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Total Expenses were $35.5 billion in FY 2019
(fiscal year ends in March)
Total Expenses
Breakdown of Sprint's Total Expenses in FY2019:
Total = $35.5 Bil
Cost of Goods Sold = 13.4 billion
Operating Expenses = $19.8 Bil
Non-operating (income)/expense = $2.4 Bil
Provision for income taxes = -$35 Mil
TAKEAWAY
Sprint's total expenses have been volatile in recent years, with it decreasing sharply from $35.6 billion in 2017 to $25 billion in 2018 (due to one-time tax benefits) before increasing to $35.5 billion in 2019.As a percentage of revenues, expenses have decreased from 103.6% in 2017 to 77.2% in 2018, before rising to 105.8% in 2019.Cost of sales is the largest expense component for the company, with it accounting for almost 38% of Sprint's total expenses in 2019.Cost of sales accounted for 39.8% of revenues as of 2019, reflecting a drop from 46.2% in 2017.This decline from 46.2% to 39.8% has added about $2.1 billion to the company's profits, which translates into additional earnings of $0.53 per share.Cost of sales is further expected to drop to about 38.5% of revenues in 2021, which could lead to additional profit of about $457 million, translating into additional earnings of $0.11/share over the next two years.Below, we take a look at the key drivers of Sprint's expenses and net margins.
Sprint's Total Expenses have increased from $34.6 billion in 2017 to $35.5 billion in 2019, with a sharp fall in 2018 driven by one-time tax benefits
Total Expenses
Total Expenses as % of Revenue
Sprint's total expenses have increased from $34.6 billion in 2017 to about $35.5 billion in 2019.
For 2020, we expect expect total expenses to stand at $33.6 billion, which comprises of
1) Cost of Sales: $13.3 billion
2) Operating Expenses: $18 billion
3) Non-Operating Expense (Income): $2.3 billion
4) Income Taxes: $25 million
Below, we take a look at how the company's key expense components have trended and the key reasons for the change.
Related Analysis
How Does Sprint Make Money?
Sprint Valuation: Expensive or Cheap?
1) Cost of sales decreased from $15.4 billion in 2017 to $13.4 billion in 2019, driven by a decrease in volume of used postpaid devices sold to third parties, a decline in postpaid and prepaid devices sold as a result of the higher mix of postpaid subscribers choosing to lease their devices, and lower accessory costs. The cost is expected to go down marginally to $13 billion by 2021. As a % of revenues, cost of sales continuously declined from 46.2% in 2017 to 39.8% in 2019, with it likely to decline further to 38.5% by 2021
Cost of Sales
Cost of Sales as % of Revenue
A) SG&A expense has decreased from $8 billion in 2017 to $7.8 billion primarily due to lower commission costs combined with lower marketing costs, partially offset by higher general and administrative cost due to higher customer care costs and bad debt expense. As a % of revenue, SG&A cost has decreased from 24% in 2017 to 23.1% in 2019, which is expected to decline to 22.5% in 2021
SG&A
SG&A as % of Revenue
B) D&A expense has increased steadily from $8.2 billion in 2017 to $9.4 billion in 2019 primarily due to increased depreciation on new asset additions and increased depreciation on new leased devices as a result of the continued growth of the device leasing program. It is expected to rise to $10 billion by 2021. As % of revenue, D&A has increased continuously from 24.4% in 2017 to 27.9% in 2019, and is likely to increase to 29.5% by 2021
D&A
D&A as % of Revenue
C) After being close to nil, other operating expenses increased sharply to $2.6 billion in 2019, as the Company completed its annual impairment testing for goodwill assigned to the Wireless reporting unit and as a result, recorded a non-cash impairment charge of $2.0 billion. The cost is expected to go down again in the near term
Other Operating Expenses
Other Operating Expenses as % of Revenue
3) Non-operating expenses have marginally declined from $2.5 billion in 2017 to $2.4 billion in 2019 primarily due to $169 million of interest income and other income of $24 million as a result of a legal settlement. Interest as a % of debt increased from 6.1% in 2017 to 6.4% in 2019 led by higher interest rates, with the metric falling to 5.8% in 2018 due to replacement of higher interest debt with lower interest financing. In the near term, the metric is expected to remain around 6.5%
Non-operating Expenses
Interest as % of Debt
4) Effective tax rate has seen a lot of fluctuation in the recent years, with it decreasing sharply from 56.4% in 2017 to -2335% in 2018, driven by large one-time tax benefits realized on the back of the TCJ Act, before rising to -1.8% in 2019. The rate is expected to be around 4.5%-5.0% in the near term
Tax Expense
Effective Tax Rate
Related Analysis
How Does Sprint Make Money?
Sprint Valuation: Expensive or Cheap?