Current event article from Financial World reflecting the use of financial ratios to assess the operating health of GTE telephone company
GTE, known for years as poorly run company GTE through some well-timed transformation has become one of the leading, profitable and largest local telephone company with combined wireline and wireless operations reaching about a third of U.S. population. Since 1992, GTE offers telephone service across all states in U.S. As a result its revenue tripled to $21 billion. Moreover its transition from local telephone carrier to long distance carrier in few states will increase the revenue of the company.
The article refers certain key ratios comparing the operating health of GTE with its competitors. The company launched a major restructuring in 1994 and unloaded its electrical products group. The sale of the division fetched $1.1 billion, including the assumption of debt. GTEs long-term debt has swelled almost 5 times, to $1 billion, since 1994. This drives the Debt-to-Capital Ratio to 61%. Cash flow exceeds interest expense by a comfortable five times. Revenue growth from new and enhanced services increased 35% last year, to $1.2 billion and has grown 35% annually. GTEs Return on Equity was 40% that far exceeds rest of its major competitors listed. The companys boosting margins and overall returns are clearly pictured from the Net Profit Margin of 2.1%, a nice 36% improvement over the prior year. The company announced a plan to streamline its telecom operation by reducing expenses by $1.1 billion. The article estimates an increase in Earnings per Share from $3.18 to $4.5. GTEs P/E Ratio of 15 is in par with its competitors.
The detail description of the companys past performance and current management strategies on telecom operations makes me feel that analysis on the GTEs continuous profitable growth for the past 4 years and companys operating health is fair and accurate. From the article, it looks like GTE is positioning itself to prosper in deregulated world.
Analyzing GTEs operation and financial strategies, my advice to the company is to improve its cellular business which currently has a growth rate of 25%, that lags the industry growth average of over 30%.