Verizon Communications and AT &T Inc. (Essay Sample)

Company Analysis
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Company analysis
Introduction
Verizon Communications and AT &T Inc. provide telecommunication services worldwide. They are the most prominent companies in the field of communications. Both corporations have aggressively targeted to get opportunities to expand their customer base and expand into growing markets. Verizon Communications is based in New York and have had an excellent financial performance recently. The company focuses on the sale of wireless services. AT&T also offers telecommunication services and products. The services provided include long distance services, wireless communications, video services, internet services, telecommunication equipment and wholesale services. The telecommunication industry has continuously evolved due to the changes in technology. As a result, there has been an increase in wireless subscribers. This factor has long term repercussions on growth and margins for telecommunication companies.
Company Overview
AT & T's earned the highest revenue in 2015 which was a 7% increase from the previous earnings. Through the nine months of 2015, the operating income decreased for about 2% to $ 17.3 billion. The company earned a free cash flow of $ 13.3 billion. These are referred to as cash flow from its businesses less capital expenditures. The company conducts its business operations through four sections; consumer mobility, Entertainment group, Business solutions, and international. The entertainment unit offers the internet, video, and voice communication services (Bock, 2016).
The business solutions sections offer services to wholesale, business, and governmental consumers. These services are mostly available for residential customers in the United States. The company also has a user mobility section which comprises of AT&T Mobility business which provides the whole sale wireless services for resale subscribers based in the United States territories. Besides the company has a transnational section that offers services to customers located in Latin America. The services offered in this country include video entertainment services (Bock, 2016). It also has business customers in Mexico who can access data and voice communication services.
On the other hand, Verizon Communications reported and an increase in revenue in 2015. It was a 3.7% increase which amounted to $ 97.4 billion. This also resulted in a 7.3 % increase in the operating income which amounted to $23.3 billion (Rothman, 2016). The company earned $ 15.9 billion in the free cash flow which is about 50% rise from the earlier year that was contributed by higher cash flow from operations (Bock, 2016). Both companies have increased shareholder dividends through the use of prodigious free cash. The annual payout for AT&T has been on the increase since 2004. While Verizon Communications started increasing its dividend annually in 2007 (Smart Analyst, 2016).
Verizon is the leading wireless services supplier in the United States. The 4G LTE network is accessible to about 98% of the population. About 70% of the company's total sales comes from wireless operations (Rothman, 2016). The remaining percentage comes from the other operations such as data and broadband video. AT&T Inc. business operations are more balanced between wireless and wire line services. The 2014 financial report shows that Wireless contributed 56% of the total sales and 75% of the income (Rothman, 2016).
Corporate analysis
There are many factors that have led to the positive performance of Verizon Communications. The company is stable and has expanded its operations immensely. It also has modest payout ratios which have seen earning more income annually. Besides the company has steady returns on the invested capital. Their debt payout stands ate 45% which is good for a healthy business. An evaluation of the dividends for the company will be based on the ratio payout analysis. Earnings cannot be used since they are more unstable than the free cash flow. An analysis of the free cash flow about the payout ratio shows that the company has a free cash flow payout ratio of 49%. This is considered to have consisted to the levels that have been evaluated over the past years (Nasdaq, 2016).
AT&T earned lower than Verizon for many reasons. Its payout ratios have been volatile and higher compared to Verizon. Consequently, the returns on the company's invested capital have been low. Hence the sales increase has not been consistent. The cash flow payout ratio for the last four quarters amounted to 78%. The underlying reason for the company growth stalls is the payout ratio. Their payout ratio has been significantly higher than that of Verizon Communications in last decade. Verizon Communications have aimed to source $130 billion to double down on its wireless services. While AT&T have aimed at acquiring a $ 49 billion deal for Direct TV services (Nasdaq, 2016). These focuses provide strategic differences between the t