ACG Research’s Telecom Vendors’ Financial Index and Performance Monitor report is a comparison of nine publicly listed vendors: Adtran, Alcatel Lucent, Brocade, Ciena, Cisco, Ericsson, Fujitsu, Juniper, Nokia Siemens, Tellabs and ZTE. The performance scores were calculated using 15 ratios and Z scores, subdivided into four categories: sustainability, technology, operational and marketing, from data available from annual reports and quarterly filings. These quarterly reports will rate the sustainability of vendors and allow enterprises and service providers to understand the risk level they are taking when selecting a vendor. The index examines standard financial ratios related to profitability and liquidity validated by Wall Street. An average of all ratios across all vendors was defined as the “index.” The goal of the index service is to create an industry baseline that takes all of the vendors in targeted sectors and creates an industry average to determine vendors’ risk levels. We use standard financial ratios and public financial information to validate the index, which as it improves, will become the independent de-facto standard in the industry, used by customers to review and assess the risk level of each vendor.
Market Research and Monitoring Syndicated Services
Both quantitative and qualitative research are included in ACG Research’s syndicated telecom index services, which includes four quarterly reports on the rankings of the following vendors: Adtran, Alcatel Lucent, Brocade, Ciena, Cisco, Ericsson, Fujitsu, Juniper, Nokia Siemens, Tellabs and ZTE.
Fifteen ratios and Z scores, which were used to build the summary chart, were defined using data available from annual reports and quarterly filings. The Z-Scores, six Wall Street ratios and nine other performance ratios were categorized in four representative dimensions: sustainability, operations, technology and marketing. An average of all ratios across all nine vendors was defined as the index. Each vendor’s ratio deviation from the index is then examined to make an inference on performance: future revenue ratio, receivables efficiency ratio, equity to debt ratio, free cash flow to EV ratio, operational efficiency ratio, R&D to revenue ratio, and Z scores. The ratios are then mapped to the implications of deviation from the index.
Ratio Indicator Positive Deviation Interpretation
The folowing are the six Wall Street ratios used to build the confidence factor of the summary chart.
Future Revenue Ratio: The vendor has a higher ratio of future revenue than the industry does. This is favorable because it implies the vendor’s business strategies are working better than those of the industry. Consensus sales for next year are higher than consensus sales for previous year.
Receivable Efficiency Indicator (DSO) Wall Street is using Days Sales Outstanding (DSO, which is the amount of time (days) a company will have before a payment can be considered income received.
Equity to Debt Ratio The vendor has a higher ratio of equity to debt than the industry does. This is favorable because it means the vendor is financing its assets with more (shareholders’) equity than debt. Higher debt implies more financial obligations; higher equity implies more financial participation from stockholders.
Free Cash Flow to Enterprise Value Ratio The vendor has a higher ratio of free cash flow to enterprise value than the industry does. This is favorable because it means that the vendor has higher liquidity compared to its Enterprise Value (which is largely determined by market dynamics, not the vendor's actual operations).
Operational Efficiency Ratio The vendor has a higher percentage in overall productivity than the industry does. This is favorable because it implies that the vendor is efficiently turning financial input into operating income. This ratio is calculated as EBIT divided by revenue (sales).
R&D to Revenue Ratio The vendor has a higher ratio of R&D expenses to revenue than the industry does. This is favorable because it means that the vendor is spending more on R&D, which usually translates into more new products and technologies (for example, new revenue streams and better customer satisfaction).