Question

VERIZON COMMUNICATIONS INC (VZ) CashFlowFlag INCOME STATEMENT
Fiscal year ends in December. USD in millions except per share data.	2013-12	2014-12	2015-12	2016-12	2017-12	TTM
Revenue	100.00%	100.00%	100.00%	100.00%	100.00%	100.00%
Cost of revenue	37.24%	39.29%	39.93%	40.82%	40.91%	41.57%
Gross profit	62.76%	60.71%	60.07%	59.18%	59.09%	58.43%
Operating expenses
Sales, General and administrative	22.47%	32.28%	22.78%	25.06%	22.48%	22.90%
Other operating expenses	13.78%	13.01%	12.17%	12.64%	13.45%	13.41%
Total operating expenses	36.25%	45.29%	34.95%	37.70%	35.93%	36.31%
Operating income	26.52%	15.42%	25.12%	21.48%	23.16%	22.11%
Interest Expense	2.21%	3.87%	3.74%	3.47%	3.76%	3.72%
Other income (expense)	-0.02%	0.46%	0.08%	-1.35%	-3.06%	-2.16%
Income before taxes	24.29%	12.02%	21.46%	16.66%	16.34%	16.23%
Provision for income taxes	4.75%	2.61%	7.50%	5.86%	-7.90%	-8.86%
Net income from continuing operations	19.53%	9.41%	13.96%	10.80%	24.24%	25.09%
Other	-10.00%	-1.83%	-0.38%	-0.38%	-0.36%	-0.38%
Net income	9.54%	7.57%	13.58%	10.42%	23.88%	24.71%
Net income available to common shareholders	9.54%	7.57%	13.58%	10.42%	23.88%	24.71%
Earnings per share
Basic	4.01	2.42	4.38	3.22	7.37	7.86
Diluted	4	2.42	4.37	3.21	7.36	7.85
Weighted average shares outstanding
Basic	2866	3974	4085	4080	4084	4116
Diluted	2874	3981	4093	4086	4089	4120
EBITDA	40.27%	28.89%	37.36%	32.78%	33.55%	33.36%

Analyze the financial trends over 5 years of Revenue, net income, and any other most significant financial performance. What important information does this analysis provide.

Answer 1

Important information from the given data is as under:

• The cost of revenue % has consistently increased over the last 5 years from 37.24% to 40.91% and thus reducing the Gross Profit Margins.
• The above has also resulted in decreasing the Operating Margins from 26.52% to 23.16%.
• Interest expense % has also increased from 2.21% to 3.76% which suggests increased borrowings by the company.
• Subsequently, the PBT margins have reduced from 24.29% to 16.34%
• There is a significant change in Provision for Income taxes in the 5th year with the reverse sign and has increased the Net Income in the 5th year subsequently increasing the Earnings per share in the 5th year.
• There are extraordinary losses in the 1st year to the tune of 10% of Revenue.
• The number of outstanding shares has increased gradually.
• Also the EBITDA has reduced over the 5 year period.

To summarize, the effect from Provision for Income taxes and Extraordinary losses has a huge impact in giving a reverse picture (increased profitability) from what is visible by EBITDA/ Operating/ PBT margins (decreased profitability).