AT&T company history and operations

AT&T is in basic terms a telecommunications services provider with operations not only in the U.S. But also in other parts of the world. In this text, I conduct an analysis of the company. In so doing, I will amongst other things explore its accounting systems and internal controls. Further, I will also conduct a brief review of its financial statements.

Company Overview

In so many ways, AT&T can be regarded an industry leader in the provision of wireless voice communications. The company gives its mission as "to connect people with their world, everywhere they live and work, and do it better than anyone else" (AT&T, 2013). Some of the main competitors of AT&T in the Telecom Services industry include but they are not limited to Verizon Communications Inc. And Sprint Nextel Corp. Currently, the company is headquartered in Dallas, Texas.

Accounting Systems

Accounting systems include but they are not limited to all those accounting approaches (both manual and computerized) a company makes use of in an attempt to further enhance its ability to not only gather but also record and analyze/interpret data of a financial nature. In brief, AT&T makes use of elaborate cost accounting and other industry-specific accounting systems to facilitate the analysis and reporting of financial management information. The company's cost accounting system enables it to record costs incurred in the delivery of services. On comparing these costs with planned or standard costs, AT&T can easily identify variances so as to institute the relevant corrective measures. It is also important to note that AT&T has in recent times revamped its accounting system. Some of the changes the company has made in this regard include the recognition of gains and losses in the year in which they took place (Booton, 2011). Previously, the said gains and losses as Booton (2011) further points out were "spread over a period of several years." The company has also made a decisive move towards the further enhancement of the transparency of the information it presents to investors.

Internal Controls

The American Institute of Certified Public Accountants (AICPA) according to Albrecht, Stice, and Stice (2010) defines internal controls "as the policies and procedures established to provide reasonable assurance that specific entity objectives will be achieved." In addition to protecting the interests of both creditors and investors, internal controls as the authors in this case further point out also help the managers of an organization to run their entities in a more effective and efficient manner.

Like many other publicly traded companies, AT&T has in the past put in place a variety of measures designed to guarantee the integrity of its financial statements. For instance, AT&T has in place a committee that obtains and reviews internal auditor reports. Amongst other things, the committee in this case as the company points out periodically undertakes a review of issues that have got to do with the presentation of financial statements and application of financial principles (AT&T, 2013). Other measures that AT&T takes to enhance the integrity of its financial statements while at the same time meeting its profitability and operational targets include crosschecking of payrolls, implementation of the vehicle policy, proper tracking of fixed assets, etc. In regard to proper tracking of fixed assets, the company periodically verifies both the existence and condition of fixed assets which include vehicles and machinery.

Financial Statement Review

In seeking to define how AT&T's financial statements relate to its activity, I will make use of the company's cash flow statement, statement of financial position/balance sheet, retained earnings statement, and income statement. To begin with, the company in this case makes use of the cash flow statement to report not only the cash generated but also the cash used within a specified time period. By looking at the cash flow statement, the management of AT&T can easily tell how the company generated and made use of cash. On the other hand, the balance sheet in this particular case eases the disclosure of AT&T's assets and liabilities. Next, we have the retained earnings statement. As the name suggests, this statement details the changes that took place to AT&T's retained earnings. Lastly, the income statement presents AT&T results in a way that can help us determine its financial performance. Using the income statement, it is easy to identify not only AT&T's expenses but also its profit.

Ratio Analysis

Ratio analysis according to Lasher (2010) "involves taking sets of numbers out of financial statements and forming ratios with them." In basic terms, financial ratios enable the various users of financial statements to analyze an entity's performance and financial stability.

Table 1: AT&T's Financial Ratios

Financial Ratio

2012

2011

Liquidity Ratios

Current ratio

0.71

0.74

Quick ratio

0.71

0.74

Cash ratio

0.15

0.10

Profitability ratios

Gross profit margin

0.57

0.57

Return on equity

0.08

0.04

Return on assets

0.03

0.01

Solvency Ratios

Debt to equity ratio

1.95

1.56

Debt ratio

0.66

0.61

Proprietary ratio

0.34

0.39

AT&T Ratio Analysis

Based on the financial ratios I have computed in the text above, it would be possible to determine not only the financial viability of AT&T but also its stability. To begin with, the company's liquidity ratios clearly demonstrate that the firm does not have the ability to settle its obligations (short-term) should they fall due at the moment. According to Lasher (2010), the current ratio should ideally be above 1. In the case of AT&T, its current ratios during the two years under consideration are below 1. AT&T's quick ratio is similar to its current ratio largely because the company does not have inventory, i.e. It is a service provider. Using the current ratio, we can determine AT&T's ability to settle its short-term obligations using only cash and cash equivalents. From Table 1 above, although regarded an extreme liquidity ratio, the cash ratio clearly indicates that were its short-term obligations to become due, AT&T would face significant challenges settling them using only its cash and cash equivalents.

Next, we have the profitability ratios. These ratios come in handy when it comes to the determination of a firm's ability to generate healthy returns. Looking at Table 1, AT&T was able to rake in better returns for its investors in 2012 than in 2011. This can be discerned from its return on equity. Further, in comparison to the year 2011, AT&T's managers were able to better utilize the company's assets in 2012 to generate profits. My assertion is in this case based on the higher ROA ratio in 2012 in relation to 2011. The return on assets ratio according to Lasher (2010) helps in the determination of how effectively a firm's assets (as well as skills) are being utilized in profit generation. The company's gross profit margin tells us that the profit AT&T's earned on its sales did not change during the period under consideration. Comparing this information with that of AT&T's competitors would help us determine how successful AT&T is in profit generation.