Verizon Communications, Inc. Case Analysis

Verizon Communications, Inc. has many strengths, weaknesses, opportunities and

threats as an organization. This case analysis will highlight the top three for each category and provide a rational for each factor. The SWOT analysis will serve as a tool for identifying alternative strategies for the organization and help define a 3-year growth plan. Various matrices, including a SWOT analysis and a Financial Ratios Analysis, will also support specific strategies and long-term objectives. Other relevant, recent activities and supporting research will also be supporting the strategies defined in the case analysis.

Verizon Communications, Inc. is one of the largest providers of broadband and

wireless communications in the United States (David, 2004). Verizon operates wireless networks and serves home, business and wholesale customers in 28 states, totaling 49.3 million customers nationwide (Verizon.com, 2003). With their Corporate headquarters in Manhattan, New York, Verizon has nearly 215,000 employees and generates annual revenues of more than $71 billion from four business segments: Domestic Telecom, Domestic Wireless, Information Services and International (Verizon.com, 2003).

Although Verizon Communications is a young organization, formed in 2000, its parent companies have a very solid history and foundation (David, 2004). Verizon was an organization born from the merger of Bell Atlantic and GTE Corp (David, 2004). GTE and Bell Atlantic were two of the leading telecommunications companies in the U.S. and internationally (David, 2004). Their capabilities ranged from providing telephone access lines, wireless services and networks and various Internet services (David, 2004).

Verizon Communications has well defined goals and values in lieu of the traditional mission and vision statements (David , 2004). However, mission and vision statement recommendations will be defined in the case analysis in order to provide clear understanding of what the business is in the today's industry and what is recommended it become in order to execute a long-term growth strategy. This is an important component of a long-term growth strategy so that an organization can stay focused and committed to the objectives at hand. As David states in Strategic Management Concepts, "Business Week reports that firms using mission statements have a 30% higher return on certain financial measures than those without such statements." (David , 2004)

Verizon Communications financial health is positive, but questionable. For example, in 2002, Verizon earned over $67 billion in annual revenues, but only closed the year with $4 billion in net income due to the $49 billion in long-term debt that was paid out (David , 2004). They continued this trend into 2003 with virtually flat growth in revenues and an increase in operating expenses, closing the year with over $67.4 billion in revenue and $60 billion in operating expenses, which resulted in a decline in net income of $3 billion (Verizon Communications Interactive Annual Report, 2004). Verizon did improve things into 2004 by increasing their revenue by $3.8 billion and decreasing their operating expenses by $1.8 billion, closing out the year with a net income of $7.8 billion (Verizon Communications Interactive Annual Report, 2004). Although it is apparent that spending had to decrease in order to remain profitable, it is still questionable how Verizon will close 2005 given the February 14, 2005 acquisition of MCI for $4.8 billion in equity and $488 million in cash (Thonis, 2005). Verizon does have strong financial ratios when compared to the industry, especially in the area of Profitability ratios (MSN Money, 2005). Therefore, it is to no surprise that they were able to make this acquisition to continue growing their business.

Financial Ratios for Verizon Communications Financial Ratios for Industry Analysis

Liquidity Ratios

Current Ratio .6 .7 Strength

Quick Ratio .5 0.5 Neutral

Leverage Ratios

Debt-to-Total-Assets Ratio 0.27 N/A N/A

Debt-to-Total-Equity Ratio 0.88 .86 Weakness

Long-term Debt-to-Equity Ratio 11.78 N/A N/A

Times-Interest-Earned Ratio 1.10 N/A N/A

Activity Ratios

Inventory Turn-over 17.3 37.1 Strength

Fixed Assets Turnover .9 N/A N/A

Total Assets Turnover .4 .4 Neutral

Accounts Receivable Turnover 7.7 8.1 Strength

Average Collection Period N/A N/A N/A

Profitability Ratios

Gross Profit Margin 66.3 59.7 Strength

Operating Profit Margin N/A N/A N/A

Net Profit Margin 11.9 7.7 Strength

Return on Total Assets (ROA) 5.2 4.5 Strength

Return on Stockholders Equity (ROE) 22.4 14.9 Strength

Earnings Per Share (EPS) 0.60 0.58 Strength

Price-earnings Ratio 9.8 15.4 Weakness

Growth Ratios

Sales 4.6 4.4 Neutral

Net Income 19.59 2.2 Strength

Earnings Per Share N/A N/A N/A

Dividends Per Share -.17 3.41 Weakness

Based on Verizon's healthy financial status and the many opportunities they can leverage given the industry's activities, a SWOT analysis was performed to determine the opportunities that would be best for their growth strategy. In analyzing Verizon's strengths, it is apparent that they have strong brand recognition in the market and industry. They are not only the leader in market share for wireless presence in the U.S., they were also ranked at the top for branding and customer loyalty in the wireless phone category and received the 2005 BrandWeek Customer Loyalty Award as a result (Verizon Customer Satisfaction - Award & Recognition, 2005). In addition to strong brand recognition, Verizon is ranked the top in wireless market share and third in long distance services (David, 2004). As for Verizon's weaknesses, they do not have