Macroeconomic Events
At the moment, the US economy is bolstered by favorable macroeconomic trends. Consumer and corporate confidence are reportedly near record highs, but unemployment is at a record high (Isidore, 2022). This expansion has been going on since 2020, making it the shortest in the United States. It is all known that nothing permanent exists, which is true for the economy. Furthermore, Isidore (2020) argued that recessions do not begin when the economy is weak but rather when good news and growth have peaked. At that point, the economy is more vulnerable to shocks like a geopolitical crisis or a market bubble, which can cause it to collapse into a recession.
Alternatively, if the economy heats up too much, the Federal Reserve may decide to boost interest rates, which can halt the expansion. The fact that the Federal Reserve is likely to raise the federal funds rate once more soon is encouraging (Isidore, 2022). Monetary policy will benefit from this steady increase, economic activity, the labor market will grow, and inflation will remain stable. Risk, defined as a departure from expectations, remains present despite the continued prosperity of the economy, and a taxonomy of risks, both financial and otherwise, has been established.
Connections between the Analyses of the Events and Likely Impacts on AT&T and its Strategic Objectives
This report section was written after the Federal Reserve had already gradually begun raising the federal funds rate. At the current $18.12, AT&T stock has risen $0.055 (AT&T Inc. (T) stock price & news, 2022). The average capital expenditure for companies operating in the information and telecommunications technology industry, where AT&T competes, was $161.1 billion in 2020. There were apparently over 230,000 individuals working for AT&T in 2020 (S. O’Dea, 2022). The company focused on attracting and retaining highly successful entrepreneurs and invested heavily in the local community and the next generation’s education. In addition, due to the new tax legislation, AT&T completed $0.965 billion, making it the second-largest corporate transaction ever. In doing so, the firm added value for its current owners while generating cash flow for new investors.
Potential Macroeconomic Events to pose Financial Risks to AT&T
It is the mission of the Federal Reserve System to maximize employment, maintain price stability, and maintain long-term interest rates at reasonable levels through the implementation of policies that promote economic and financial activities. AT&T, as part of the answer to economic issues related to job creation, AT&T must evaluate the effect of Fed policies on the company’s long-term financial strategy (Quan et al., 2022). For AT&T to maintain its position as an industry leader, its financial strategies must be fully comprehended and implemented.
Although there is always the possibility of something going wrong on the path to these objectives, AT&T is committed to providing for the needs of its shareholders and other stakeholders despite this reality. The Federal Reserve has been expected to raise interest rates at the start of this quarter in response to rising inflation. Still, the central bank has instead chosen to do so gradually to maintain economic stability, as reported by several online accounting resources (Quan et al., 2022). AT&T’s capacity to obtain finance is subject to a wide range of risks due to the company’s global footprint. These risks include:
- Competition risk– As current competitors extend their product offerings or lower their pricing to attract new business and customers, new opportunities arise, and new competitors enter the field; AT&T’s products, services, and technologies face tremendous competition.
- The risk for revenue loss– This is brought on by a drop in business from a select group of clients and licensees. The business and performance may suffer if revenues from these clients or licensees diminish or vary.
- The joint venture with other companies puts the company at risk of environmental compliance and liability, natural disasters, equipment and material shortages, and production issues.
AT&T Ratios
Total debt divided by total income gives an accurate view of how AT&T’s credit financing stacks up against its assets; as of 2020, this ratio was at 1.93. The debt-to-equity ratio increases indicate a greater reliance on debt to fund assets (Financial Reports, 2021). Further on, using the formula Interest Coverage Ratio = EBIT/Interest Expenses, one can see how easily AT&T can meet its interest expense commitments on its outstanding debt. A ratio of -1.7% indicates a heavier than average burden of debt servicing costs. As of December 31, 2020, AT&T had a 3.2, indicating a superior capacity to meet debt obligations (Financial Reports, 2021). Lastly, the degree of combined leverage (DCL) 2.04% is a leverage ratio that summarizes the combined effect of the degree of operating leverage (DOL) and the degree of financial leverage on earnings per share (EPS), which as of December 31, 2020, was $0.87, a 121.48% decline year-over-year given a particular change in revenues.
Summary
In conclusion, occurrences in the microeconomic sphere can potentially affect AT&T’s capital market conditions. As a result of these occurrences, the company should always be aware of the risks brought about by these occurrences to maintain its relevance in the fields of telecommunication and technology. In addition, the company should always review its vital ratios to ensure that they are accurately measured to establish its overall financial health.
References
Financial Reports. Annual Report 2021 | AT&T. (2021). Web.
Google. (2022). AT&T Inc. (T) stock price & news. Google Finance. Web.
Isidore, C. (2022). Here’s one reason people hate this economy, despite low unemployment: A return of the misery index | CNN business. CNN. Web.
Quan, L., Al-Ansi, A., & Han, H. (2022). Assessing customer financial risk perception and attitude in the hotel industry: Exploring the role of protective measures against covid-19. International Journal of Hospitality Management, 101, 103123. Web.
S. O’Dea. (2022). AT&T: Number of employees 2007-2021. Statista. Web.