ADC Tellecommunications Financial Ratio Analysis Essay

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ADC Tellecommunications Financial Ratio Analysis Corporate Background ADC Telecommunications (ADCT) is a communication equipment manufacturer located in Minneapolis, Minnesota, USA. Since 1952, the company has successfully weathered the tumultuous transformation process of technology. Today, ADC Telecommunications exclusively focuses on manufacturing computer-networking equipment. Increasing demand for fiber optic transmission systems like asynchronous transfer mode (ATM), synchronous optical networks (SONET) and most wireless communications systems, provide significant opportunities for ADCT. The company currently focuses on enabling communications service providers to deliver high-speed services to residential and commercial…show more content…
There were no return on shareholders equity (ROE) industry averages in the "Almanac of Business and Financial Ratios," written by Leo Troy. ADCT's ROE ratios are 10.8%, 14.2%, 14.5%, 16.0% and 7.0% for the years of 1995-1999 respectively. One notable trend in the ROE ratios is the 56% drop from 1998 to 1999. One explanation for this is found on ADCT's income statement. There is a significant drop in net income in 1999 verses 1998. Non-reoccurring charges were 148,977,000 and 9,168,000 for years 1999 and 1998 respectively. These increased expansion costs decrease net income, thus reducing the ROE ratio for 1999. ADCT must focus on revenue generation from these recent acquisitions to improve the return on shareholders equity. This recent drop in ROE needs to be compared to 2000 ROE ratios to provide a more complete picture of future returns for ADCT investors. Profitability Measures The gross margin percentages for ADCT are 52.5%, 50.4%, 50.0%, 50.5% and 51.7% for the years 1995-1999. The industry comparisons of gross margin averages are 43.1%, 40.3%, 41.2%, 40.4% and 40.6% for the same years. One noticeable difference is ADCT's gross margin percentages are consistently 10% higher than industry comparisons. One reason for exceptional gross margin performance is ADCT's sales mixes, sales volume, lower component costs and consolidation through acquisitions. ADCT's gross margin is 10 percent higher than the industry

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