Financial statements are documents that public companies or corporations create and publish for the benefit of current investors and shareholders, and also for the benefit of people who may want to invest in that particular public company in the future. There are a lot of things that can be obtain and or analyze in a financial statement. For instance, a fund manager looking for a company that has a high level of and consistent growth rate may be able to determine whether any particular company listed in the New York Stock Exchange has had this feature by simply looking at any one company’s financial statement, particularly the aspect where the companies income from business operations, number of outstanding shares, total revenue, net income, net expenses, and profit values are. Financial analysis, on the other hand, refers to the process that is often conducted by professionals in the finance and investments industry. These people are often ones who are tasked to prepare reports using various ratios, charts, and mostly information that are directly taken from the prospective investment companies’ financial statements such as the earnings per share values that have just been used as an example. The output of this process is a financial analysis report.
These reports would often be the ones that will be handed to the members of the top management of an investment and or trading company, for example, and would most likely influence their business decisions as well. Based on the positivity or negativity of the contents of the financial analysis report, key people in the business might make moves and or decisions to continue or discontinue its operation in some aspects of the business; improve certain areas of the business to maximize earnings; issue new shares, sell more corporate bonds, or negotiate with a banking institution for a loan to increase the amount of working capital for upcoming and other future plans for expansion; and other decisions that may directly affect the business and how it bags earnings.
Intel is an international semiconductor company that originally started in the United States and is currently headquartered in Santa Clara, California. At the time of this writing, Intel Corporation remains to be the world economy’s highest valued and largest company that is engaged in the manufacture of semiconductors, and computer chips. In terms of revenue, Intel Corporation also easily outclasses all other companies that are in the same market segment. Some of the company’s most notable contribution to the semiconductor industry includes the discovery of the x86 architecture of microprocessors that is, in fact, still being used today and the continuous innovation in personal computer microprocessor products . a
Below are two tables that outline the data for Intel Corporation’s analysis of Beta, Variance, Standard Deviation, and Covariance, for the last five years, starting from the year 2009 up to the present year of 2014. What can be seen from the tables is the fact that Intel Corporation’s fundamentals and risk rates (beta, variance, standard deviation, and P/E ratio) are all healthy. At 14.80x its current stock price, the company’s stock cannot really be considered overvalued.
This table shows that Intel Corporation is currently not overvalued (as evidenced by P/E Ratio of <15x of its earnings), and is characterized by high levels of volatility as evidenced by a standard deviation of 5.06, although this contradicts the fact that Intel has a beta value of less than one which means that it is less volatile than the market.
AMD Corporation used to be Intel Corporation’s number one competitor. These two both operate in the personal computer component and semiconductor manufacturing and sales industry. AMD and Intel Corporation used to be engaged in a cut throat level of competition over dominance in the microprocessor market. Today, after getting beaten by Intel Corporation for so many times for a couple of years in a row now, AMD has announced that it will slowly shift its attention away from the microprocessor market and towards the more contemporary mobile microprocessor market. Below are tables that show the different variables about AMD and its fundamentals.
This table shows that AMD can be a risky and volatile stock, as evidenced by the beta value of more than 1 (2.51) and Standard deviation of 2.57. For the beta, this means that the stock shows more movement than the S&P 500.
T-Mobile International is the mobile and telecommunications arm of the holding company Deutsche Telecom. Globally, the company reports that it caters to the mobile and telecommunications needs of some 230 million subscribers . T-Mobile is one of AT&T’s main competitors for market share in the telecommunications industry. Just like AMD, the company, in the past decade, has been able to keep a toe to toe battle with AT&T in terms of earnings per share and revenues. However, as what can be seen from the table below, its fundamentals started to decline in 2011. The recent remodeling that the company has undergone has slowly but surely veered it towards the positive territory once again after suffering heavily from significant losses in 2011 and 2012. Also, this company is also the most expensive company, in terms of earnings. It currently trades at 145.63x its earnings.
. T-Mobile’s stock prices moves faster than that of the S&P 500 as evidenced by the high beta computation; its individual closing prices, specifically the ones computed, also were relatively far from each other, which present itself as a sign of stock volatility, as evidenced by the high variance computation. It is also the most overvalued stock we reviewed among the group.
AT&T is another New York Stock Exchange or publicly-listed company that operates in the telecommunications industry targeting the entire North American market. It is an American company that is currently headquartered in the downtown part of Dallas, Texas. At the time of this writing, AT&T is considered as the largest provider of mobile telephones and mobile telephone services and fixed telephones and fixed telephone services in the North American market . Due to the increased level of popularity of internet and or mobile data-based services, the company has launched an all-out venture to dominate the broadband and television service subscription services. As of 2014, AT&T Incorporated is the 23rd largest company in the world in terms of profits, assets, composite revenues, and overall market value. Recent surveys suggest that the company caters to more than 250 million customers of mobile phones and mobile phone services.
Below are tables that show that AT&T is a fundamentally and financially healthy company, and one that also gives regular dividends to its investors. In terms of earnings and dividend declarations, it greatly outperforms one of its main competitors, T-Mobile both in terms of the extent and consistency. One of the highlights of this analysis is the discovery that the company is the most undervalued one as evidenced by a P/E ratio of only 10x earnings.
T-Mobile moves the closest compared to the S&P 500 compared to any other stock reviewed in the group. It, however, has a variance of 38.65 which means that the computed values are often so far from each other, which only shows that this stock can be risky for short term investors. One ironic thing about this stock is that it has a standard deviation value of more than 1 which means that it is more risky compared to other stocks because of the deviations but the beta computation tells that it is not that volatile.
Conclusions and Recommendations
The truth about investing in stocks and other types of securities is that no one would really be able to predict the movement of the market or whether the company would be able to beat its past record highs in terms of earnings, earnings per share, price to earnings ratio, and other indicators that are commonly used in stock and investment analysis. However, using fundamentals or by performing fundamental analysis, any individual or institution who wants to play it safe, be conservative, and go for the company investment choices with the highest probability of significant returns instead of losses would be able to achieve their goal. In this case, as a financial analyst, I would recommend that the client purchase all the stocks mentioned and analyzed in this paper except for the company, T-Mobile. This means that we would issue a buy signal for medium to long term investors or those who can hold their stock positions for at least a year, for the following companies: Intel Corporation, AMD Corporation, and AT&T Incorporated. The main reason behind our reluctance to issue a buy signal and in fact issue a sell signal to T-Mobile stock holders is that based on the recent earnings that the company posted in their financial statement, it is overpriced by over 140x of its current stock price.
All of the remaining three companies that we analyzed have a P/E ratio of not more than 15x of their current stock price relative to their earnings. This however, does not mean that these companies are undervalued. It is just that T-Mobile shares, at least as of this moment, are highly overvalued. The second stock in the list that we are reluctant to buy would be that of the AMD Corporation. This is because the company has in the past three years, posted too small of a net income compared to other major players in its segment such as Intel Corporation. It also did not declare any common stock cash or stock dividend at least for the past three years which suggests that it does not have the necessary cash or it was not able to generate more than enough cash to declare dividends. The remaining two stocks: that of the Intel Corporation and the AT&T Incorporated showed good fundamentals, i.e. in terms of P/E ratio; earnings per share, and yearly growth rate in net income, which are, in fact, the main reasons why we have decided to issue a buy signal for these two stocks to our clients.
Based on the statistics, however, we found that Intel and AMD corporation appeared to be the two least risky securities compared to the other remaining two. This is because of the stable beta values, and because they have the lowest standard deviations and variance among the group. Just to reiterate, Intel and AMD operates in the semiconductor and microprocessor manufacturing industry while T-Mobile and AT&T operates in the mobile and telecommunications industry.
AT&T. (2014). AT&T Incorporated 2013 Highlights. AT&T.
Intel. (2014). Intel Roadmap to Success. Intel Corporation.
T-Mobile. (2014). T-Mobile Company Milestones. T-Mobile.