The analytical audit of the company’s capital structures of the two companies shows that shows Arizon is highly geared as compared to AT & T. Gearing AT& T is 43. 3% for long term debt and 51. 76% for total equity which is not very high. In case of Arizon, the ratio is very high at 59% for long-term debt to equity while total debt to equity is 74. 91%. The Verizon case indicates that the firm does not have sufficient and steady internal financial resources to finance its assets.
These get depleted compelling management to use external financial instruments. This usage of external sources to finance its assets increase chances of the company suffering financial risk that may lead to bankruptcy after technical default. The audit of inventory ratio of the two companies supplied reveals a AT $ T does not have stock while verizon has. This may be that AT & T is a service sector or in the business of manufacture at order or operate Just In Time method of stock refurbishing.
While Arizona has inventory which is increasing gradually except in year 2004 when it down from 1. 50% in year 2003. we are not supplied with income statement to be able to determine the firms’ efficiency in utilizing its resources (inventory) to generate sales is. The close analysis of the two companies ratios provided indicates that AT $ T payable account that fluctuates from time to time. While Arizona have payables with down ward trend. This indicates that Arizona is managing her trade creditors well as compared to AT & T.
if payables are not well managed may cause financial stress to the company. The working capital of the Verizona contains a significant proportion of cash fluctuating from time to time. In case of AT & T it is insignificant and it is in the down ward trend. The firms cannot therefore, meet its obligating with the most liquid resources. Additionally, there are no marketable securities that can be easily converted into cash when a financial need arises.
What this implies is that the firm may find it difficult to meet its short term maturing financial obligations as and when they fall due for payment. The same conclusion about financial position can be made using both the acid test and cash ratios. From the ratios, the firm’s ability to meet its financial obligations from the liquid assets is also questionable. REFERENCES Luecke R (2002) Finance for Managers; Harvard Business School Lindsay R. (1967) Financial Management, An Analytical Approach; R. D Irwin, 1967