ADC Telecommunications (ADCT) is a communication equipment manufacturer located in Minneapolis, Minnesota, USA. Since 1952, the company has successfully weathered the tumultuous transformation process of technology. Today, ADC Telecommunications exclusively focuses on manufacturing computer-networking equipment. Increasing demand for fiber optic transmission systems like asynchronous transfer mode (ATM), synchronous optical networks (SONET) and most wireless communications systems, provide significant opportunities for ADCT. The company currently focuses on enabling communications service providers to deliver high-speed services to residential and commercial customers. The following is an annual analysis of ADCT's financial ratios of years 1995-1999.
Overall Performance Measures
The averaged price/earnings (P/E) ratios for ADCT are 36, 36.3, 39.4, 27.5, and 64.1 for years 1995-1999 respectively. The P/E ratio for ADCT is very stable from 1995 to 1997. In 1998, the P/E ratio fell over 43% to 27.5. The P/E ratio then rocketed to 64.1 in 1999, a 57% increase in one year. This dramatic increase indicates current investors are placing more value on future earnings as compared to previous years. One-reason ADCT investors pay more to own the stock is the growth potential in the communication equipment sector. For example, Internet traffic doubles every 100 days, illustrating the growth potential for ADCT's sales and bottom line earnings (Annual Report, 1999). Investors are currently willing to buy the stock at an inflated price due to two main reasons, the company's future earning potential and present growth rate in the industry.
The returns on assets (ROA) ratios for ADCT are 9.20%, 11.40%, 11.60%, 11.30% and 5.20 for the years 1995-1999. There were no ROA industry averages in the "Almanac of Business and Financial Ratios," written by Leo Troy. ADCT's ROA ratios remain constant (around11%) from 1995 -1998. In 1999, ROA dropped 54% to 5.20. This decline indicates that ADCT may not be utilizing its assets properly. One explanation for the 1999 decrease is ADCT's acquisitions. For example, ADCT purchased Broadband Access Systems for 2.25 billion exchange of stock (Datek, 2000). Recent acquisitions require additional long-term debt and are reflected in the ROA reduction...
... middle of paper ...
... low rate or utilize other financing activities with a low quick ratio. This is a negative trend in ADCT's profitability possibilities.
ADCT's financial leverage ratios are 1.1, 1.2,1.2, 1.4 and 1.3 for 1995-1999. There are no industry comparisons available. The trend is constant with little variation.
ADCT's debt/equity ratios are 17.7% 24.5, 24.7, 42.2 and 34.0 for 1995-1999. There are no comparison ratios. There was a dramatic increase in 1998. This increase reflects ADCT's 1998 decision to sell additional stock in the NASDAQ exchange. ADCT has used the raised capitol to invest in operating activities and is reflected in the reduction of this ratio in 1999.
Cash flow/ debt ratios for ADCT are 49.1%, 42, 43, 21 and 81 for 1995-1999. There is a dramatic increase in 1999. This increase is due to increased expenses in 1999, reducing cash generated by operating expenses. ADCT also issued stock in 1998, increasing the total debt of the company. ADCT must use its newly acquired debt to generate more cash flow to improve the financial condition of the company.
Tests of Dividend Policy
ADC Telecommunications pay no dividends.
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- Performing a financial analysis of a company allows an investor or creditor to fully understand the make-up of that particular company. For Pepsi Co, Inc. and The Coca-Cola Companies the below vertical and horizontal analysis along with selected ratios provide details on each company to allow comparison between them. Pepsi Co, Inc. shows a great deal of assets and property ownership while The Coca-Cola Companies net revenue is lower their net income is higher. The Pepsi Co, Inc. has more assets than the Coca-Cola Company, but more of their assets are owned by creditors.... [tags: Financial Analysis, Financials, economics, ]
1757 words (5 pages)
- Evaluating a company’s financial condition can be done by looking at its profitability or its ability to satisfy long-term commitments. These measures can be viewed through an analysis of a company’s financial statements, including the balance sheet and income statement. This paper will look at the status of Scholastic Company’s (Scholastic) ability to satisfy its long-term commitments and at the profitability of Daktronics, Inc. (Daktronics). This paper will include various financial ratio calculations and an analysis of the notable trends.... [tags: Financial Analysis]
2133 words (6.1 pages)
- Apple Inc: Financial Analysis Problem 1: Liquidity Analysis: Liquidty Ratios are used to judge short term solvency of the company as if it have sufficient working capital to pay off its short term obligation. Generally two measures of Liquidity Ratios are used by analyst to adjudge the liquidity position of the company: • Current Ratio • Quick Ratio/Acid Test Ratio 1) Current Ratio: Calculated as ratio of Current Asset and Current liability, this liquidity ratio is considered to be true indicator of a firm’s liquidity.... [tags: Financial Analysis]
897 words (2.6 pages)
- Part I: The Purpose of the Report and the Research Experience The main purpose of this report was to evaluate and research the financial information about Priceline during the past five years to evaluate the future developing of the company. In order to perform my research, I used Priceline’s 10 K report to get the financial information that was needed for this research. In addition, I used the company’s website where I found basic information about Priceline history and also other businesses that Priceline’s group owns.... [tags: Business Analysis, Financial Analysis]
2205 words (6.3 pages)
- Before you make an investment into any company, you would need to first take the time to review and study the financial records of the company. I have been given the opportunity to review the financial records of two major companies; Pepsi Co and The Coca Cola Company and decided which company is more financially sound. In order to make the best choice, I will look at the three financial statement analyses on each company and compare them. The three tools of financial statement analysis that I will review are the Horizontal Analysis which evaluates a series of financial statement data over a period of time.... [tags: Financial Analysis, economics, ]
861 words (2.5 pages)
- STRATEGIC CORPORATE DEVELOPMENTS 2010 China Unicom and Ericsson Signed Telecom Management Contract (China) China Unicom’s Anhui division, a major telecom company in the country, signed a telecom management contract with Ericsson for a period of 3-years. The contract would facilitate Ericsson to be the biggest telecom operating partner in the Province of Anhui. Under the terms of the contract, Ericsson would be accountable for transmission network, field maintenance of base station as well as fixed line network.... [tags: Telecommunications]
982 words (2.8 pages)
- Financial Management and Analysis Table of Contents Introduction 3 Presentation of the companies 3 Ratio analysis of the companies 5 Profitability ratios 5 Liquidity ratios 7 Efficiency ratios 9 Gearing ratios 11 Investment ratios 12 Ratio analysis strengths and weaknesses 14 Introduction Financial analysis involves the use of various financial statements, which perform several functions. Basics of financial analysis consist of a balance sheet and income statement. Income statement shows revenues and expenditures of enterprises over a certain period of time, usually for one year or semester.... [tags: financial statements, SWOT, equity]
2196 words (6.3 pages)
- Salem Telephone Company Financial Analysis In 2001, Salem Telephone Company created a subsidiary, Salem Data Services (SDS). The intent of creating SDS was to provide a revenue stream to subsidize the telephone operations and alleviate the need for a rate increase. Unfortunately, after 3 years, SDS has not met profit expectations. In fact, SDS continued to experience losses at the rate of $40-$45k per month making it necessary to reassess operations. While providing services to both internal and external customers, SDS found that their computer system had surplus capacity to support additional commercial sales.... [tags: Business Financial Analysis]
1279 words (3.7 pages)
- 1) The WACC is basically computed by the sum of multiplying the costs per component to its respective proportional weight (how much that company uses a certain cost of capital) [See Appendix 1]. As financial management is focused on the maximization of the stock price, an optimal structure of costs based on these three factors is needed. In SIVMED’s case, based on the definition of WACC, all capital bases should be included in its WACC. These include its common stock, preferred stock, bonds and long-term borrowings.... [tags: Financial Analysis Finance Accounting]
1403 words (4 pages)
- Directions: Select a topic from the case studies in the text. You may choose any of the topics, except those covered in previous assignments. Examples of topics you might investigate include: using telecommunications to keep in touch with co-workers; telecommunications innovation; managing telecommunications; emerging telecommunications technologies; and so on. Do independent research on your topic and present your findings in a 15-20 page position paper (based on the body of the paper, excluding references, abstracts, table of contents, etc).... [tags: Telecommunications]
1774 words (5.1 pages)