seeing as much of a return as those who hold stock in Verizon, AT&T is consistently raising stockholder wealth. Looking at Verizon from 2006-2008, we see a slight increase in Sales, with a Net Income that stays about the same. Both Net Fixed Assets and Long-Term Debt have increased, while Total Assets and Total Liabilities have generally stayed the same. The difference between Verizon and AT&T comes in Equity. Verizon has consistently lower Equity than AT&T, averaging a $62.144 billion difference each year. This means that the FLM has been consistently larger for Verizon, resulting in a higher ROE each year. Since ROE is defined as a measure of how the stockholders fared during the year, the simple fact that Verizon had a consistently larger ROE (12.8% in 2006, 10.9% in 2007, 15.4% in 2008) than AT&T (6.4% in 2006, 10.4% in 2007, 13.4% in 2008) in each given year provides us with the answer that Verizon did indeed do a better job at maximizing shareholder wealth.

AT&T vs Verizon

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AT&T vs Verizon

Published on Apr 2, 2012

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