Accounting Assignment Part 3 & 4

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Illinois Institute Of Technology *

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532

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Accounting

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Apr 3, 2024

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Accounting Assignment Parts 3 & 4 Group Members: Shyreen Kamal, Chirag Sharadchandra Rathod, Nithushaa Rajasekar, Quinn Ho, Devesh Vijay Darji Company: Verizon Part 3: Analysis of the company’s financial statements over time Composition analysis for the balance sheet Exhibit 1: Converted Balance Sheet (in millions) Verizon 2022 2022 (%) 2021 2021 (%) 2020 2020 (%) Assets Current assets Cash and cash equivalents $2,605 0.69% $2,921 0.80% $22,171 7.01% Accounts receivable $25,33 2 6.67% $24,74 2 6.75% $25,169 7.95% Less allowance for credits losses $826 0.22% $896 0.24% $1,252 0.40% Accounts receivable, net $24,50 6 6.45% $23,84 6 6.50% $23,917 7.56% Inventories $2,338 0.62% $3,055 0.83% $1,796 0.57% Prepaid expenses and others $8,358 2.20% $6,906 1.88% $6,710 2.12% Total current assets $37,85 7 9.97% $36,72 8 10.02 % $54,594 17.25 % Property plant and equipment $307,6 98 81.04 % $289,8 97 79.08 % $279,73 7 88.39 % Less accumulated depreciation $200,2 25 52.74 % $190,2 01 51.88 % $184,90 4 58.42 % Property lant and equipment, net $107,4 34 28.30 % $99,69 6 27.20 % $94,883 29.98 % Investment in unconsolidated business $1,071 0.28% $1,061 0.29% $589 0.19% Wireless licenses $149,7 96 39.45 % $147,6 19 40.27 % $96,097 30.36 % Deposit for wireless licenses ------- ------ ------ $2,772 0.88% Goodwill $28,67 1 7.55% $28,60 3 7.80% $24,773 7.83%

Other intangible assets, net $11,46 1 3.02% $11,67 7 3.19% $9,413 2.97% Operating lease right of use $26,13 0 6.88% $27,88 3 7.61% $22,531 7.12% Other assets $17,26 0 4.55% $13,32 9 3.64% $10,879 3.44% Total assets $379, 680 100.00 % $366, 596 100.00 % $316,4 81 100.00 % Liabilities and Equity Current liabilities Dept maturing within one year $9,963 2.62% $7,443 2.62% $5,889 1.86% Accounts payable and accrued liabilities $23,97 7 6.32% $24,83 3 6.32% $20,658 6.53% Current operating lease liabilities $4,134 1.09% $3,859 1.09% $3,485 1.10% Other current liabilities $12,09 7 3.19% $11,02 5 3.19% $9,628 3.04% Total current liabilities $50,17 1 13.21 % $47,16 0 13.21 % $39,660 12.53 % Long term debt $140,6 76 37.05 % $143,4 25 37.05 % $123,17 3 38.92 % Employee benefit obligations $12,97 4 3.42% $15,41 0 3.42% $18,657 5.90% Deferred income taxes $43,44 1 11.44 % $40,68 5 11.44 % $35,711 11.28 % Non-current operating lease liabilities $21,55 8 5.68% $23,20 3 5.68% $18,000 5.69% Other liabilities $18,39 7 4.85% $13,51 3 4.85% $12,008 3.79% Total long-term liabilities $237,0 46 62.43 % $236,2 36 62.43 % $207,54 9 65.58 % Equity Series preferred stock ------- ------- ------- ------- ------- ------- Common stock $429 0.11% $429 0.11% $429 0.14% Additional paid in capital $13,42 0 3.53% $13,86 1 3.53% $13,404 4.24% Retained earnings $82,38 0 21.70 % $71,99 3 21.70 % $60,464 19.11 % Accumulated other comprehensive loss ($1,86 5) - 0.49% ($927) - 0.49% ($71) - 0.02%

Common stock in treasury, at cost ($4,01 3) - 1.06% ($4,10 4) - 1.06% ($6719) - 2.12% Deferred compensation $793 0.21% $538 0.21% $335 0.11% Noncontrolling interests $1,319 0.35% $1,419 0.35% $1,430 0.45% Total equity $92,46 3 24.35 % $83,20 0 24.35 % $69,272 21.89 % Total liabilities and equity $379, 680 100.00 % $366, 596 100.00 % $316,4 81 100.00 % Plant, property and equipment represent a significant portion of Verizon's assets, it is 81.04% of the total assets in 2022. This indicates that Verizon has substantial investments in infrastructure, likely related to its telecommunications business. While cash and cash equivalents seem low as a percentage, 0.69% in 2022, the absolute value is still substantial at $2,605 million. This suggests that Verizon may be investing its resources in long-term assets rather than holding large cash reserves. Long-term debt accounts for 37.05% in 2022 of Verizon's liabilities, indicating that the company relies on borrowing for its operations. Retained earnings have increased over the years, 21.70% of equity in 2022, suggesting that Verizon is profitable and has been able to retain a significant portion of its earnings for reinvestment or future use. Given that Verizon is a major player in the telecommunications industry, it's expected to have substantial investments in wireless licenses and property, plant, and equipment. Long-term debt is common in this industry due to the need for continuous infrastructure investment. Composition analysis of the income statement Trend analysis on the major line items in the converted balance sheet and income statement Percent change = (Current year amount – Base year amount) ÷ Base year amount Trend analysis of Balance sheet Balance Sheet (in millions) Verizon 2022 2021 Amou nt chang e % change 2021 2020 Amou nt chang e % chang e Assets Current assets Cash and cash equivalents 2605 2921 -316 - 0.10818 213 2921 22171 - 19250 - 0.8682 513 Accounts receivable 25332 24742 590 0.02384 6092 24742 25169 -427 - 0.0169 653

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Less allowance for credits losses 826 896 -70 - 0.07812 5 896 1252 -356 - 0.2843 45 Accounts receivable, net 24506 23846 660 0.02767 7598 23846 23917 -71 - 0.0029 686 Inventories 2338 3055 -717 - 0.23469 722 3055 1796 1259 0.7010 0223 Prepaid expenses and others 8358 6906 1452 0.21025 1955 6906 6710 196 0.0292 1013 Total current assets 37857 36728 1129 0.03073 949 36728 54594 - 17866 - 0.3272 521 Property plant and equipment 30769 8 28989 7 17801 0.06140 4568 28989 7 27973 7 10160 0.0363 1983 Less accumulated depreciation 20022 5 19020 1 10024 0.05270 2141 19020 1 18490 4 5297 0.0286 473 Property lant and equipment, net 10743 4 99696 7738 0.07761 5952 99696 94883 4813 0.0507 2563 Investment in unconsolidated business 1071 1061 10 0.00942 5071 1061 589 472 0.8013 5823 Wireless licenses 14979 6 14761 9 2177 0.01474 7424 14761 9 96097 51522 0.5361 4577 Deposit for wireless licenses ------- ------ ------ ------ 0 2772 -2772 -1 Goodwill 28671 28603 68 0.00237 7373 28603 24773 3830 0.1546 038 Other intangible assets, net 11461 11677 -216 - 0.01849 79 11677 9413 2264 0.2405 1843 Operating lease right of use 26130 27883 -1753 - 0.06286 985 27883 22531 5352 0.2375 3939 Other assets 17260 13329 3931 0.29492 0849 13329 10879 2450 0.2252 0452 Total assets 3796 80 3665 96 13084 0.03569 0515 3665 96 3164 81 50115 0.1583 5074 Liabilities and Equity Current liabilities

Dept maturing within one year 9963 7443 2520 0.33857 3156 7443 5889 1554 0.2638 8181 Accounts payable and accrued liabilities 23977 24833 -856 - 0.03447 026 24833 20658 4175 0.2021 0088 Current operating lease liabilities 4134 3859 275 0.07126 1985 3859 3485 374 0.1073 1707 Other current liabilities 12097 11025 1072 0.09723 356 11025 9628 1397 0.1450 9763 Total current liabilities 50171 47160 3011 0.06384 648 47160 39660 7500 0.1891 0741 Long term debt 14067 6 14342 5 -2749 - 0.01916 681 14342 5 12317 3 20252 0.1644 1915 Employee benefit obligations 12974 15410 -2436 - 0.15807 917 15410 18657 -3247 - 0.1740 366 Deferred income taxes 43441 40685 2756 0.06773 9953 40685 35711 4974 0.1392 8481 Non-current operating lease liabilities 21558 23203 -1645 - 0.07089 6 23203 18000 5203 0.2890 5556 Other liabilities 18397 13513 4884 0.36142 9734 13513 12008 1505 0.1253 3311 Total long-term liabilities 23704 6 23623 6 810 0.00342 8775 23623 6 20754 9 28687 0.1382 1796 Equity Series preferred stock ------- ------- ------- ------- ------- ------- ------- ------- Common stock 429 429 0 0 429 429 0 0 Additional paid in capital 13420 13861 -441 - 0.03181 589 13861 13404 457 0.0340 943 Retained earnings 82380 71993 10387 0.14427 7916 71993 60464 11529 0.1906 7544 Accumulated other comprehensive loss -1865 -927 -938 1.01186 6235 -927 -71 -856 12.056 338 Common stock in treasury, at cost -4013 -4104 91 - 0.02217 349 -4104 -6719 2615 - 0.3891 948

Deferred compensation 793 538 255 0.47397 7695 538 335 203 0.6059 7015 Noncontrolling interests 1319 1419 -100 - 0.07047 216 1419 1430 -11 - 0.0076 923 Total equity 92463 83200 9263 0.11133 4135 83200 69272 13928 0.2010 6248 Total liabilities and equity 3796 80 3665 96 13084 0.03569 0515 3665 96 3164 81 50115 0.1583 5074 Here are some observations based on the Balance sheet for Verizon in 2021 and 2022: Cash and Cash Equivalents: Experienced a significant decrease from $2,921 million in 2021 to $2,605 million in 2022, indicating a decline in available liquid assets. Accounts Receivable: Slightly increased from $23,846 million to $25,332 million, suggesting growth in sales. Inventories: Decreased substantially from $3,055 million to $2,338 million, indicating a potential improvement in inventory management efficiency. Prepaid Expenses and Others: Witnessed a notable increase from $6,906 million to $8,358 million, possibly due to increased prepaid expenses or other short-term assets. Property, Plant, and Equipment (PPE): PPE, Net: Increased from $99,696 million to $107,434 million, indicating investments in long-term assets, possibly to support business expansion or technological upgrades. Investment in Unconsolidated Businesses: Grew marginally from $1,061 million to $1,071 million, reflecting a continued interest in external ventures. Wireless Licenses: Saw a modest increase from $147,619 million to $149,796 million, indicating ongoing investments in this area. Liabilities: Current Liabilities: Increased from $47,160 million to $50,171 million, suggesting a rise in short-term obligations, including debt maturing within one year, accounts payable, and accrued liabilities. Long-Term Debt: Decreased slightly from $143,425 million to $140,676 million, indicating some debt repayment or refinancing activities. Deferred Income Taxes: Grew from $40,685 million to $43,441 million, possibly reflecting higher taxable income or changes in tax regulations. Equity: Retained Earnings: Experienced a significant increase from $71,993 million to $82,380 million, indicating retained profits from operations. Common Stock in Treasury, at Cost: Decreased slightly, possibly due to stock buybacks or retirement of treasury stock. Noncontrolling Interests: Saw a minor decrease, possibly due to changes in ownership structure or acquisition/divestiture activities. What this might tell you about the business:

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The company is focused on managing its current assets efficiently, as indicated by the decrease in inventories and increase in prepaid expenses. Investments in long- term assets such as property, plant, and equipment suggest a commitment to infrastructure development. The increase in liabilities, especially current liabilities, suggests a need for short-term financing to support operational activities. Growth in retained earnings and equity reflects the company's profitability and reinvestment of profits into the business. Overall, Verizon seems to be actively managing its resources to support growth while maintaining financial stability and profitability. Trend analysis of Income statement Income Statement (dollars in millions) Verizon 202 2 202 1 Amount change % chan ge 202 1 202 0 Amount change % chan ge Sales Revenue (Services + wireless equipment) 1,36 ,835 1,33 ,613 3,222 0.024 1,33 ,613 1,28 ,292 5,321 0.041 Other Revenue (equity in earnings of unconsolidated business + other income) 1,41 7 457 960 2.101 457 -584 1,041 - 1.783 Total Revenue 1,38 ,252 1,34 ,070 4,182 0.031 1,34 ,070 1,27 ,708 6,362 0.050 Cost of Goods Sold (Services + wireless equipment) 59,1 33 56,3 01 2,832 0.050 56,3 01 51,2 01 5,100 0.100 Selling, General, and Administrative Expense 30,1 36 28,6 58 1,478 0.052 28,6 58 31,5 73 -2,915 - 0.092 Depreciation and Amortization Expense 17,0 99 16,2 06 893 0.055 16,2 06 16,7 20 -514 - 0.031 Total Operating Expense 1,06 ,368 1,01 ,165 5,203 0.051 1,01 ,165 99,4 94 1,671 0.017 Income Before Interest and Tax 31,8 84 32,9 05 -1,021 - 0.031 32,9 05 28,2 14 4,691 0.166 Interest Expense - 3,61 3 - 3,48 5 -128 0.037 - 3,48 5 - 4,24 7 762 - 0.179 Income Before Tax 28,2 71 29,4 20 -1,149 - 0.039 29,4 20 23,9 67 5,453 0.228 Income Tax Expense - 6,52 3 - 6,80 2 279 - 0.041 - 6,80 2 - 5,61 9 -1,183 0.211 Net Income 21,7 48 22,6 18 -870 - 0.038 22,6 18 18,3 48 4,270 0.233

Here are some observations based on the income statement for Verizon in 2021 and 2022: Revenue: Verizon's total revenue increased slightly from $1,34.07 billion in 2021 to $138.25 billion in 2022. This is a year-over-year increase of 3.1%. Cost of goods sold: The cost of goods sold also increased slightly, from $56.30 billion in 2021 to $59.13 billion in 2022. This is a year-over-year increase of 5%. Selling, general and administrative expenses: Selling, general and administrative expenses increased from $28.66 billion in 2021 to $30.14 billion in 2022. This is a year-over-year increase of 5.2%. Net income: Net income decreased from $22.62 billion in 2021 to $21.75 billion in 2022. This is a year-over-year decrease of 3.8%. Possible reasons for the observed trends: Revenue growth: The slight increase in revenue could be due to factors, such as an increase in the number of customers, an increase in average revenue per user (ARPU), or a combination of both. Expense growth: The increase in expenses could be due to factors, such as inflation, increased investment in the network, or increased marketing and advertising costs. Net income decline: The decline in net income could be due to the increase in expenses, even though revenue also increased slightly. What this might tell you about the business: Verizon is still a growing business, but its growth is slowing down. The company is facing some headwinds, such as rising costs, that are putting pressure on its profits. Verizon may need to find ways to control costs or increase revenue to improve its profitability in the future. Part 4: Analysis of Company’s Stock Price for the past 4 years Report

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