Student’s Name
Institution Affiliation
Table of Contents
Introduction. 2
Porter Five Forces Analysis Matrix. 2
PEST Analysis Matrix. 4
Opportunities and Threats (Internal) 7
Strength and Weakness (Internal Environment) 10
Financial Analysis. 13
Internal Factor Analysis. 21
TOWS Strategy Development TOWS Strategic Alternative Matrix. 24
References. 26
Verizon Communication Inc.
Introduction
Verizon Communications is the biggest supplier of wireless communications services in the United States with a market share of 33 % as of 2016. Despite having reputation of overcharging its services as compared to its competitors, Verizon Communications has continued to be a market leader in the wireless sector dominating the market share and leading the rivals in delivering competitive products for its customers. Its major competitors are AT & T with a market share of 27 % and T Mobile with a market share of 15 % followed closely by Sprint with a market share of 14 %. The major company strengths attracting a large portion of the wireless market is the wide network coverage Verizon provides compared to its competitors, and world class customer services even though the company usually targets the high income market segment compared to its competitors. It is critical to better understand the business environment Verizon Communications Inc. operates in and thus the need to conduct an elaborate and up to date Porter’s five forces analysis outlined below:
Porter Five Forces Analysis Matrix
Bargaining Power of Buyers | · Bargaining power of buyers refers to the ability of the company’s clients to coerce it to initiate certain unfavorable policies. · Customers have weak bargaining Power in Verizon communication since there company sells its products to many buyers |
Bargaining Power of Suppliers |
· The company has many providers of various services that it needs for its operations. Therefore, it is able to obtain its items at affordable rates. |
Threat of New Entrants | · Verizon Communication Inc. constantly faces new threats from competitors due to the emergence of low cost technology in telecommunication as well as in offering technological related services (Young & Tippins, 2001). |
Threat of Substitutes | · The threat of substitution of services offered by Verizon is real and increasing. Firstly, there has been an emergence of many cheap telecommunication providers. In addition, there is also the presence of internet and application based communication (WhatsApp, Snap Chat, and Skype) |
Competitive Rivalry | · Verizon is currently the market leader. However, it faces a lot of competition from Sprint, AT&T, and T Mobile. The competition are in the form of price, market coverage, and services offered. Currently, the company’s competitive edge is its high network coverage and minimal dropped call rate. Unfortunately, these competitive advantages are also being fiercely encroached. |
PEST Analysis Matrix
Factor | Threats or Opportunities | Impact |
Political | -Increased regulations and restrictions for mergers and acquisitions to promote fair competition in the wireless industry. – All new wireless technology that companies introduce to the market must adhere to strict set of rules and regulations established by the U.S. government and other foreign governments (Siṃha, 2007). – Goods and services offered by telecom providers must adhere to strict safety and privacy regulations. – The U.S government has put in place strict regulations on tariffs and phones that can be offered and produced in the telecom industry. |
– Moderate – High – High – High |
Economic | – Inflation and fluctuating interests rates can have an impact on the telecom industry leading to massive migration to cheaper service providers or reduced spending in the services (Sharma & Sharma, 2014). – Most wireless companies continue to face challenges in establishing competitive prices due to recession leading to some companies increasing prices to account for the shortfall (Panagacos, 2012). – Different telecommunication companies are opting to offer limited time offers on the latest smartphones with some having exclusive rights to some phones in order to increase their market share (Institute of Chartered Accountants in England and Wales, 2016). |
– High – High – Low |
Social | – As the world goes global and there is increased social networking, there is need for wireless providers to provide products such as conference calls, video chats, instant messaging and other social networking features to keep up with the IT age. – The business community is moving to the mobile platform. As they migrate to the mobile digital platform it is critical for wireless service providers to provide services such as mobile phones which are synchronized with their business to enable the individual receive alert for messages, phone calls and emails on the go (Richter, 2002). – |
– High – Moderate |
Technological | – The rate of technology change and trends in the wireless and telecommunication sector is rapid and ever changing. It is thus critical for businesses in the telecommunication industry to invest heavily in capital, research and development of cutting edge wireless technology which is currently at 4 G. Verizon continues to invest in the development of its 5 G network but the capital costs are extensive and may affect the financial soundness of the company (Manganelli & Hagen, 2003). – The production of mobile phone handsets is evolving at a very high rate with different competing phone manufacturers producing different phone types to stay competitive with the most up to date handset. Wireless companies must keep check of these new handsets and their demand in order to provide wireless contracts with individual and enterprise customers of the gadgets (Lynch, 2009). |
– High – High |
SWOT Analysis
Opportunities and Threats (Internal)
Financial Analysis
Financial Analysis
Income Statement | 31/12/2014 | 31/12/2015 | Percent Change | |||
Revenues | $127,079 | $131,620 | 1 | 3.57% | ||
Cost of Goods Sold | 28,306 | 29,438 | 1 | 4.00% | ||
Gross Profit | 98,773 | 102,182 | 1 | 3.45% | ||
Total Operating Expenses | 106,894 | 98,460 | -1 | -7.89% | ||
EBIT | 20,185 | 33,160 | 1 | 64.28% | ||
Interest Expense | 4,915 | 4,920 | 1 | 0.10% | ||
EBT | 15,270 | 28,240 | 1 | 84.94% | ||
Tax | 3,314 | 9,865 | 1 | 197.68% | ||
Non-Recurring Events | 0 | 0 | #DIV/0! | #DIV/0! | ||
Net Income | 11,956 | 18,375 | 1 | 53.69% | ||
Balance Sheet | 31/12/2014 | 31/12/2015 | Percent Change | |||
Assets | ||||||
Cash and Equivalents | $11,153 | $4,820 | -1 | -57% | ||
Accounts Receivable | 13,993 | 13,457 | -1 | -4% | ||
Inventory | 1,153 | 1,252 | 1 | 9% | ||
Other Current Assets | 3,200 | 2,751 | -1 | -14% | ||
Total Current Assets | 29,499 | 22,280 | -1 | -24% | ||
Property Plant & Equipment | 89,947 | 83,451 | -1 | -7% | ||
Goodwill | 24,639 | 25,331 | 1 | 3% | ||
Intangibles | 88,531 | 103,311 | 1 | 17% | ||
Other Long-Term Assets | 0 | 10,267 | #DIV/0! | #DIV/0! | ||
Total Assets | 232,616 | 244,640 | 1 | 5% | ||
Liabilities | ||||||
Accounts Payable | 16,680 | 19,362 | 1 | 16% | ||
Other Current Liabilities | 11,307 | 15,690 | 1 | 39% | ||
Total Current Liabilities | 27,987 | 35,052 | 1 | 25% | ||
Long-Term Debt | 110,536 | 103,705 | -1 | -6% | ||
Other Long-Term Liabilities | 88,275 | 80,183 | -1 | -9% | ||
Total Liabilities | 226,798 | 218,940 | -1 | -3% | ||
Equity | ||||||
Common Stock | 424 | 424 | 0 | 0% | ||
Retained Earnings | 2,447 | 11,246 | 1 | 360% | ||
Treasury Stock | 1,111 | 550 | -1 | -50% | ||
Paid in Capital & Other | 9,694 | 5,622 | -1 | -42% | ||
Total Equity | 13,676 | 17,842 | 1 | 30% | ||
Total Liabilities and Equity | 240,474 | 236,782 | -1 | -2% |
Company Valuation
0 | 2015 |
Stockholders’ Equity – (Goodwill + Intangibles) | ($103,816) |
Net Income x 5 | $89,070 |
(Share Price/EPS) x Net Income | $408 |
Number of Shares Outstanding x Share Price | $397,400 |
Method Average | $95,765 |
0 | 2014 |
Stockholders’ Equity – (Goodwill + Intangibles) | ($93,410) |
Net Income x 5 | $53,430 |
(Share Price/EPS) x Net Income | $442 |
Number of Shares Outstanding x Share Price | $208,500 |
Method Average | $42,240 |
Earnings Per Share
Common Stock Financing and Debt | |||
Recession (2014) | Normal (2013) | Boom(2015) | |
EBIT | $20,185 | $31,944 | $33,160 |
Interest | 4,915 | 2,667 | 4,920 |
EBT | 15,270 | 29,277 | 28,240 |
Taxes | 3,314 | 5,730 | 9,865 |
EAT | 11,956 | 23,547 | 18,375 |
# Shares (millions) | 3,974 | 2,866 | 4,085 |
EPS | $3.01 | $8.22 | $4.50 |
Complete Part II to Construct the Projected Financial Statements. | ||||
Projected Income Statement | 31/1/2015 | 31/1/2016 | 31/1/2017 | |
Revenues | $131,620 | $145,000 | $154,000 | |
Cost of Goods Sold | 29,438 | 32,000 | 37,000 | |
Gross Profit | 102,182 | 113,000 | 117,000 | |
TOTAL Operating Expenses | 69,022 | 72,000 | 72,000 | |
EBIT | 33,160 | 41,000 | 45,000 | |
Interest Expense | 4,920 | 5,100 | 5,200 | |
EBT | 28,240 | 35,900 | 39,800 | |
Tax | 9,865 | 12,400 | 15,300 | |
Non-Recurring Events | 0 | 0 | 0 | |
Net Income | 18,375 | 23,500 | 24,500 | |
Projected Balance Sheet | 31/1/2015 | 31/1/2016 | 31/1/2017 | |
Assets | ||||
Cash and Equivalents | $4,820 | $5,400 | $6,200 | |
Accounts Receivable | 15,416 | 12,100 | 8,400 | |
Inventory | 1,252 | 1,500 | 1,800 | |
Other Current Assets | 792 | 800 | 1,200 | |
Total Current Assets | 22,280 | 19,800 | 17,600 | |
Property Plant & Equipment | 83,451 | 80,000 | 105,000 | |
Goodwill | 25,331 | 28,000 | 32,000 | |
Intangibles | 8,338 | 8,338 | 8,338 | |
Other Long-Term Assets | 105,240 | 113,000 | 119,400 | |
Total Assets | 244,640 | 249,138 | 282,338 | |
Liabilities | ||||
Accounts Payable | 26,314 | 32,000 | 43,000 | |
Other Current Liabilities | 8,738 | 9,200 | 13,000 | |
Total Current Liabilities | 35,052 | 41,200 | 56,000 | |
Long-Term Debt | 103,705 | 115,000 | 135,000 | |
Other Long-Term Liabilities | 88,041 | 87,904 | 94,000 | |
Total Liabilities | 226,798 | 244,104 | 285,000 | |
Equity | ||||
Common Stock | 424 | 424 | 424 | |
Retained Earnings | 18,375 | 41,875 | 66,375 | |
Treasury Stock | (7,416) | (7,416) | (7,416) | |
Paid in Capital & Other | 6,459 | 6,459 | 6,459 | |
Total Equity | 17,842 | 41,342 | 65,842 | |
Total Liabilities and Equity | 244,640 | 285,446 | 350,842 |
Ratios
Historical
Historical Ratios | |||
31/1/2015 | 31/12/2014 | ||
Current Ratio | 0.64 | 1.05 | |
Quick Ratio | 0.60 | 1.01 | |
Total Debt-to-Total-Assets Ratio | 0.93 | 0.97 | |
Total Debt-to-Equity Ratio | 12.71 | 12.27 | |
Times-Interest-Earned Ratio | 7 | 4 | |
Inventory Turnover | 24.48 | ||
Fixed Assets Turnover | 0.59 | ||
Total Assets Turnover | 0.54 | ||
Gross Profit Margin % | 78% | 78% | |
Operating Profit Margin % | 25% | 16% | |
ROA % | 8% | 5% | |
ROE % | 103% | 87% |
Projected
Projected Ratios | |||||
31/1/2015 | 31/12/2016 | 31/12/2017 | |||
Current Ratio | 0.64 | 0.48 | 0.31 | ||
Quick Ratio | 0.60 | 0.44 | 0.28 | ||
Debt-to-Total-Assets Ratio | 0.93 | 0.98 | 1.01 | ||
Debt-to-Equity Ratio | 12.71 | 5.90 | 4.33 | ||
Times-Interest-Earned Ratio | 7 | 8 | 9 | ||
Inventory Turnover | 24.48 | 5.81 | 27.41 | ||
Fixed Assets Turnover | 0.59 | 0.63 | 0.58 | ||
Total Assets Turnover | 0.54 | 0.58 | 0.55 | ||
Gross Profit Margin % | 78% | 78% | 76% | ||
Operating Profit Margin % | 25% | 28% | 29% | ||
ROA % | 8% | 9% | 9% | ||
ROE % | 103% | 57% | 37% |
Internal Factor Analysis
Strengths | Weight | Rating | Weighted Score |
Verizon Inc. has a structured management which ensured it makes strategic decisions | 0.90 | 10 | 9.00 |
It has a strong internal audit team that ensures its finances are properly utilized | 0.80 | 9 | 7.20 |
It uses a professional recruitment policy based on merit, which ensures its employees are competitive and skillful | 0.75 | 8 | 6.00 |
It has computerized most of its systems which enables it to reduce cases of fraud and also its operational costs (Gallagher & Andrew, 2000). | 0.80 | 9 | 7.20 |
It has an independent board of management, which ensures they do not have any conflict of interest in the management of the company. | 0.89 | 9 | 8.28 |
The company files its audited financial statements with the government, which ensures that its operation are kept under scrutiny to minimize possible cases of fraud. | 0.75 | 8 | 6.00 |
The company’s CEO is experienced in management and has been appointed based on his credentials, which ensures that he provides adequate leadership (Glueck & Jauch, 1984). | 0.87 | 9 | 7.40 |
Verizon has an internal research department, which it uses to determine the most appropriate technology and to update its systems with the most recent trends in the industry (Holt, 2008). | 0.65 | 7 | 4.62 |
The company uses a hierarchical systems of leadership which ensures there is consistent flow of information from seniors to juniors and vice versa. | 0.71 | 8 | 5.33 |
The company management and training programs ensure that it has adequate success systems for its employees. | 0.81 | 9 | 7.33 |
Weaknesses | Weight | Rating | Weighted Score |
The use of a structured management system by the Verizon leads to bureaucracy and delays in decision making. | 7.00 | 6 | 40.60 |
The company’s internal research team does not engage in adequate research. As a result, Verizon is always late in adopting the latest technologies | 7.00 | 6 | 40.60 |
Verizon Inc. has a lot of employees, which makes its management expensive. | 8.00 | 7 | 53.60 |
The transfer of information in the company is also affected by its diversified operations systems. | 8.60 | 7 | 63.64 |
Due to the size of Verizon Inc. the company incurs a lot of avoidable overheads, which reduces its competitiveness. | 6.00 | 5 | 30.00 |
Verizon Inc. management’s is conservative and risk averse. As a result, the company has missed out many opportunities that require an organization to take a risky decision, such as being the first to implement technology (Hillier, Grinblatt, & Titman, 2012). | 6.50 | 6 | 40.95 |
Verizon Inc. has continued to hold on in the provision of communication service through the wired system although this method of communication is expensive and has low incomes. | 7.30 | 6 | 45.99 |
Verizon Inc. lack of specialization in any communication method has made it not to maximize in the revenue it earns in mobile communication (Guffey & Loewy 2014). | 6.00 | 5 | 30.00 |
Verizon’s Inc. overreliance on shareholder’s capital has resulted in the company having little capital from retained earnings since it pays most if its issues most of its profits as dividends. | 8.00 | 7 | 56.00 |
Verizon’s huge debts have made it to spend most f its incomes to repay current and long-term liabilities. | 8.00 | 7 | 56.00 |
Total IFE Score | 0.00 | 525.72 | |
TOWS Strategy Development
TOWS Strategic Alternative Matrix
External Opportunities | External Threats | |
Internal Strength |
Maxi-Maxi Strategy · Verizon should use its huge market base to be the market leader in the introduction of new mobile services such as mobile payment (Bender & Routledge, 2014). · The company should use its wide infrastructure to increase the services it offers, such as introduction of mobile payment. · Verizon can enjoy economies of scale by providing similar services to its wide consumers (Coombs, Hobbs, & Jenkins, 2005). · Verizon can diversify its business, by providing complementary services such issuing small credit and loans to its customers (Bierman, 2010). · |
Max-Mini Strategy · With its huge capital, the company can buy competitors to secure its market. · Verizon should acquire talented personnel from rival companies in order to have the latest knowledge and best skills to promote its business. · Verizon can offer huge discounts to its customers in order to minimize competition (Gallagher & Andrew, 2000) |
Internal Weaknesses |
Mini-Max Strategy · Verizon can improve its mobile and telecommunication service to attract more customers (Aronson, Schwartz, & ICMA Training Institute, 1996). · The company can take advantage of the increase in IT incorporation by partnering with IT experts to offer services that were exclusively in their network (Chartered Institute of Management Accountants, 2013). · Verizon can offer customized services to its customers based on their age, preferences, and gender. |
Mini-Mini Strategy · Verizon can restructure its personnel and operations and ensure it is lean. · Verizon can computerize most of its services, especially those of customer care to reduce its operation costs. · Verizon can sign long-term contracts with its customers by offering post pay services (Chadwick, 1999). · Verizon can improve the clarity of its telecommunication service to avoid threats from competitors. |
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