Is T-Mobile a Good Investment? - Research Paper

Introduction

This paper examines favorable financial factors that influence an investor into purchasing stock from a company. It looks at T-Mobile communication company's financial standings and its annual report to deduce whether it is in the business of wealth creation and viable to invest in. This report paper explores the net gain in the income of T-Mobile Inc. over time as an indicator of its performance. A signal that there is a general increase in earnings growth, even if the increase is not that intense, but relatively stable and reliable over time, is a positive suggestion that the company is growing (Baker & Haslem, 1973).

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Another major parameter this paper examines is the stability concerning the fiscal conditions. Economic drawbacks and market uncertainties are a common phenomenon in business. The company's power in the industry is another factor that an investor must examine before investing. This is to scrutinize whether the stock to be purchased has a promising future. This paper weighs T-Mobile's position against its competitors.

This paper also scrutinizes the debt-to-equity ratio of the company by analyzing its balance sheet to weigh on its risk level. Economists argue that almost all companies carry liabilities. For lower risk tolerance, financial experts advise that an investor can consider purchasing the stock if the company has a debt-to-equity ratio of 0.30 or below. However, an investor may consider purchasing the stock from the corporation on circumstances of higher risk tolerance, or when the higher ratio is acceptable in the business.

Industries that finance their operations from debts like construction companies can be considered for investment although their risk level is high. Price-to-earnings ratio commonly referred to as the P/E ratio of T-Mobile has been evaluated in this paper to inspect how well the company's stock prices are doing concerning its earnings. This is important during the ultimate analysis and value investing. P/E ratio of T-Mobile is very significant as it shows the company's current price, and compares its per-share earnings.

Financial experts argue that the higher the P/E ratio, the greater the expectation of higher growth in the future. The P/E also helps an investor scrutinize the company's performance concerning its competitors in the same industry. Any successful and profitable company must be well managed by competent and professional individuals. This paper looks at how T-Mobile has been managed, taking into account the qualification, policies, and performance of its CEO and president, employees and the achievements and reforms they have implemented since the year 2015.

An inventive company is likely to expand and grow than a conservative one. This paper evaluates the revolutionary changes T-Mobile has made so far in the wireless industry. This paper also scrutinizes the way T-Mobile has been paying dividends to its shareholders. Economists have suggested that decisions can be made on whether to purchase stock or not by considering how a company pays dividends.

Scholars assert that companies that regularly pay dividends are stable and are worth investing in. However, firms with very high yields can be a warning of future instability, or that the firm is not reinvesting. Economists advise that the best companies to invest in are those that have modest, regular and increasing payments of dividends for a long period. This paper examines whether T-Mobile has been posting earnings substantially higher than its sector. This paper also compares its earnings to those of its competitors.

This paper proposes the application of financial concepts in analyzing the strengths and weaknesses of a company using data from its annual report, financial statements, and other financial reports to help in making sound decisions on investments (Kung, & Wen 2007). This paper examines these financial concepts regarding T-Mobile Inc. to give a precise recommendation of whether the company's stock if purchased would create wealth to the investor.

This paper further proposes that the financial policies of the company that includes its capital structure, debt, leverage, dividend policy among others need to be evaluated to make a sound judgment about its financial performance (Ellinger, et al., 2002). This paper advises that challenges faced by investors in stock picking can easily be resolved by assessing the economic parameters of the company. Investors require good value for their money especially if they plan to hold on to the stock for long.

Background Information

T-Mobile is a mobile telephone operator that provides mobile, telecommunications, and wireless services. The main headquarter is in Bonn, Germany. It operates in different countries globally, including the United States where it has its headquarters in Greater Seattle Area, West Coast, and the Western US. T-Mobile is a subsidiary of Deutsche Telekom. T-Mobile has over four thousand employees and over a hundred million subscribers. It is one of the largest mobile phone service providers worldwide.

The company has over three thousand outlets in the United States. T-Mobile has for the past years embarked on revolutionizing the telecommunication industry. The company has continued to model the way clienteles and enterprises purchase wireless services through leading product and service transformation (Shim et al., 2006). Most of the customers that are served by T-Mobile prefer the company due to its advanced countrywide 4G LTE network. The network has the capability of delivering an outstanding wireless experience to the customers.

The company has revolutionized its customer experience since 2015. This has enabled the company to retain its customers and increase its customer base through new customer acquisition by offering the best quality and value to its customers. T-Mobile US provides various services to its customers through its affiliates. T-Mobile was acquired on 10th of February, 2014 for an amount of EUR828 million.

T-Mobile has an estimated annual revenue of $43.3 billion and competes with companies such as AT&T, Idea Cellular, and Truphone among other major wireless providers. T-Mobile has had four withdrawals with the most remarkable being Mobileum, Ubiquisys, and Flash Networks. Currently, the company has about eighty-three team members that include the president and the CEO John Legere. There are twelve board members and advisors.

Objectives and Questions

The objective of this report paper is to assess the best, effective and efficient financial concepts evaluating a company's performance by analyzing data from its annual reports, financial statements and publications to decide on the best investment to take. The question is how these financial concepts can be applied in making investment decisions easy, and help the investor realize value for his money.

Key Words

P/E - Price per earnings. ROA - Return on Assets. ROE - Return on Equity. EPS - Earning per Share. MHZ - Megahertz. NOPAT - Net Operating Profits after Tax. WACC - Weighted Average Cost of Capital. EBITDA - Earnings before Interest, Taxes, Depreciation, and Amortization. ROI - Return on Investment.

Methodology

This report paper considers the following financial concepts in evaluating the performance of T-Mobile stocks: earnings and net margins, free cash flows, return on assets (ROA), return on equity (ROE), and economic value added (EVA), among others. For precision, this paper uses the DuPont Return on Equity analysis. This paper explores the last fiscal year growth in earnings (assuming recessions as acceptable).

This paper considers the next two fiscal years assuming a ten percent growth rate in sales and cost of goods to make its recommendations. The method adopted by this paper is to explore the free cash flow of T-Mobile. Financial experts suggest that strong and successful companies create a lot of cash and therefore have a large flow of free cash (Jooste, 2006). The amount of cash the company is left with after reinvesting in itself to keep the business in operation is known as free cash.

Scholars advise that a successful company that is worth investing in is that which can't be forced to change its operations if some cash is pulled out of the business. Some companies are known to either close, lay off employees and so on because some cash has been pulled out of the business.

Another method deployed by this report paper in evaluating the performance of the stocks in T-Mobile is an analysis of return on assets (ROA). This measure equips the investor with the knowledge of how the company is using its assets to create value for the owners. It is an indicator of the efficiency of the company to create earnings. To purchase stock, an investor must choose a strong company that has a greater return on assets (Pouraghajan, et al., 2012).

This paper also examines how T-Mobile is using its debt concerning assets. Since most companies use some debt in running their business, this paper explores this factor greatly. This paper looks at the ROE of T-Mobile. A much higher ROE signals anomalies in the company and sends a warning signal that something unusual is enhancing its number such as recent acquisitions, buying back stock, and so on (Kung, & Wen 2007).

Another concept that this paper considers is the net margins of T-Mobile. In finance, net margin simply means net income divided by sales. This analysis is significant in this paper since it shows how T-Mobile is generating profits out of sales.

Results Analysis

Numerous research findings published by different authors and articles detailing financial capabilities and status of the company have been explored to come up with an informed decision on the overall performance of T-Mobile Inc.

The current ratio in T-Mobile is 0.81 which is remarkably acceptable. The current ratio is calculated by dividing the total current assets by total current liabilities. Although current ratio varies from industry to industry, the figure indicates that it is not too low to suggest looming liquidation. On the hand, it is not too high to suggest an unnecessary build-up in cash, receivables or inventory. This indicates that the company is capable of meeting its short-term commitments.

The quick ratio and cash ratio are 0.70 and 0.12 respectively. These ratios are acceptable for any performing...