AT&T and Facebook: Free cash flow AT&T Inc. is a leading global provider of telecommunication services. Facebook, Inc. is a major worldwide social media company. AT&T has a lengthy history and was founded by Alexander Graham Bell. Facebook has a short history and was founded by Mark Zuckerberg. Facebook uses telecommunication networks, like those of AT&T, to deliver social content to its users. Free cash flow and revenue information for both companies for three recent years is as follows (in millions): AT&T Information from the statement of cash flows: Year 3 Year 2 Year 1 Cash flows from operating activities $ 31,338 $ 34,796 $ 39,176 Cash used to purchase property, plant, and equipment (21,433) (21,228) (19,728) Information from the income statement: Year 3 Year 2 Year 1 Revenue $ 132,447 $128,752 $127,434 Facebook Information from the statement of cash flows: Year 3 Year 2 Year 1 Cash flows from operating activities $ 5,457 $ 4,222 $ 1,612 Cash used to purchase property, plant, and equipment (1,831) (1,362) (1,235) Information from the income statement: Year 3 Year 2 Year 1 Revenue $12,466 $7,872 $5,089 A. Using total revenue, which company appears to be the larger at the end of Year 3? B. Using total revenue, which company appears to be growing faster across the three years? C. Compute the cash used to purchase property, plant, and equipment (PP&E) as a percent of the cash flows from operating activities for all three years for each company. (Round to nearest whole percent.) D. Using the computations in (C), which company appears to require more cash to purchase PP&E, and what impact does this have on free cash flow? E. Compute the ratio of free cash flow to revenue for all three years for each company, and plot the data on a line chart with the years on the horizontal axis. F. Interpret the charts

BuyFind

Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207
BuyFind

Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207

Solutions

Chapter
Section
Chapter 13, Problem 3ADM
Textbook Problem

AT&T and Facebook: Free cash flow

AT&T Inc. is a leading global provider of telecommunication services. Facebook, Inc. is a major worldwide social media company. AT&T has a lengthy history and was founded by Alexander Graham Bell. Facebook has a short history and was founded by Mark Zuckerberg. Facebook uses telecommunication networks, like those of AT&T, to deliver social content to its users. Free cash flow and revenue information for both companies for three recent years is as follows (in millions):

AT&T

Information from the statement of cash flows:

  Year 3 Year 2 Year 1
Cash flows from operating activities $ 31,338 $ 34,796 $ 39,176
Cash used to purchase property, plant, and equipment (21,433) (21,228) (19,728)

Information from the income statement:

  Year 3 Year 2 Year 1
Revenue $ 132,447 $128,752 $127,434

Facebook

Information from the statement of cash flows:

  Year 3 Year 2 Year 1
Cash flows from operating activities $ 5,457 $ 4,222 $ 1,612
Cash used to purchase property, plant, and equipment (1,831) (1,362) (1,235)

Information from the income statement:

  Year 3 Year 2 Year 1
Revenue $12,466 $7,872 $5,089
  1. A. Using total revenue, which company appears to be the larger at the end of Year 3?
  2. B. Using total revenue, which company appears to be growing faster across the three years?
  3. C. Compute the cash used to purchase property, plant, and equipment (PP&E) as a percent of the cash flows from operating activities for all three years for each company. (Round to nearest whole percent.)
  4. D. Using the computations in (C), which company appears to require more cash to purchase PP&E, and what impact does this have on free cash flow?
  5. E. Compute the ratio of free cash flow to revenue for all three years for each company, and plot the data on a line chart with the years on the horizontal axis.
  6. F. Interpret the charts

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Chapter 13 Solutions

Financial & Managerial Accounting
Ch. 13 - Classifying cash flows Identify whether each of...Ch. 13 - Adjustments to net incomeindirect method Ripley...Ch. 13 - Changes in current operating assets and...Ch. 13 - Cash flows from operating activitiesindirect...Ch. 13 - Land transactions on the statement of cash flows...Ch. 13 - Common stock transactions on the statement of cash...Ch. 13 - Cash received from customersdirect method Sales...Ch. 13 - Cash payments for merchandisedirect method The...Ch. 13 - Cash flows from operating activitiesnet loss...Ch. 13 - Effect of transactions on cash flows State the...Ch. 13 - Classifying cash flows Identify the type of cash...Ch. 13 - Cash flows from operating activitiesindirect...Ch. 13 - Cash flows from operating activities indirect...Ch. 13 - Cash flows from operating activitiesindirect...Ch. 13 - Cash flows from operating activitiesindirect...Ch. 13 - Reporting changes in equipment on statement of...Ch. 13 - Reporting changes in equipment on statement of...Ch. 13 - Reporting land transactions on statement of cash...Ch. 13 - Determining cash payments to stockholders The...Ch. 13 - Reporting stockholders' equity items on statement...Ch. 13 - Reporting land acquisition for cash and mortgage...Ch. 13 - Reporting issuance and retirement of long-term...Ch. 13 - Determining net income from net cash flow from...Ch. 13 - Cash flows from operating activitiesindirect...Ch. 13 - Statement of cash flowsindirect method The...Ch. 13 - Statement of cash flowsindirect method List the...Ch. 13 - Cash flows from operating activitiesdirect method...Ch. 13 - Determining selected amounts for cash flows from...Ch. 13 - Cash flows from operating activities direct method...Ch. 13 - Cash flows from operating activitiesdirect method...Ch. 13 - Statement of cash flowsindirect method The...Ch. 13 - Statement of cash flowsindirect method The...Ch. 13 - Statement of cash flowsindirect method The...Ch. 13 - Statement of cash flowsdirect method The...Ch. 13 - Statement of cash flows direct method applied to...Ch. 13 - Statement of cash flowsindirect method The...Ch. 13 - Statement of cash flows indirect method The...Ch. 13 - Statement of cash flowsindirect method The...Ch. 13 - Statement of cash flows direct method The...Ch. 13 - Statement of cash flowsdirect method applied to PR...Ch. 13 - Continuing Company AnalysisAmazon, Best Buy, and...Ch. 13 - RadioShack: Free cash flow RadioShack Corporation...Ch. 13 - ATT and Facebook: Free cash flow ATT Inc. is a...Ch. 13 - Priceline: Free cash flow Priceline Group, Inc. is...Ch. 13 - Ethics in Action Head Donuts Inc. is a retailer of...Ch. 13 - Communication Tidewater Inc., a retailer, provided...

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