The company under review, Verizon Communications Inc., has had notable changes in its financial performance recently. It is worth noting that there are both positive and negative trends in various areas when looking at three years of data. Regarding return on assets, its achievement has slightly decreased from 6.46% in 2021 to 5.7% in 2022, indicating a decline in the company’s fundamental ability to generate earnings from its assets (Verizon, 2023). Return on equity showed an even more severe drop, reducing the return to shareholders from 29.49% in 2021 to 24.58% in 2022 (Verizon, 2023). In terms of investments, there is a similar decline of several percent over the same period, reducing potential involvement.
Liquidity ratios relate to a company’s ability to fulfill its obligations. Meanwhile, quick liquidity and current both showed negative growth, which cannot demonstrate efficiency in the long run (Hickman et al., 2013). Thus, such a fall may cause concerns about short-term liabilities. On the other hand, improvements are noticeable in the area of long-term debt management. The ratio of long-term debt to equity decreased from 1.75 in 2021 to 1.54 in 2022, and the ratio of total debt to equity also decreased from 1.84 in 2021 to 1.65 in 2022 (Verizon, 2023). Moreover, the interest coverage ratio has improved, indicating Verizon’s increased ability to cover interest expenses.
Regarding asset management ratios, the company’s overall ability also fell by 0.02 in the turnover area. Such an indicator could be considered harmful considering the general economic crisis, although accounts receivable and inventory turnover showed relatively stable performance. In the section analyzing such indicators, per share cash flow declined, but book value increased by more than two percent, emphasizing the company’s improved net asset quality. Thus, it is worth noting that with certain profitability and liquidity problems caused by various factors, the successes in debt management and shareholder value are more evident. In such a volatile environment, investors will likely want to keep a close eye on all developments and consider the broader industry context to assess an organization’s financial health comprehensively.
Interpretation
Table 1. Ratio Tendencies.
A more specific examination leads to a comprehensive assessment of the overall movement of the various indicators and a statement of the general prevalence of weaknesses against the performance of previous periods. With the changes described in the previous part, special attention must be paid to the lack of advancement in profitability and cost-effectiveness (Verizon, 2023). Moreover, the areas of short-term debt-to-equity can demonstrate the corporation’s increasing dependence on other people’s funds (Hickman et al., 2013). Thus, the overall financial strength moves negatively (Tab. 1). Profitability ratios are not increasing. Still, weakness in turnover management is no less critical, which, in the framework of improving the quality of debt management, can still have dire consequences.
Considering all the above indicators, the real strength is in the positive trajectory of long-term financial sustainability. Meanwhile, the overall indicators can be considered neutral, especially in the dynamics of the competitors’ crisis activity discussed below. Investors and analysts should actively monitor all trends to assess Verizon’s ability to address its overall financial health.
Comparison
Verizon Communications Inc. compares favorably to its industry peers in several key metrics. In terms of profitability, ROA (5.70%), ROE (24.58%), gross profit (56.79%), and net profit (15.53%) exceed the industry average, which is reflected as a positive side in Table 2. This indicates that the organization is much more efficient in generating returns on its assets, achieving higher returns to shareholders, and maintaining a healthier rate of return in an economically volatile market.
Within liquidity, the ratios are slightly below the industry average (Verizon, 2023). They have problems with short-term liabilities but are still within reasonable limits compared to competitors such as AT&T or Charter Communications. Moreover, the company excels at managing debt, which may mirror a more conservative capital structure and better ability to cover interest-bearing liabilities.
The danger can also be seen in asset management, where poorer performance is evident. Nevertheless, inventory turnover is well above average, which contributes to the positive assessment of this indicator of the company (Tab. 2). Thus, the strengths are particularly noticeable in debt management and profitability compared to competitors. In contrast, the problems in the area of inventory turnover and liquidity are less critical as they are not a specific original feature of Verizon. Thus, the overall indicators demonstrate the organization’s success and relatively stable position in the market.
Table 2. Ratio Comparison.
Verizon Performance Summary
In the overall format, the company is performing better than average financially. The interpretation of all presented and analyzed ratios is based on the assumption of the fundamentality of debt management and overall profitability in the sustainability format. Profitability, essential for sustaining operations and attracting investors, is partially counterbalanced by long-term debt allocation and efficiency.
The explanation and evidence lie precisely in the dynamics of the industry and the worse position of many of its main competitors. Based Thus, it should be noted that the overall financial performance of the company is indeed assessed as above average, as evidenced by a reasonable mix of individual indicators (Tab. 2). Even though they focus on areas of potential improvement in liquidity and asset efficiency and may be worse than in previous years, in the context of the crisis and against the background of competitors, the overall attractiveness of the company is high.
References
Hickman, K. A., Byrd, J. W., & McPherson, M. (2013). Essentials of finance. Bridgepoint Education.
Verizon. (2023). Financial reporting summary. Verizon Communications Inc. Web.