Competitor Analysis and Projected Future Industry Selection
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FINC 495 Project Descriptions
Stage Two - Competitor Analysis and Projected Future Industry Leader Selection
(10% of the Final Course Grade)
Due at the end of week 5
This project is closely aligned with the Course Outcomes and Finance Program Objectives.
Completion of this project can be used as part of a portfolio to show potential employers
the student is skilled at performing company valuations and financial statement analysis
and can be included on the student's resume.
YOUR SPECIFIC ASSIGNMENT
1. Introduction (The paper should begin with a short introduction (explains the purpose of the
paper and provides an overview of the contents that follow) (5% of the project grade)
2. Complete a ratio analysis of the top three (3) competitors in the industry using the
company’s financial statements. (20% of the project grade)
You may wish to utilize some of the "managerial" financial statements that your textbook
illustrates, such as the Managerial Balance Sheet.
The ratio analysis should include:
a) 5-year trend analysis of each company selected and compared to the industry averages
and
b) competitive analysis of the selected major competitors using four main standards:
profitability, liquidity, debt, and return on equity.
3. Establish growth projections for three (3) top competitors using established methods,
including pro forma income statements and balance sheets for the coming year. (15% of the
project grade).
The growth projections should be based on the global and domestic economies trends,
industry conditions, and the industry’s opportunity to grow you investigated in Stage One of
the project.
4. As a result of your findings and estimations, choose one company as the projected future
industry leader. Explain your choice. (10% of the project grade). Please also include a
discussion of the company's business model, core products or services, growth prospects
and key cost items. If the company that is selected is engaged in foreign markets, you will
need to discuss the potential for growth of those markets and any special risks those markets
may pose, and risk management techniques for managing those risks effectively.
5. Analyze financial measures for the projected future industry leader. (15% of the
project grade)
It is expected that you will discuss why you selected the measures used, interpret the
data, and explain what this information suggests about the company’s financial situation
and future financing needs.
Choose two or more measures from the list:
Each company’s capital structure
Cost of capital
CAPM,
cash flows,
value of common stock
MVA.
6. Project the future stock price of the company you chose as the projected future industry
leader in light of your review and analysis. (15% of the project grade)
Based on your findings and estimations in Stage 1 and Stage 2 of the project, forecast the future
stock price of the company you have selected as an industry leader and include a discussion of any
important changes that may take place in terms of the potential growth of the market, impact on the
availability and cost of capital and any basic resources the company will need to succeed.
7. Reflection – the student should write a paragraph in their own words reflecting on
specifically what they learned from the assignment and how they think they could apply
what they learned in the workplace. (5% of the project grade)
Your research should include a survey of business periodicals, industry data from established
sources, analyst reports, news articles, and journals as appropriate.
Your paper should be supported by spreadsheets, graphs, and tables. All tables and graphs
should have the numbering system, like “Table 1...” the title, and foot/end note to
reference the data.
The Stage 2 Competitor Analysis and Projected Future Industry Leader Selection should be
about 7-8 pages in length (more is OK!) with a minimum of 3 to 4 references and no more than 3
attachments. Written projects must be:
1. typed, double-spaced, in 12-point Times New Roman or Arial font, with margins no
wider than one inch
2. have footnotes or endnotes, with correct citations
3. have a bibliography of sources used
4. include, for each entry, the author, title, city and state of publisher, publisher's name,
year, and page numbers
5. prepared using word processing software (Microsoft Word preferred), in a manner similar
to the preparation of a written assignment for classroom submission
For APA formatting assistance please see below for online tutorials.
Please note that starting from the Fall 2020 semester the UMGC moved to the 7th Edition
of the APA Style. The links to the 7th Edition of the APA Style methodology are posted in
Content – Course Resources – Writing Resources.
Submit your completed work to the Final Project, Stage 2 Assignment Folder.
PRESENTATION OF PAPER AND WRITING (15%) of the project grade):
-Organization, Format and Presentation of Paper including the Title page, Introduction, Body,
and Summary. Each section of the paper must begin with sub-headings. Please use the sub-
headings included in the assignment (4% of the project grade)
Use of Tables, Figures and Other Graphics to Summarize and Support Analysis Presented in the
Paper (3% of the project grade)
Logical and Smooth Flowing Transitions and Relationships among Sections of the Written
Report (3% of the project grade)
Research Sources and Significance of Research Information and Data, Use of APA Citation
Methodology (5% of the project grade)
Competitor Analysis and Projected Future Industry Selection
Although the global COVID-19 lockdown initially increased the demand for telecom services, recent evidence suggests that the industry has witnessed a slow demand across enterprises in the same period CITATION Gra20 \l 1033 (Grand View Research, Inc., 2020). However, industry experts assert that using A.I. and IoT in business offers opportunities for growth for all stakeholders in telecommunications. Prominent industry players such as AT&T, Verizon, and Comcast are already spending heavily on deploying 5G infrastructure to capture a broader customer base CITATION Gra20 \l 1033 (Grand View Research, Inc., 2020). Together with expanding customer base, there is pressure on enterprises’ growth and profitability. Nevertheless, where there is competition, there is a place for comparison and analysis of the financial performance of companies in the industry. Thus, this paper performs valuations and financial statement analyses of three prominent industry players; AT&T, Verizon, and Comcast. The financial statements have been used as an information source to conduct the financial benchmarking of the three telecommunication companies. The paper further details growth projections for the companies and outlines the future industry leader among the three players based on estimations of local and global economic trends.
Ratio Analysis
The financial summary of the balance sheet below is based on the respective telecommunication companies’ filings with SEC (The U.S. Securities and Exchange Commission) through the EDGAR system.
Trend Analysis
Table SEQ Table \* ARABIC 1: AT&T Selected Income Statement Trend Analysis
AT&T Inc. Financial Performance
Year
Revenue
($million)
Change (%)
Operating income ($million)
Change (%)
2017
160,546
N/C
19,970
N/C
2018
170,756
=(B4-B3)/B3*100 \# "0.00%" 6.36%
26,096
=(D4-D3)/D3*100 \# "0.00" 30.68
2019
181,193
=(B5-B3)/B3*100 \# "0.00%" 12.86%
27,955
=(D5-D3)/D3*100 \# "0.00%" 39.98%
2020
171,760
=(B6-B3)/B3*100 \# "0.00%" 6.98%
6,405
=(D6-D3)/D3*100 \# "0.00%" -67.93%
2021
168,864
=(B7-B3)/B3*100 \# "0.00%" 5.18%
23,347
=(D7-D3)/D3*100 \# "0.00%" 16.91%
AT&T’s revenue dropped in 2021 following the sale of its Vrio business unit in November of the same year and the sale of the company’s wireless and wirelines operations in the Virgin Islands and Puerto Rico. The decline in revenue is also associated with lower revenues following the high demand for COVID-related connectivity in 2020. Other factors detailed in the company’s annual report also contributed to the 2020-2021 decline in revenue. While the operating income also declined in 2020 following the COVID-19 lockdown, there was a significant increase in 2021. There was a significant increase in the operating margin the same year to 13.8% compared to the previous 3.7%.
Table SEQ Table \* ARABIC 2: Verizon Selected Income Statement Trend Analysis
Verizon Financial Performance
Year
Revenue
($million)
Change (%)
Operating income ($million)
Change (%)
2017
126,034
N/C
27,425
N/C
2018
130,863
=(B4-B3)/B3*100 \# "0.00%" 3.83%
22,278
=(D4-D3)/D3*100 \# "0.00" -18.77
2019
131,868
=(B5-B3)/B3*100 \# "0.00%" 4.63%
30,378
=(D5-D3)/D3*100 \# "0.00%" 10.77%
2020
128,292
=(B6-B3)/B3*100 \# "0.00%" 1.79%
28,798
=(D6-D3)/D3*100 \# "0.00%" 5.01%
2021
133,613
=(B7-B3)/B3*100 \# "0.00%" 6.01%
32,448
=(D7-D3)/D3*100 \# "0.00%" 18.32%
Unlike AT&T, Verizon’s 2021 was an excellent financial year that ended with a significant increase in revenue. The revenue decline in 2020 is primarily associated with the COVID-19 pandemic, which reduced wireless services revenue because people were locked down. Excluding 2020, it is evident that Verizon Communications Inc. has steadily increased its revenue over the past five years. Nevertheless, 2018 was a rather difficult year for Verizon as they witnessed a decline in their profit margins following a rise in their operating expenses, which also caused a sharp drop in the operating income, as seen in Table 2 CITATION Bry21 \l 1033 (Darek, 2021).
Table SEQ Table \* ARABIC 3: Comcast Selected Income Statement Trend Analysis
Comcast Financial Performance
Year
Revenue
($million)
Change (%)
Operating income ($million)
Change (%)
2017
85,029
N/C
18,018
N/C
2018
94,507
=(B4-B3)/B3*100 \# "0.00%" 11.15%
19,009
=(D4-D3)/D3*100 \# "0.00" 5.50
2019
108,942
=(B5-B3)/B3*100 \# "0.00%" 28.12%
21,125
=(D5-D3)/D3*100 \# "0.00%" 17.24%
2020
103,564
=(B6-B3)/B3*100 \# "0.00%" 21.80%
17,493
=(D6-D3)/D3*100 \# "0.00%" -2.91%
2021
116,385
=(B7-B3)/B3*100 \# "0.00%" 36.88%
20,817
=(D7-D3)/D3*100 \# "0.00%" 15.53%
Increased broadband, wireless, and business services partly influenced by decreased advertising, voice revenue, and video revenue are the key drivers of the increased revenue in the fourth quarter of 2021 at Comcast Corporation. Like AT&T and Verizon, Comcast experienced the financial impact of the pandemic, as Table 3 indicates. There was a decline in revenue and operating income in the final quarter of 2021 CITATION Com22 \l 1033 (Comcast Corporation, 2022).
Competitive Analysis; Key Financial Ratios
Table SEQ Table \* ARABIC 4: Key Financial Ratios of AT&T, Verizon, and Comcast
Company Ratios Compared with Industry Median
Year
AT&T Inc.
Verizon
Comcast
Comparison with Industry Median
Profitability
Net Profit Margin
10.64
15.93
11.96
6.11
ROE (Return on Equity), after tax
10.36
27.61
15.71
8.71
Return on Assets
3.13
6.01
5.20
3.57
Liquidity
Current Ratio
0.72
0.76
0.86
1.11
Quick Ratio
0.89
0.69
0.86
1.06
Cash Ratio
0.47
0.04
0.30
0.39
Solvency Ratio
Debt Ratio
Debt-to-Equity Ratio
1.36
2.15
1.00
0.63
Interest Coverage Ratio
3.66
10.24
5.02
6.24
AT&T’s current ratio of 0.72 ranks worse than 60.85% of companies in the industry. A current ratio of 0.72 for its MRQ, which is less than the industry median of 1.11, suggests that the company may have problems meeting its current obligations CITATION Mos19 \l 1033 (Jeremy, 2019). However, this data does not indicate a significant financial issue because the balance sheet indicates that the company has several long-term prospects which can be loaned to address the current obligations. The difference in the current ratio between Verizon and AT&T is minor. However, Comcast has a slightly higher current ratio than the two, which means Comcast may be more capable of paying its obligations. Creditors expecting to receive their payment within a short period are likely to consider companies with a higher current ratio because of their ability to meet their liabilities.
However, AT&T has a higher debt-to-equity ratio than the indus...