In Module 7, we learned about the importance of current liabilities, which are amounts which a Company owes to another Company. Current liabilities mean the liability must be paid with the next year or within the next operating cycle; long-term liabilities mean the liability is due to be paid sometime after the next
year or operating cycle. We also learned during Module 7 about the times interest earned ratio,
which measures whether a Company can/is generate (generating) enough profits to pay the interest expense required to be paid on its short-term and long-term debt as they become due.
In the Module 8 discussion, you will first calculate the times interest earned for two telecommunication companies in the United States, and then analyze and compare the results.
Obtain the latest two AT&T and Verizon Annual Reports online, like you have been doing for other companies in some of the previous Module discussions. Please make sure the Annual Report you obtain includes the latest two fiscal years.
Calculate the times interest earned ratios for the latest two fiscal years ending. Show the bases of your calculations at the start of your response for both companies. Answer the following questions as part of your initial response:
- What is AT&T’s trend for the times interest earned ratio for the past two years?
- What is Verizon’s trend for the times interest earned ratio for the past two years?
- Comparing the trends in the times interest earned ratios for AT&T and Verizon to each other over the past two years, what do the trends tell us? Are there any specific reason(s) the ratios are different? (Hint: check their respective Annual Reports, the Management Discussion and Analysis Section, especially, for potential explanations)
Example to Include at the start of your initial response:
AT&T:
Times Interest Earned: Fiscal Year Ended XXXX and Fiscal Year Ended XXXX.
Verizon:
Times Interest Earned: Fiscal Year Ended XXXX and Fiscal Year Ended XXXX.
Reminder: The times interest earned ratio is computed as operating income divided by interest expense. You should remember from Module 7 on which of the basic financial statements you can find both of these amounts.