Analysis of Verizon's Financial Statements: Performance Review

This report provides a detailed financial analysis of Verizon Communications for the years 2018 and 2019. It employs ratio analysis to evaluate the company's performance across various dimensions, including profitability, liquidity, efficiency, and capital gearing. Profitability ratios such as Return on Capital Employed (ROCE), gross profit to sales, and net profit to sales are analyzed to assess the company's earning capabilities. Liquidity ratios, including the current and quick ratios, are examined to determine Verizon's ability to meet short-term obligations. Efficiency ratios, such as the rate of stock turnover and accounts receivable/payable to sales, are used to assess the efficiency of asset management. Finally, capital gearing is analyzed to evaluate the company's financial leverage. The analysis reveals trends and provides interpretations of Verizon's financial health and performance over the specified period, highlighting improvements and areas of concern based on the calculated ratios and their comparisons.

Finance for Managers

Contents
TASK 2...................................................................................................................................................3
REFERENCES........................................................................................................................................12

TASK 2
2.2 Provide an interpretation of the financial statements for a specific named organization.
Introduction: In this part of report detailed analysis of financial statements of Verizon
communication limited has been done. In order to do so, ratio analysis technique is applied as it
covers each aspect including profitability, liquidity etc.
Profitability Ratios
(a) Return on Capital Employed (R.O.C.E.) -
ROCE: Net profit/ capital employed*100
2018 2019
Net profit 16.04 19.79
capital employed 291.73-37.93: 253.8 264.83-44.87: 219.96
ROCE 6.32% 9.00%
2018 2019
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
6.32%
9.00%
ROCE
ROCE
Interpretation: The above table indicate that company’s performance in year 2019 has been
improved as compared to past year 2018. As ROCE in 2018 was of 6.32% which became of 9%
for year 2019. This is so because of higher amount of net margin in year 2019 as well as due to
less amount of capital employed.

(b) Gross Profit to Sales Ratio-
Gross profit to sales: Gross profit/sales*100
2018 2019
Gross profit 75.36 77.14
sales 130.86 131.86
Gross profit to sales 57.59% 58.50%
2018 2019
57.00%
57.20%
57.40%
57.60%
57.80%
58.00%
58.20%
58.40%
58.60%
57.59%
58.50%
Gross profit to sales
Gross profit to sales
Interpretation: Similar to above ratio, the gross profit to sales also improved in year 2019
compared to year 2018. As in year 2018, company’s gross profit ratio was of 57.59% that
increased till 58.50% for year 2019. The reason behind this is because of more number of sales
revenues and less amount of cost of sales.
(c) Net Profit to Sales Ratio-
Net profit to sales: Net profit/sales*100
2018 2019
Net profit 16.04 19.79
sales 130.86 131.86
Net profit to sales 12.26% 15.01%

2018 2019
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
12.26% 15.01%
Net profit to sales
Net profit to sales
Interpretation: This ratio is too useful to know about company’s health in terms of finance at the
end of year. In year 2018, above company was able to produce net profit ratio of 12.26% that
raised and became of 15.01% for year 2019. This indicates that company managed their expenses
in more effective manner in year 2019. The reason behind such improved performance in year
2019 is because of higher amount of net sales and revenues instead of expenses.
Liquidity Ratios-
(a) Current Ratio-
Current ratio: Current assets/current liabilities
2018 2019
Current assets 34.64 37.47
Current liabilities 37.93 44.87
Current ratio 0.91 times 0.83 times

2018 2019
0.78
0.8
0.82
0.84
0.86
0.88
0.9
0.92
0.91
0.83
Current ratio
Current ratio
Interpretation: The ideal current ratio is of 2:1 times which means companies should have 2
times of current assets to pay 1 times of current liabilities. In the context of above company, this
can be inferred that in year 2018, it was of 0.91:1 times which reduced and became of 0.83:1
times. This shows that company is not able to meet ideal form of current ratio in both years. This
is so because of less number of current assets.
(b) The Liquid or Acid Test or Quick Ratio-
Quick: (Current assets-stock)/current liabilities
2018 2019
Quick assets 34.64-1.34: 33.3 37.47-1.42: 36.05
Current liabilities 37.93 44.87
Quick Ratio 0.88 times 0.80 times

2018 2019
0.76
0.78
0.8
0.82
0.84
0.86
0.88
0.88
0.8
Quick Ratio
Quick Ratio
Interpretation: Similar to above ratio, this one also is under optimal quick ratio which is of 1.5:1
times for both years. In year 2018, it was of 0.88:1 times which reduced and became of 0.8:1
times for next year 2019. This is so because of higher amount of current or short term liabilities
in both year 2018 and 2019.
Efficiency Ratios:
(a) Rate of Stock Turnover:
Rate of Stock Turnover: Cost of sales/stock
2018 2019
Cost of sales 55.51 54.73
Stock 1.34 1.42
Rate of Stock Turnover 41.42 times 38.54 times

2018 2019
37
37.5
38
38.5
39
39.5
40
40.5
41
41.5
41.42
38.54
Rate of Stock Turnover
Rate of Stock Turnover
Interpretation: The rate of Stock turnover reflects the amount of times a company imports and
sales it’s Stock over the accounting cycle. In the aspect of above company, it can be seen that in
year 2019 their efficiency to manage their stock has been dropped. As this can be stated that in
year 2018, ratio was of 41.42 times which reduced and became of 38.54 times which means
company might have taken more number of days to covert raw material into finished goods.
(b) Accounts Receivable to Sales Ratio-
Accounts Receivable to Sales-Total Accounts Receivable/Total Sales*365 days
2018 2019
Total Accounts Receivable 25.87 26.16
Total Sales 130.86 131.86
Accounts Receivable to Sales 72.15 days 72.41 days

2018 2019
72
72.1
72.2
72.3
72.4
72.5
72.15
72.41
Accounts Receivable to Sales
Accounts Receivable to
Sales
Interpretation: In the aspect of this ratio, company’s performance is almost same for both year
2019 and 2018. This is so because in year 2018 company was taking time of 72 days to cover
their debts from debtors as well as in 2019 too. Though, this time could have been dropped till 50
days but still company is managed to cover their debts in less amount of time and in more
effective manner.
(c) Accounts Payable to Purchases Ratio-
Accounts Payable to Purchases-Total Accounts Payable/Total Purchases*365 days
2018 2019
Total Accounts Payable 25.87 26.16
Total Purchases 55.51 54.73
Accounts Payable to
Purchases
170.01 days 174.46 days

2018 2019
167
168
169
170
171
172
173
174
175
170.01
174.46
Accounts Payable to Purchases
Accounts Payable to
Purchases
Interpretation: This ratio examines the amount of days the company would take to reimburse for
its credit transactions. With rational to above company this can be seen that they have taken
more number of days to pay their creditors in year 2019 instead to year 2018. The reason behind
such decrease in performance is due to more number of credit purchasing in year 2019.
Capital Gearing-
Capital Gearing= Preference Shares + Long-Term Loans/All shareholders’ funds + Long-Term
Loans*100%
2018 2019
Preference Shares + Long-
Term Loans
34.20+0 54.20+99.83
All shareholders’ funds +
Long-Term Loans
54.71+0 62.84+99.83
Capital Gearing 62.51% 94.68%

Capital Gearing
0.00%
40.00%
80.00%
Capital gearing
2018 2019
On the basis of above chart, this can be stated that company’s performance has been enhanced in
year 2019 compared to year 2018. This is so because of more number of preference shares and
shareholders fund in year 2019 compared to year 2018. The above company need to focus on
enhancing their share capital so that this ratio can become more.

REFERENCES
About financial statement of Verizon limited, 2019 [online] available through:<
https://www.morningstar.com/stocks/xnys/vz/financials>