The document analyzes AT&T's income statements from 2017-2020. It finds that while revenue increased year-over-year, net income declined. Gross and operating profit margins remained steady but dropped significantly from 2019-2020. Non-recurring $18.8 billion in expenses in 2020 contributed to a net loss. The analysis concludes AT&T is losing money and has financial difficulties requiring immediate action to avoid continued declines.

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Unit 3 – Income Statement Analysis
Elton Tooahnippah
University of Oklahoma – College of Professional and Continuing Studies
LSAL 5223 – Financial Leadership
Dr. Robert Stauffer
October 4th, 2021
I certify that I have read a student’s Guide to Academic Integrity at the University of
Oklahoma, and this paper is an original paper composed by me for this course. Except where
properly cited and attributed, it has not been copied or closely reworded from any other source
and has not been submitted as a whole, or in part, for credit in any other course at OU or any
other educational institution. It has not been created or submitted for any other purpose such as a
job assignment at my workplace or any other agency.

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Unit 3 – Income Statement Analysis
The purpose of this paper is to gain analytical insight into AT&T’s income statement.
The income statement will provide a cumulative picture of the income and expense transactions
from 2017 to the end-of-year 2020 (Siciliano, 2015). I will analyze their revenue, total expenses,
and net income over the four years to determine any upward or downward trends. To better
understand the company’s revenue history, I need to determine the gross profits by subtracting
the cost of revenue from total revenue.
Once I know their gross profit, I will go deeper to determine their gross profit margin and
identify their sales growth over the four years (Blue Book Academy, 2015a) (Blue Book
Academy, 2015b). The total expenses only tell part of the story. When determining if operating
costs are going up, it is necessary to subtract the total operating expenses from the gross profit to
identify the operating income.
The operating income is the company’s earned gross revenue minus operating costs
before interest and taxes, also known as earnings before interest, taxes, depreciation, and
amortization (EBITDA) (Liston, 2017) (Siciliano, 2015). From this data, we will determine the
company’s operating profit margin, which tells us in greater detail if AT&T’s operating costs are
increasing or decreasing over time (Liston, 2017).
The next area for analysis is AT&T’s net income. The net income is the company’s total
revenue minus total expenses, including interest and taxes (Blue Book Academy, 2015a). We can
derive the overall profit margin from the net income that will tell us AT&T’s amount of
profitability or loss over the same period. The accumulated data regarding the sales growth, gross
profit margin, operating profit margin, and overall profit margin will provide in-depth insight
into organizational development or decline trends.

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Income Statement Analysis
I first checked the math on AT&T’s existing income statement for 2017 through 2020 to
ensure the numbers were correct (Liston, 2017). The total revenue, Cost of Revenue (COR),
operating expenses and income, and net income are all correct. The total revenue for 2020 was
$171,760,000,000 with a gross profit of $91,840,000,000. Dividing the gross profit by total
revenue gives us a gross profit margin of 53% for 2020.
Using the same math, I discovered the gross profit margin for 2019 is 54%, 2018 is 53%,
and 52% for 2017. These numbers tell me that gross profit margins increase an average of plus or
minus 1% annually and are no reason for concern. However, it also tells me that growth is
stagnant, and AT&T should possibly look into better marketing, more significant research and
development (R&D) funding or find other ways to increase revenue.
Next, I analyzed the sales growth. To determine sales growth, we must divide the current
year’s total revenue by the previous year’s total revenue. Total revenue for 2020 is
$171,760,000,000 with that of 2019 being $181,193,000,000. Dividing these numbers gives us
94%. The same math from 2019 is 106% and for 2018 is 106%. These numbers tell us that in
2018 AT&T’s total revenue increased by 6% from 2017, and in 2019 it increased another 6%.
The concern is that from 2019 to 2020, total revenue dropped by 6%, putting them almost
at their 2018 total revenue numbers. A drop of 6% is more than 10 billion dollars which are
significant and deserve further investigation. I am doing a simple percentile analysis in this
paper, so I must move forward for the sake of time and length. I do plan to go much more in-
depth in the final project for this class.
The following section I will be investigating is the operating profit and loss while also
determining the operating profit margins for the four years. This section will give me a better

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idea of what areas are eating into gross profits and bringing the margins down to identify where
cost-cutting measures could save money and streamline operations. Operating income is not the
bottom line, but it is close. It is the company’s income after operating expenses but before
incidental expenses such as taxes, depreciation, and interest on debt, among others (Siciliano,
2015). The operating profit margin is a strong indicator of profitability in a company and shows
how efficiently they are managing expenses (Murphy, 2021).
The operating income (OI) for 2020 is $6,405,000,000. To get the operating profit margin
(OPM), we must divide a year (OI) by that year’s total revenue (TR). Dividing AT&T’s 2020 OI
of $6,405,000,000 by their TR of $171,760,000,000 gives us an OPM of 4%. The same math
gives us an OPM of 15% for 2019, an OPM of 15% for 2018, and 12% for 2017. The drastic
drop of 11% from 2019 to 2020 is a serious cause for concern. We see that from 2017 to 2018,
AT&T gained 3% OPM and maintained an OPM of 15% from 2018 to 2019, so what happened
between 2019 and 2020?
A closer look at the income statement shows expenses amounting to $18,880,000,000
classified as non-recurring items but does not go into greater detail. Non-recurring items can
mean anything from legal fees and writing off bad debt to inventory loss or restructuring
(Vaidya, 2021). Whatever the case may be, it is cause for concern and deserves further
investigation.
The last section of my analysis is the net income and the profit margins over the reported
four-year period. The net income is the company’s profit after expenses, interest, and taxes (Blue
Book Academy, 2015a). Let us start with the net income for the end of the year 2017. In 2017,
AT&T reported a net income of $29,450,000,000 and for 2018 it was $19,370,000,000. In 2019,

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we see the net income drop again to $13,903,000,000 followed by a drastic drop of
$19,079,000,000 to an astonishing -$5,176,000,000.
Even before calculating profit margins, it is clear that the over 18 billion in non-recurring
items has caused a significant deficit in AT&T’s financials. Although the non-recurring item’s
charge is a prominent contributor to their current financial state, AT&T has consistently reported
lower net income earnings while reporting an average of 10 billion in additional total revenue
each year except for 2020. The lower net income with higher total revenue implies that the
company is seeing higher expenses, so a more comprehensive examination of the company’s
expenses is warranted.
To determine the profit margin, we must divide the net income by its total revenue (Blue
Book Academy, 2015b). We will start with 2017. AT&T had a 2017 net income of
$29,450,000,000 and total revenue of $160,546,000,000 leaving us with a profit margin of 18%.
The same formula gives us a 2018 profit margin of 11% and 07% for 2019. The profit margin for
2020 is an alarming -03%, meaning they reported a major deficit for the year. Regardless of how
you look at things, AT&T has financial difficulties that require more time and energy to flesh
out. The data I have seen to this point leads me to believe that without drastic and immediate
action, the downward trend will continue. At the current time, I would not recommend AT&T as
a potential investment opportunity.
Best Practices
I have found that once you break down large datasets into manageable sections, it is
simple to perform calculations and identify financial trends. Before accepting financial data as
valid, it is crucial to verify the information by doing the calculations yourself (Liston, 2017). In

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the same way that submitted data must be peer-reviewed, it is crucial to independently verify
company financials to avoid mistakes that can significantly affect those using it.
Another good practice is to identify total revenue and total expenses to determine the net
income. The net income is an immediate indicator of profitability depending on if they report a
profit or loss for the period. An occasional loss is nothing to worry about but trending losses are
the reason for concern. I would follow this by calculating sales growth. Sales growth tells us how
a company’s sales increase from one year to the next and are a good indicator of marketing and
R&D funding (Blue Book Academy, 2015b).
Following sales growth, I find gross profit margin to be essential data. The gross profit
margin identifies profit after subtracting the cost of revenue. We can determine whether
manufacturing or service costs are too high and need to trim down to increase the profit margin.
Operating profit margin is like gross profit margin because it determines profit after operating
expenses but before EBITDA (Siciliano, 2015).
We use this number because it shows just the operating expenses and profit after
operating costs to identify possible areas for cost-cutting measures and know how much it costs
to operate each area. The final area for concern is the overall profit margin. The profit margin
subtracts the net income from the total revenue to tell us cents on the dollar of profit compared to
each dollar of sales (James, 2020).
Simply doing the calculations to break down the dataset into sales growth, gross profit
margin, operating profit margin, and profit margin can give you a clear idea of an organization's
financial state. A clear and concise understanding of financial statements over no less than three
years is necessary to identify any trends. Without the yearly range, it is impossible to see the
effects of executive management decisions over time.

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Conclusion
The data I have gathered in my analysis of AT&T’s income statement has only reinforced
my opinion of the company I stated in my analysis of their balance sheet. The continued increase
in total revenue in conjunction with the almost equitable decline in net income leads me to
believe that expenses are out of control. AT&T is bleeding cash somewhere, and they must find
and plug the hole before they end up in a position that a merger will not fix. Their merger with
Discovery did not restructure the existing top-level of the executive branch, so the influx of cash
is nothing more than a band-aid over a mortal wound (Georgiadis, 2021).
The net income loss of over 19 billion from 2019 to 2020 has investors and potential
investors clamoring for the exits, and I do not blame them. During my research for this paper, I
discovered that, in March of 2021, the U.S. Securities and Exchange Commission (SEC) has
charged AT&T and thee executives with “selectively providing information to Wall Street
analysts” (SEC, 2021, para. 1).
The charges allege that the executives knew AT&T’s reported revenue would fall well
below the forecasted revenue, so they made calls to roughly 20 different financial firms. These
calls resulted in the analysts lowering their revenue forecasts for AT&T to just under the actual,
not as yet publicly released, revenue numbers to appear as if AT&T had barely missed the mark
rather than the drastic miss in sales that had occurred. This form of market manipulation and
devious business practices is a prime example of why I would avoid AT&T with all possible
effort.

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References
Blue Book Academy. (2015a, March 24). Reading income statements – Made very
simple [Video]. YouTube. https://www.youtube.com/watch?v=XFCarJcfBHI
Blue Book Academy. (2015b, March 24). What an income statement really tells us – Case study
+ tutorial [Video]. YouTube. https://www.youtube.com/watch?v=XFCarJcfBHI
Georgiadis, S. (2021, August 31). The AT&T Dividend Cut Is Unfortunate But Necessary.
InvestorPlace. https://investorplace.com/2021/08/the-att-dividend-cut-is-unfortunate-but-
necessary/
James, M. (2020, September 9). Profit Margin. Investopedia.
https://www.investopedia.com/terms/p/profitmargin.asp
Liston, H. (2017). How to read and analyze an income statement. http://articles.bplans.com/how-
to-read-an-income-statement/
Murphy, C. B. (2021, May 28). A Healthy Operating Profit Margin Defined. Investopedia.
https://www.investopedia.com/ask/answers/041415/what-considered-healthy-operating-
profit-margin.asp
SEC.gov | SEC Charges AT&T and Three Executives with Selectively Providing Information to
Wall Street Analysts. (2021, March 5). U.S. Securities and Exchange Commission.
https://www.sec.gov/news/press-release/2021-43
Siciliano, G. (2015). Finance for nonfinancial managers (2nd ed.). McGraw-Hill Education.
Vaidya, D. C. (2021, September 29). Non Recurring Items. WallStreetMojo.
https://www.wallstreetmojo.com/non-recurring-items-financial-statements/