Question

E2-43. Compare Income Statements and Balance Sheets of Competitors Following are selected income statement and balance sheet data for two communications companies, Comcast and Verizon, for the year ended December 31, 2018.

Answer 1

part a

Amount Particulars Sales Less: Operating Cost Operating Profit Less: Non Opearting Expenses NET INCOME Comcast % on sales Amount 94,507 100 75498 79.89 19,009 20.11 7147 7.56 11,862 12.55 Verizon % in sales 130863 100 108585 82.98 22278 17.02 6239 4.77 16039 12.26

Since, there is very few % profit difference between both the entities but still there is a huge difference between the non opearting expenses between them. Verizon is having less non operating expenses as compared to Comcast, if Comcast differs to its view and reduce its non opearting expenses then it can do better than Verizon.

part b

Balance sheet ($ Millions) on % of total assets Particulars Current Assets Long term Assets Total Assets Comcast Verizon Amount % on sales Amount % in sales 21,848 8.68 34,636 13.08 229,836 91.32 230,193 86.92 251,684 100 264,829 100 Current Liabilities Long term Liabilities Total Liabilities Shareholder's Equity Total Liabilities and equity 27,603 151,579 179,182 72,502 251,684 10.97 60.23 71.19 28.81 37,930 172, 189 210,119 54.710 264,829 14.32 65.02 79.34 20.66 100 100

Here, as per above analysis, the total amount invested as assets in Comcast gives a value to shareholder's Equity around 28.81% but on the contrary just 20.66 % return is invested in shareholders Equity in Verizon. But he liquidity of the funds in Comcost is low as compared to Verizon. Since, the outsider liability in Comcost is low as compared to Verizon leading to more chances of further divestment of equity to gain more benefits accordingly.

part c

Here, we can see that both the companies are having high outsider's liability rather than equity, which means both companies need to pay higher interest to the outsiders instead of dividend to the risk takers. Well this can be further explained by RoE i.e. Return on Equity which states how much return one can earn on amount invested as equity.

RoE= Net Income/Equity*100 In case of Comcost, In case of Verizon, RoE= 16.36092797 RoE= 11.40376531

By above analysis, we can say that even when both the comapnies have high debt capital structure than equity, still Compaost is doing better on the basis of RoE. There are several other idicators on the basis of which it can be said which is better off than other.

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