At&T Industry Ratio Comparison

3302 Words Oct 24th, 2011 14 Pages
Five-Year Ratio Comparison
Liquidity

• There was a slight improvement in current ratio between 2005 and 2007, from 0.58 to 0.63. It then dropped to 0.53 in 2008, but increased again over the following two years, ending 2010 at 0.59. This measures AT&T’s ability to pay its short-term liabilities with short-term assets. In general, a current ratio over 1 is desirable because when it falls below one, it could mean that the company is unable to pay off its short-term liabilities, due to a shortage of cash on hand. • The quick ratio also experienced slight increases between 2005 and 2007. It started at 0.42 and ended 2007 at 0.46. It then decreased to 0.42 in 2008; peaked in 2009 at 0.52; and, dropped back down to 0.44 in 2010. Again,
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The average collection period for credit extended is 30 days; therefore, AT&T is collecting receivables relatively close to the due date. • There were increases in days’ sales in inventory for the three years that are shown. The data shows 0 days for 2005 and 2006; 4 days in 2007; and, a slight decrease from 7 days in 2008 to 6 days in 2009. This ratio estimates the number of days that it will take to sell the current inventory. Therefore, this low number, despite near constant sales, indicates good inventory control. Although this number could be understated because AT&T uses the natural business year for its accounting period, and the average daily cost of goods sold will be at a low point at this time of year. • The operating cycle for AT&T experienced an overall decrease. It was 61 days in 2005; peaked at 73 days in 2006; dropped to 53 days in 2007, where it remained through 2008; and, ended 2009 at 52 days. This ratio represents the period of time that elapses between the acquisition of goods and the final cash realization resulting from sales and subsequent collections. But, due to the fact that AT&T uses the natural business year for accounting, the accounts receivable turnover and inventory turnover in days are likely understated, causing the liquidity to be overstated.

Summary- Liquidity
In general, liquidity ratios were similar from December 2005 through December 2010. The exceptions included
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