[Analysis for Nippon Telegraph and Telephone Corporation]

Analysis for Nippon Telegraph and Telecommunication

Introduction

Nippon Telegraph and Telephone Corporation is Japanese based telecommunication company having its head quarters located in Tokyo, Japan. This company was formed in 1953 and was owned by the government of Japan, later it was privatized in 1985 in order to encourage competition. As of 31 March 2012, the company has 224,250 employees on a consolidated basis. This company is ranked 29th on Fortune 500 and is ranked at number one telecommunication company in the world (Fortune Global 500, 23 July 2012 issue). The company has 776 subsidiaries with operating revenue of 10.5074 trillion yens and total assets are worth 19.3897 trillion yens. This company has a number of affiliate groups which are; Regional communication Support Group, Long Distance and International Support Group, Mobile communication support group as well as other businesses such as Real Estate Business, System Development Business, Advance technology Development Business, Construction and Electricity business and Real Estate business.(NTT,2012)

Financial Analysis

Profitability Ratios

03/31/2012

03/31/2011

03/31/2010

ROA % (Net)

2.39

2.64

2.61

ROE % (Net)

5.87

6.45

6.53

ROI % (Operating)

9.84

9.76

9.19

Source; Mergent Online

The company's return on asset has gone done considerably from 2.64 % in 2011 to 2.39% in 2012 showing that the company is not utilizing its asset efficiently to generate income as it was doing before. Similarly, the return on equity ratio has also gone down from 6.45% to 5.87% showing that the company is not generating profits efficiently using shareholders equity. However the return on investment is going up gradually with the passage of time. It went up 9.19% in 2010, then to 9.76% in 2011 and finally 9.84% in 2012 showing a good sign.

Liquidity Ratios

03/31/2012

03/31/2011

03/31/2010

Quick Ratio

1.1

1.06

0.89

Current Ratio

1.35

1.29

1.18

Source; Mergent Online

The overall liquidly position of the company is showing a positive sign. The current ratio is increasing with the passage of time. It went up from 1.29:1 in 2011 to 1.35:1 in 2012. The company now has $ 1.35 worth of current asset to pay for its $1 of its current liability. Similarly that quick ratio of the company has been increasing from 0.89:1 in 2010, then 1.06:1 in 2011 and finally 1.1:1 getting in the ideal ratio bracket.

Debt Management

03/31/2012

03/31/2011

03/31/2010

LT Debt to Equity

0.45

0.44

0.44

Total Debt to Equity

0.55

0.57

0.58

Interest Coverage

33.03

36.09

35.89

Source; Mergent Online

The ratio of long term debt to total equity is almost similar over the years. It has increased slightly in 2012, from 0.44:1 to 0.45:1.However, total debt to equity ratio is going down over the years. This could be as a result of company paying off its debt or due to an increase in equity base. In the cash flow statement we can see that net borrowings the company is showing a negative balance which is a result of company paying off it debts. Hence it is clear that the ratio is decreasing due to company paying of it debts.

Interest coverage ratio was 35.89:1 in 2010 which later went up to 36.09:1 in 2011 then at 33.03:1 showing a mixed trend .A fall in this ratio in 2012 could be either through a decrease in EBIT or an increase in interest ...