AT&T vs. Verizon: Financial Performance Comparison
This paper presents a comparative financial analysis of AT&T and Verizon, two of the largest telecommunications companies in the United States. Using common-size income statements, balance sheets, and key financial ratios for 2015 and 2016, the paper examines differences in cost structure, profitability, leverage, and capital allocation strategies. While both companies operate in the same industry and face similar competitive pressures, they have adopted markedly different financial approaches: AT&T pursues growth through mergers and acquisitions, maintaining lower debt levels, while Verizon relies on leverage to finance infrastructure and generate stronger returns on equity. The analysis concludes that Verizon's highly leveraged capital structure has delivered superior shareholder returns relative to AT&T's more conservative financial posture.
- Background and Industry Context: Origins, industry transformation, and divergent strategies
- Common-Size Income Statement Analysis: Revenue, margins, and cost structure compared
- Common-Size Balance Sheet Analysis: Assets, goodwill, debt, and equity positions
- Financial Ratio Analysis: Liquidity, leverage, profitability, and efficiency ratios
- Recent M&A Activity: AT&T's proposed Time Warner acquisition noted
- Overall Assessment: Capital structure trade-offs and shareholder value conclusions
✍️ How to write this paper — guide, tools & examples ▾
What makes this paper effective
- Uses common-size financial statements to normalize raw numbers, making direct comparisons between two companies of different sizes straightforward and credible.
- Moves logically from income statement to balance sheet to ratio analysis, building a layered picture of each company's financial profile before drawing conclusions.
- Anchors the overall assessment in the risk-return trade-off concept, giving the comparative analysis a clear analytical framework rather than simply listing differences.
Key academic technique demonstrated
The paper demonstrates effective use of common-size financial statement analysis — converting raw dollar figures into percentages of a base figure (revenue for income statements, total assets for balance sheets) — to enable meaningful cross-company comparison. This technique is paired with ratio analysis to triangulate findings, so no single metric drives the conclusion.
Structure breakdown
The paper opens with a background section establishing the two companies' shared origins and divergent strategies. It then works through three analytical layers — income statements, balance sheets, and financial ratios — each supported by embedded data tables. A brief section on M&A activity provides contextual color. The conclusion synthesizes all findings around the central theme of capital structure and its implications for shareholder value.
Background and Industry Context
Both AT&T and Verizon have their roots as Baby Bells — large telecom companies that arose after the breakup of Bell System. These are two of the largest telecommunications companies in the United States. At the time of the breakup, telecom was a highly stable business based on landline communications, but the industry has since transformed and is now strongly driven by wireless. As wireless technology continues to improve, being a meaningful player in the wireless space requires substantial investment in fixed infrastructure assets, something that is clearly evident on the balance sheets of both companies.
However, these companies differ significantly in how they are structured. Their businesses are very similar operationally, but AT&T has maintained a relatively low debt level and has sought growth through expansion. The massive amount of goodwill on its balance sheet and the relatively small amount of long-term debt reflect this strategy. Verizon, by contrast, has not been a player in mergers and acquisitions to nearly the same degree as AT&T. Instead, Verizon has taken on debt to finance its infrastructure buildout. An analysis of the finances of these two companies shows that while they share similar business operations, they have very different approaches from a financial perspective — and those differences have a significant impact on the shareholders of each company.
Common-Size Income Statement Analysis
The common-size income statements for AT&T and Verizon for the past two years are as follows:
AT&T Income Statement
2016 — Revenue: $163,786M (100.00%); Cost of Service: $76,884M (46.94%); Gross Income: $86,902M (53.06%); SG&A Expense: $36,347M (22.19%); Impairments: $361M (0.22%); Depreciation: $25,847M (15.78%); Operating Income: $24,347M (14.87%); Net Income: $13,333M (8.14%).
2015 — Revenue: $146,801M (100.00%); Cost of Service: $67,046M (45.67%); Gross Income: $79,755M (54.33%); SG&A Expense: $32,919M (22.42%); Impairments: $35M (0.02%); Depreciation: $22,016M (15.00%); Operating Income: $24,785M (16.88%); Net Income: $13,345M (9.09%).
Verizon Income Statement
2016 — Revenue: $125,980M (100.00%); Cost of Service: $51,424M (40.82%); Gross Income: $74,556M (59.18%); SG&A Expense: $31,569M (25.06%); Impairments: $0 (0.00%); Depreciation: $15,928M (12.64%); Operating Income: $27,059M (21.48%); Net Income: $13,608M (10.80%).
2015 — Revenue: $131,620M (100.00%); Cost of Service: $52,557M (39.93%); Gross Income: $79,063M (60.07%); SG&A Expense: $29,986M (22.78%); Impairments: $0 (0.00%); Depreciation: $16,017M (12.17%); Operating Income: $33,060M (25.12%); Net Income: $18,375M (13.96%).
Common-size statements allow for easier comparison of the two companies. A couple of findings stand out from this analysis. The first is that AT&T has a much higher cost of service than Verizon. As a consequence, AT&T ends up with lower operating and net margins. Both companies have roughly similar selling, general, and administrative (SG&A) expenses, though Verizon's increased in 2016. It is worth noting that Verizon's raw SG&A number increased by only a small amount, but because revenues decreased, this largely fixed cost became a much greater percentage of revenue. The company likely targeted SG&A at around 22% again, but it rose when revenues failed to reach 2015 levels. The cost of service increased slightly as well, putting pressure on operating income.
While Verizon saw its revenues decrease, AT&T experienced a significant increase in expenses. As with Verizon, AT&T's cost of service rose slightly, but its SG&A expense was held at roughly the same percentage. AT&T's depreciation expense, already elevated, actually increased despite higher revenues. As a result, AT&T's net income grew in raw terms, but its profit margin declined.
Comparing the two companies on their common-size income statements, AT&T had a better year in 2016 in several respects, but still performs more poorly in terms of margins and cost structure than Verizon does.
Common-Size Balance Sheet Analysis
AT&T Balance Sheet
2016 — Cash: $5,788M (1.44%); Accounts Receivable: $16,794M (4.16%); Current Assets: $38,369M (9.51%); PP&E: $124,899M (30.97%); Goodwill: $105,207M (26.09%); Fixed Assets: $364,912M (90.49%); Total Assets: $403,281M (100.00%); Accounts Payable: $31,138M (7.72%); Current Liabilities: $50,576M (12.54%); Long-Term Debt: $113,681M (28.19%); Shareholders' Equity: $124,110M (30.78%).
2015 — Cash: $5,121M (1.27%); Accounts Receivable: $16,532M (4.11%); Current Assets: $35,992M (8.94%); PP&E: $124,450M (30.91%); Goodwill: $104,568M (25.97%); Fixed Assets: $366,680M (91.06%); Total Assets: $402,672M (100.00%); Accounts Payable: $30,372M (7.54%); Current Liabilities: $47,816M (11.87%); Long-Term Debt: $118,515M (29.43%); Shareholders' Equity: $123,640M (30.70%).
Verizon Balance Sheet
2016 — Cash: $2,880M (1.18%); Accounts Receivable: $17,513M (7.17%); Current Assets: $26,395M (10.81%); PP&E: $232,215M (95.10%); Goodwill: $27,205M (11.14%); Fixed Assets: $217,785M (89.19%); Total Assets: $244,180M (100.00%); Accounts Payable: $19,593M (8.02%); Current Liabilities: $30,340M (12.43%); Long-Term Debt: $105,433M (43.18%); Shareholders' Equity: $24,032M (9.84%).
2015 — Cash: $4,470M (1.83%); Accounts Receivable: $13,457M (5.51%); Current Assets: $22,365M (9.16%); PP&E: $83,541M (34.21%); Goodwill: $25,331M (10.37%); Fixed Assets: $221,810M (90.84%); Total Assets: $244,175M (100.00%); Accounts Payable: $19,362M (7.93%); Current Liabilities: $35,052M (14.36%); Long-Term Debt: $103,240M (42.28%); Shareholders' Equity: $17,842M (7.31%).
Analysis of the common-size balance sheets shows that Verizon has higher accounts receivable as a percentage of total assets. In fact, in 2016 Verizon had a higher absolute accounts receivable figure than AT&T, even though AT&T generated more sales. This highlights a concern for Verizon — difficulty collecting on its accounts receivable — suggesting that its customers may have consistently lower credit quality than AT&T's customers.
Of particular note is just how much of AT&T's balance sheet consists of goodwill, which is typically the result of merger and acquisition activity. AT&T has clearly engaged in far more M&A than Verizon, given the outsized percentage that goodwill represents on its balance sheet. AT&T also carries significantly more shareholders' equity than Verizon. The key difference on the liability side is that Verizon carries a much greater percentage of long-term debt. While it may not appear excessive in isolation, it is substantially larger relative to equity than AT&T's long-term debt position.
Create your account
Always verify citation format against your institution’s current style guide requirements.