Introduction
Financial ratios are accounting tools used to assess the financial performance of a company (Pervan & Kuvek, 2013). In general, they are categorized into profitability ratios, efficiency ratios, solvency ratios, profitability, and current ratios. Each category, however, has multiple individual ratios. This paper seeks to present the financial ratios of T-Mobile, and compare them to Verizon Wireless’s, as well as the Telecom Industry’s.
| Financial Ratio | T-Mobile | Verizon Wireless | Telecom industry |
| Return on Invested Capital | 9.06% | 21.15% | 3.7% |
| Net Margin | 11.17% | 23.88% | 23.2% |
| Invested Capital Turnover | 282% | 180% | 225% |
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Return on Invested capital
Return on Invested capital is estimated by dividing the net profit by the operating capital. The larger the value, the better, as it implies the company gains more from the resources it uses in the production (Pervan & Kuvek, 2013). The table above shows that the latest Return on Invested Capital of T-Mobile was 9.06%; Verizon, 21.15%; and Telecom Industry, 3.7% (Marketwatch.com, 2018). Based on the above analysis, T-Mobile’s return was by far more than Telecom Industry’s. However, it was lower than Verizon Wireless’. That implies that T-Mobile is performing more than average companies, but it is not the best in the Telecom industry in terms of production efficiency.
Net Margin
Net margin is estimated by dividing the company’s net profit (profit after tax) by the total sales. The higher the margin, the better as it implies that the company’s expenses are low and that the investors and owners are gaining optimally (Pervan & Kuvek, 2013). It also implies that the company’s chances of growth are high since the firms use a portion of their profits to expand their sizes. In the analysis above, T-Mobile’s latest Net Margin was 11.17%; whereas, Verizon Wireless’s, and Telecom Industry’s, were 23.88% and 23.2%, respectively. That simply means that T-Mobile is less profitable than the average players in the Telecom Industry. It also means that T-Mobile is less profitable than Verizon Wireless. The difference is caused by the efficiency in production. That is, T- Mobile incurs comparatively higher production costs than Verizon Mobile and average companies in the Telecom Industry.
Invested Capital Turnover
Invested Capital Turnover is estimated by dividing sales revenue by the operating capital. The higher the value, the better since it implies the company employs more efficient production techniques (Pervan & Kuvek, 2013). According to the latest financial records, the Invested Capital Turnover of T-Mobile was 282%, Verizon Wireless's was 180%, and the Telecom Industry’s was 225% (Cristofoli, & Nordenström, 2018). Based on those results, T-Mobile made about $2.8 in revenue from each dollar it spend in the operating capital. Verizon Wireless made $1.8 in revenue from each dollar it spend in the working capital. Finally, on average, each company in the Telecom Industry made $2.25 in revenue from every dollar they spend purchasing/funding the operating capital. In summary, T-Mobile is more efficient than both Verizon Wireless and the average companies in the telecom industry. Therefore, based on Invested Capital Turnover analysis, investors should venture in T-Mobile.
Conclusion
To conclude, the Return on Invested Capital analysis indicates that T-Mobile is performing more than the average companies in the Telecom Industry, but lower than Verizon Wireless. Net Margin analysis reveals that T-Mobile is performing worse than both Verizon Wireless and medium companies in the telecom industry. Finally, Invested Capital Turnover analysis indicates that T-Mobile is performing better than both Verizon Wireless and average companies in the Telecom Industry.
References
Cristofoli, E., & Nordenström, P. (2018). Financial Performance & Trends in the Telecom Industry. retrieved from https://static1.squarespace.com/static/54922abde4b0afbec1351c14/t/5a9dcbdb652dea4758b036ad/1520290782479/Applied+Value+Telecom+Report+-+Q4+2017-2.pdf
https://s22.q4cdn.com/194431217/files/doc_financials/2017/annual/1500109984.pdf
Marketwatch.com. (2018). Verizon Wireless Financial Reports. Retrieved from https://www.marketwatch.com/investing/stock/vz/profile
Pervan, I., & Kuvek, T. (2013). The relative importance of financial ratios and nonfinancial variables in predicting of insolvency. Croatian Operational research review , 4 (1), 187-197.
