FAM 5400 Module 7 Final Project: AT&T and Verizon, a Comparative Financial Analysis Example

Two Networks, Two Balance Sheets: A Financial Analysis of AT&T and Verizon, 2023-2024

Student Name

Master of Science in Management, Thomas Edison State University

FAM-5400: Finance and Accounting for Managers

Mentor Name

Month Day, Year

Two Networks, Two Balance Sheets: A Financial Analysis of AT&T and Verizon, 2023-2024

Introduction

AT&T and Verizon are the two largest U.S. wireless and broadband carriers, with similar revenue and similar burdens: networks that demand heavy capital spending, large debt loads from past spectrum purchases and acquisitions, and shareholders who own the stocks largely for their dividends. Comparing them shows how two firms in the same industry can reach different results through different strategic histories. All figures below are in millions of dollars and are taken from the companies' 2024 annual reports (AT&T Inc., 2025; Verizon Communications Inc., 2025).

Common-Size Comparison

Common-size statements turn every line into a share of revenue, or of total assets on the balance sheet, so firms of any size line up side by side (Keown et al., 2020).

Two contrasts stand out. Verizon converts more of its revenue into operating income, 21.3 percent against 15.6 percent, while AT&T converts more into operating cash, 31.7 percent against 27.4 percent, because AT&T's larger depreciation and amortization is a noncash charge. And goodwill is a far larger share of AT&T's assets, a legacy of acquisitions such as DirecTV and Time Warner that it has since largely unwound.

Profitability

The two companies moved in opposite directions, and goodwill impairments explain much of it. Verizon recorded a goodwill impairment of about $5.8 billion in its business segment in late 2023, which depressed that year's operating income; without a similar charge in 2024, its margins recovered. AT&T's goodwill fell by about $4.4 billion during 2024, reflecting an impairment in its business wireline unit, which lowered 2024 operating income. Both charges are noncash and reflect lower expectations for legacy business services rather than the core wireless operations. Stripping them out, the companies' underlying margins are closer than the reported figures suggest. Return on equity is calculated on total equity including noncontrolling interests, which are significant at AT&T and slightly understate its return to common shareholders.

Liquidity

Both companies run current ratios well below 1.0, which would alarm an analyst looking at a manufacturer like the composite glassware maker earlier in this course. For carriers, it reflects business models in which customers pay monthly in advance or on short cycles, inventories are small and access to capital markets is reliable. The more relevant liquidity test is whether operating cash covers the next year's debt maturities, and here Verizon's debt due within a year rose to about $22.7 billion in 2024 from $13.0 billion, compared with AT&T's $5.1 billion, so Verizon has more refinancing to do in 2025.

Debt and Coverage

Both companies reduced debt in 2024, AT&T by about $13.8 billion and Verizon by about $6.6 billion, and both ended near 3.1 times debt to EBITDA. Verizon carries more debt relative to its book equity, but its stronger 2024 operating income gives it better interest coverage. AT&T's coverage of 2.8 times is depressed by the impairment; on cash measures its capacity is similar to Verizon's. These ratios bear directly on bond valuation: credit rating agencies weigh debt to EBITDA and coverage heavily, and a falling ratio supports tighter spreads and higher bond prices, all else equal (Keown et al., 2020).

For bond investors, these figures shape required yields. A company whose debt is falling relative to EBITDA and whose coverage is stable presents less default risk, so its bonds can be priced at a lower yield and higher price than a company moving the other way. Both carriers' bonds are rated investment grade, and the 2024 debt reduction supports that standing; a reversal, such as a large debt-financed spectrum purchase, would be the event most likely to widen their spreads.

Cash Flow, Capital Budgeting and Dividends

Capital spending is the carriers' central capital budgeting decision: each year they choose how much to invest in fiber, 5G equipment and spectrum-related deployment. AT&T raised capital spending to 16.6 percent of revenue in 2024 as it expanded fiber, while Verizon reduced its spending to 12.7 percent after completing much of its 5G build. Payments for spectrum licenses, which Verizon made heavily in 2021 and 2022, appear separately and are excluded here. Capital budgeting theory says a firm should invest in projects whose expected returns exceed the cost of capital; for a carrier, the test is whether fiber and 5G investment produce subscriber and pricing gains large enough to justify their cost, which takes years to observe.

Free cash flow covers dividends at both companies, but with different margins. AT&T, which cut its dividend in 2022 after spinning off WarnerMedia, now covers it about 2.3 times, leaving substantial cash for debt reduction. Verizon covers its larger dividend about 1.8 times, a thinner cushion that leaves less room if capital needs rise. For stock valuation, the dividend discount approach from the previous module applies directly: both shares are priced largely on the expected stream of dividends, and the security of that stream depends on these coverage figures.

The same figures can be used to frame each stock's value with the constant-growth dividend model from Module 6. An investor who expects slow dividend growth and requires a return near the cost of equity for a stable utility-like business would value each share largely on its current dividend, so any threat to dividend coverage lowers value sharply. That is why the free cash flow coverage ratios, more than the year's earnings, are the figures an equity analyst of these two firms watches most closely.

Asset Management

Both companies turn their assets over slowly, about 0.31 times a year for AT&T and 0.35 for Verizon, typical of network businesses where most assets are long-lived infrastructure and intangible licenses. Asset management here means less about inventory and receivables than about using the network efficiently: adding customers and services to infrastructure already built. Verizon's higher turnover and lower goodwill reflect a more focused history; AT&T's numbers still carry the weight of acquisitions it has since unwound.

Ratios of receivables and inventory turnover, central for a manufacturer, matter less here. More informative for carriers are measures not on the face of the statements, such as revenue per wireless subscriber and customer churn, which the companies report elsewhere in their filings. A fuller analysis would add those operating measures to the financial ratios, since they show whether the network investment is producing the subscriber gains that capital budgeting assumed.

Conclusion

On 2024 reported figures, Verizon was the more profitable company, with higher margins, returns and EPS and better interest coverage. AT&T generated more operating cash relative to revenue, covered its dividend more comfortably and reduced debt faster, while investing more heavily in fiber. Much of the difference in reported profitability reflects the timing of goodwill impairments rather than a lasting gap in operations. For a bondholder, both are improving credits. For a shareholder, Verizon offers the larger dividend with a thinner margin of safety, AT&T the smaller, better-covered dividend with more reinvestment. For a manager, the comparison shows that in capital-intensive industries, value depends less on any single year's earnings than on the discipline of capital spending and the steady repayment of debt.

The analysis has limits. It covers two years, so it cannot separate cyclical movements from lasting trends; it relies on reported figures, which mix noncash charges with operating results; and book equity, distorted by past acquisitions and buybacks, makes return on equity a weak comparison between the two firms. Extending the comparison to five years and adjusting for impairments would make the conclusions firmer.

References

AT&T Inc. (2025). Annual report on Form 10-K for the fiscal year ended December 31, 2024. U.S. Securities and Exchange Commission.

Keown, A. J., Martin, J. D., & Petty, J. W. (2020). Foundations of finance (10th ed.). Pearson.

Verizon Communications Inc. (2025). Annual report on Form 10-K for the fiscal year ended December 31, 2024. U.S. Securities and Exchange Commission.