Running head: FINANCIAL ANALYSIS 1
FINANCIAL ANALYSIS 9
Financial Analysis
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Introduction
Sprint Corporation is a multinational organization that is based in the United States of America. It is a telecommunications company that offers wireless services. It is also regarded as one of the major Internet carriers in the world. Sprint Corporation, which is mainly referred to as Sprint, ranks fourth among the largest network dealers in the United States. It has a large consumer base which amounted to approximately 58 million by January of the year 2016. Among the wireless services that the company offers include wireless voice, broadband services as well as messaging. These services are offered through the mother company as well as through the subsidiaries which include among others; Boost Mobile, Assurance Wireless, and Virgin Mobile. The company also offers wholesale access to wireless networks (Sprint.com, 2016). These are offered to mobile virtual network operators.
In the year 2013, the company sold a large percentage of its shares to the Japanese telecommunications company known as SoftBank Corporation. This was after the shutdown of Nextel Communications, a company that had merged with Sprint in the year 2005, a merger that led to the company changing the name to Sprint Nextel Corporation but it has since returned to its original name following its acquisition by SoftBank Corporation. SoftBank Corporation is a multinational company that offers telecommunications and internet services (Sprint.com, 2016). It also offers other services such as e-commerce, technology services, media and marketing, and finance services. Softbank is ranked 62nd in the world among the largest companies on the basis of its market value, profit, sales, and assets. The acquisition of Sprint Corporation by Softbank Corporation was a strategic move that would strength it financially and give it a more global outlook. The shares that remained are still being traded on the New York Stock Exchange. The financial feasibility of Sprint Corporation is analyzed herein with the aim of determining its suitability to supply wireless services to High Technology Corporation (HTC).
Sprint financial performance for the years 2011, 2012 and 2013
These were the years leading to the company’s acquisition by the Japanese multinational. Sprint Corporation had achieved an increase in profit for successive years in the period of about five years leading to the year 2013 when it was acquired (Business Wire, 2016). It is important to note that by the time the company was acquired, it still had a strong financial performance. The acquisition only increased its financial strength and set it in a more strategic position. In the year 2011, Sprint Corporation had a net profit of $28,456.8. The net profit increased in the year 2012 to $47,062.8. The profitability decreased slightly in the year 2013 to $43410.45 (Yahoo, 2016). Generally, since the year 2011, Sprint Corporation registered an increase in profitability and an increase in its financial position. Return on equity for the year 2011 was 22.9% down from 34.8% in the year 2010, but it increased to 40.3% in the year 2012 (Yahoo, 2016). It then decreased again to 23.1% in the year 2013. It is notable that the level of income was fluctuating within these years, but the general trend was upwards considering the fact that this was a period that the global economy was on the way to recovery from a financial crisis that had started in the year 2007 (Yahoo, 2016). It was a period when most companies experienced a financial challenge with some being hit as hard such that they were forced to close down. Another important factor that is worth noting is that the number of customers and subscribers to the company were on the rise during this period, an indication that it was highly likely to make higher profits in the future. The number of customers that a company has is always a reflection of the sales that it is likely to make and hence the profitability (Sprint.com, 2016). Therefore, a company that has a high number of customers has a high possibility of making more profits in the future. An increase in consumer base is an indication of consumer growth.
In the fourth quarter of the year 2012, the company reported consolidated net revenue of about $35.3 billion. The increase in revenue over this period was record breaking as it represented $7 billion in the quarter and $27.1 billion for the year (Sprint.com, 2016). This rise was driven by an increase in postpaid ARPU as well as the continued increase in the number of subscribers. The revenues from wireless services were also on the increase representing about 12% year over year for the fourth quarter and about 15% for the whole year (Sprint.com, 2016).
The other factor that indicates the financial position of Sprint Corporation is its ratios. The general indication of its financial health ratios is that it is in a good financial position and is likely to maintain the position in the foreseeable future. For instance, the cash & short-term investments ratio for balance sheet items for the year 2011 was 11.33% (Morning Star Inc, 2016). It increased to 15.9% in the year 2012 and then dropped to 8.68% in the year 2013. This is an indication that the company invested more in the year 2012 as compared to the other two years. The ratio of accounts receivable for the year 2011 was 6.49%, which increased to 7.09% in the year 2012 and then dropped to 4.15% in the year 2013 (Morning Star Inc, 2016). The inventory ratio, on the other hand, was 1.85% in the year 2011, 2.33% in the year 2012 and 1.40% in the year 2013 (Morning Star Inc, 2016). Other current assets ratio of the year 2011 was 1.26%, 1.36% for the year 2012 and 0.95% for the year 2013 (Morning Star Inc, 2016). Finally, the total current assets ratio for the year 2011 was 20.93%, 26.68% for the year 2012 and 15.17% for the year 2013 (Morning Star Inc, 2016). On the other hand, liquidity ratios, which also represent the financial health of the company were as follows; Current ratios for the three years 2011, 2012 and 2013 were 1.59, 1.55 and 1.22 respectively. Quick ratios for the three years were 1.35, 1.34, and 1.03 respectively (Morning Star Inc, 2016). Financial leverage ratios were 4.32, 7.28 and 3.37 for the three respective years while debt/equity ratios were 1.77, 3.38 and 1.25 respectively.
Given the financial performance of the company for the three years, it is notable that its financial position is strong and is not likely to decrease in the foreseeable future. The company has sufficient assets to finance its liabilities. Therefore, there are high chances that it will continue to perform well in the future and fewer chances of a major loss with all other factors remaining constant. There is a general indication that the company did not perform very well in the year 2013, but it was not badly off either (Morning Star Inc, 2016). Its performance was still good. There are major factors that could have affected its performance for the year among them being heavy expenses and the inconveniences that could have resulted from the acquisition process. It is in the same year when Nextel closed down, and this could have affected the profitability of Sprint Corporation as well.
An evaluation of Sprint’s stock performance for the periods 2011, 2012, and 2013
The financial performance of a company is a significant factor in the performance of its shares on the stock exchange. When making profits, the chances are that the financial performance of its shares at the stock exchange will be positive. This is because more investors will be willing to buy the shares as the prospects of making profits will be high and hence its demand will be high. Going by the rules of market demand and supply, the price will go up when the demand is high. In the three years 2011, 2012, and 2013, the performance of Sprint Corporation has been positive (Business Wire, 2016). As a result, the demand for its shares will have been high as well. However, the value of the shares has not been very high. It is important to note that the shares after its acquisition were split and the remaining part continued to trade in the New York Stock market. The average price of the company stocks has been between $3 and $4 (Yahoo, 2016). The prices have been at this level for a relatively long period. Generally, the stock price has been consistent despite the fact that it has been going up and down at different times based on the market factors, the time of the year and the days of the week. The fact that the stock prices have been constant is an indication that the company has been stable for a relatively long period. It is also likely to continue being stable in the foreseeable future. As a result, the company is not likely to experience any significant change that is likely to affect its abilities to supply for HTC.
Recommendations with supporting rationale
From the financial information available for Sprint Corporation, it can be concluded that the company has had a good financial performance in the recent past. The profitability has been on the increases despite the fact that it has fluctuated from time to time. In the year 2013, the company experienced a challenging financial year. This was due to the changes that it experienced such as its separation with Nextel Corporation, which was closed down and then its acquisition by SoftBank Corporation. The profitability during this year registered a downward trend. However, its performance had increased between the year 2011 and 2012. The return on equity was high in the three years with 2012 registering the best return on equity. Generally, the best performance of the company was in the year 2012. It is in this year that it registered the highest increase in profitability and return on equity. Its customer base has also been growing, an indication that the company is likely to continue performing well in the future. The financial ratios are also an indication of a good performance over the three years period. Just like in the case of profitability, the ratios were high in the year 2012. The trend of the company’s ratios is that there are high chances that the future performance will be high. Stock prices have been relatively constant, but the prices are low compared to those of other companies. Given these financial information, it can be concluded that Sprint Corporation has all it takes to supply High Technology Corporation. It has the financial strength that it requires in entering a long-term commitment with HTC. As a matter of fact, its acquisition by one of the largest company in the industry SoftBank Corporation increases its credibility. Therefore, HTC can enter into the contract confidently.
References
Business Wire (2016). Sprint Nextel Reports Fourth Quarter and Full Year 2012 Results. Business Wire. Retrieved from
Morning Star Inc. (2016). Sprint Corp. Morning Star. Retrieved from
Sprint.com (2016). About Us. Sprint Corp. Retrieved from
Sprint.com (2016). Sprint Nextel Reports Fourth Quarter and Full Year 2011 Results. Sprint Newsroom. Retrieved online from
Yahoo (2016). Sprint Corporation. Yahoo. Retrieved online from