Financial Analysis of Vodafone Group

This report provides an analysis of the financial performance of Vodafone with the use of ratio analysis technique during the financial year 2017. It includes profitability, liquidity, efficiency and leverage analysis. The results are compared to its competitor, Deutsche Telekom.

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Financial Analysis of Vodafone Group

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Contents
Introduction......................................................................................................................................3
Task 1: Finding financial information and Calculation of ratios.....................................................3
Task 2: Financial Performance Analysis of Vodafone as Compared to Deutsche Telekom with
the use of Ratio Analysis.................................................................................................................6
Profitability Analysis.......................................................................................................................6
Return on Capital Employed (ROCE).........................................................................................7
Return on Sales............................................................................................................................8
Gross Profit Margin.....................................................................................................................8
Return on Equity..........................................................................................................................8
Liquidity Analysis...........................................................................................................................9
Current Ratio................................................................................................................................9
Quick Ratio..................................................................................................................................9
Efficiency Analysis........................................................................................................................10
Asset Utilization Ratio...............................................................................................................11
Stock Days.................................................................................................................................11
Current trade receivable days.....................................................................................................11
Current trade payable days.........................................................................................................11
Solvency Analysis.........................................................................................................................12
Gearing Ratio.............................................................................................................................12
Interest Coverage ratio...............................................................................................................12
Overall Assessment of Vodafone Financial Performance as Compared to Deutsche Telecom....13
Conclusion.....................................................................................................................................13
References......................................................................................................................................14

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Introduction
This report is developed for providing an analysis of the financial performance of
Vodafone with the use of ratio analysis technique during the financial year 2017. This has been
carried out by calculation of the relevant financial ratios that aims to examine the financial
position of the company in terms of profitability, liquidity, efficiency and leverage. The financial
results assessed with the use of ratio analysis technique are evaluated in comparison to its
competitor, that is, Deutsche Telekom. The comparative analysis is carried out for assessing
whether Vodafone is performing higher or lower in comparison to Deutsche Telekom. In
addition to this, the possible reasons responsible for deviation in the company performance as
compared to that of its competitor and its possible implications for Vodafone growth prospects in
the future.
Task 1: Finding financial information and Calculation of ratios
Profitability Ratios
Financial
Items
Vodafone Group Deutsche Telekom
2015 2016 2017 2015 2016 2017
Amount in Euro Million Amount in Euro Million
EBIT €
1,320.00
€
3,725.00
€
9,164.00
€
9,383.00
Total Assets €
169,107.00
€
154,684.00
€
148,485.00
€
141,334.00
Current
Liabilities
€
41,797.00
€
30,595.00
€
33,126.00
€
27,366.00
Net profit €
(5,122.00)
€
(6,079.00)
€
3,104.00
€
5,551.00
Net sales €
49,810.00
€
47,631.00
€
73,095.00
€
74,947.00
Gross Profit €
13,097.00
€
13,055.00
€
36,011.00
€
36,786.00
Shareholder'
s Equity
€
93,708.00
€
85,136.00
€
73,719.00
€
38,150.00
€
38,845.00
€
42,470.00
Average
Shareholder'
s Equity
€
89,422.00
€
79,427.50
€
38,497.50
€
40,657.50
Financial
Items
Vodafone Group Deutsche Telekom
Formula 2016 2017 2016 2017
Return on
capital
employed
EBIT/(Total
Assets-
Current
Liabilities)
1.04% 3.00% 7.94% 8.23%

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Return on
sales
Net profit/Net
Sales -10.28% -12.76% 4.25% 7.41%
Gross profit
Margin
Gross
Profit/Net
Sales
26.29% 27.41% 49.27% 49.08%
Return on
Equity
Net
profit/Averag
e
Shareholder's
Equity
-5.73% -7.65% 8.06% 13.65%
(Vodafone: Annual Report, 2017 and Vodafone: Annual Report, 2016); (Deutsche: Annual
Report, 2017 and Deutsche: Annual Report, 2016)
Liquidity Ratios
Financial Items
Vodafone Group Deutsche Telekom
2015 2016 2017 201
5 2016 2017
Current Assets €
31,938.00
€
25,542.00
€
26,638.00
€
20,392.00
Current Liabilities €
41,797.00
€
30,595.00
€
33,126.00
€
27,366.00
Inventory €
716.00
€
576.00
€
1,629.00
€
1,985.00
Quick Assets €
31,222.00
€
24,966.00
€
25,009.00
€
18,407.00
Financial Ratios Vodafone Group Deutsche Telekom
Formula 2016 2017 2016 2017
Current Ratio
Current
Assets/Current
Liabilities
0.76 0.83 0.80 0.75
Quick Ratio
(Current Assets-
Inventory-Prepaid
Expenses)/Curren
t Liabilities
0.75 0.82 0.75 0.67
(Vodafone: Annual Report, 2017 and Vodafone: Annual Report, 2016); (Deutsche: Annual
Report, 2017 and Deutsche: Annual Report, 2016)
Efficiency Ratios
Financial Vodafone Group Deutsche Telekom

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Items 2015 2016 2017 2015 2016 2017
Net Sales
€
49,810.00
€
47,631.00
€
73,095.00
€
74,947.00
Total Assets
€
169,579.00
€
169,107.0
0
€
154,684.0
0
€
143,920.00
€
148,485.00
€
141,334.00
Average Total
Assets
€
169,343.0
0
€
161,895.5
0
€
146,202.50
€
144,909.50
Inventory
€
667.00
€
716.00
€
576.00
€
1,847.00
€
1,629.00
€
1,985.00
Average
Inventory
€
691.50
€
646.00
€
1,738.00
€
1,807.00
Cost of goods
sold
€
36,173.00
€
34,576.00
€
37,084.00
€
38,161.00
Account
Receivables
€
3,944.00
€
5,566.00
€
4,973.00
€
9,238.00
€
9,362.00
€
9,723.00
Average
Account
Receivables
€
4,755.00
€
5,269.50
€
9,300.00
€
9,542.50
Net Credit
Sales
€
49,810.00
€
47,631.00
€
73,095.00
€
74,947.00
Account
Payable
€
5,054.00
€
7,420.00
€
6,212.00
€
11,090.00
€
10,441.00
€
10,971.00
Average
Account
Payable
€
6,237.00
€
6,816.00
€
10,765.50
€
10,706.00
Opening
Inventory
€
667.00
€
716.00
€
1,847.00
€
1,629.00
Ending
Inventory
€
716.00
€
576.00
€
1,629.00
€
1,985.00
Net Purchases
€
36,222.00
€
34,436.00
€
36,866.00
€
38,517.00
Financial
Ratios
Vodafone Group Deutsche Telekom
Formula 2016 2017 2016 2017
Asset
Utilization
Ratio
Net
Sales/Averag
e Total
Assets 0.29 0.29 0.50 0.52
Stock Days
(365*Averag
e
inventory)/C
OGS 6.98 6.82 17.11 17.28
Current trade
receivables
days
(365/
Average
Account 34.84 40.38 46.44 46.47

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Receivables)/
Net Credit
Sales
Current trade
payables days
(365/
Average
Account
Payables)/To
tal Purchases 62.85 72.25 106.59 101.45
(Vodafone: Annual Report, 2017 and Vodafone: Annual Report, 2016); (Deutsche: Annual
Report, 2017 and Deutsche: Annual Report, 2016)
Solvency Ratios
Financial Items
Vodafone Group Deutsche Telekom
2015 2016 2017 201
5 2016 2017
EBIT
€
1,320.00
€
3,725.00
€
9,164.00
€
9,383.00
Total Equity
and Liabilities
€
169,107.0
0
€
154,684.0
0
€
148,485.0
0
€
141,334.0
0
Total Liabilities
€
83,971.00
€
80,965.00
€
109,640.0
0
€
98,864.00
Interest
Expenses
€
2,046.00
€
1,406.00
€
2,715.00
€
2,517.00
Shareholder's
Equity
€
85,136.00
€
73,719.00
€
38,845.00
€
42,470.00
Financial
Ratios
Vodafone Group Deutsche Telekom
Formula 2016 2017 2016 2017
Gearing Ratio
Total
Liabilities/Sharehold
ers Equity 98.63% 109.83% 282.25% 232.79%
Interest
Coverage Ratio
EBIT/Interest
Expenses 0.65 2.65 3.38 3.73
(Vodafone: Annual Report, 2017 and Vodafone: Annual Report, 2016); (Deutsche: Annual
Report, 2017 and Deutsche: Annual Report, 2016)

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Task 2: Financial Performance Analysis of Vodafone as Compared to Deutsche Telekom
with the use of Ratio Analysis
Profitability Analysis
The analysis has been undertaken to evaluate the ability of Vodafone to realize profits its
operational activities as compared to its competitor Deutsche Telekom. It has been carried out by
calculating the following ratios:
2016 2017 2016 2017
Vodafone Group Deutsche Telekom
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
1.04% 3.00%
7.94% 8.23%
-10.28%
-12.76%
4.25%
7.41%
26.29% 27.41%
49.27% 49.08%
-5.73% -7.65%
8.06%
13.65%
Profitability Ratios
Percenatge
(Vodafone: Annual Report, 2017 and Vodafone: Annual Report, 2016); (Deutsche: Annual
Report, 2017 and Deutsche: Annual Report, 2016)

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Return on Capital Employed (ROCE)
The financial ratio provides a measure of the profitability realized by a company in
reference to the capital employed. The efficiency of a company to use its capital base for
realizing profits for Vodafone can be easily measured with the use of this ratio. The ratio for
Vodafone has been increased from 1.04% to 3% during the year 2016-2017. This depicts its
increasing profits realized from the use of capital base. The ratio for its competitor has also
reported an increase from 7.94% to 8.23% during 2016-2017 and it is also higher as compared to
Vodafone for the two years. The difference between the ratios for the two companies indicates
that Vodafone it is realizing lower profits from its capital use as compared to its competitor. This
implies that Vodafone need to incorporate the use of efficient plant and machinery or remove the
unnecessary asset base to maximize the use of its capital base and thus improving the ROCE
ratio.
Return on Sales
The ratio depicts the operating income realized by a company in comparison to the net
sales that has been incurred. Vodafone financial performance is an issue of concern on the basis
of the results of this ratio as it is realizing negative returns on its sales that is -10.28% to -12.76%
incurred during 2016-2017. On the contrary, its competitor is having an increasing trend of the
ratio for the financial period and has also maintained a higher positive return on the ratio that is
4.25% to 7.41%. This means that Vodafone is incurring significant financial loss for the selected
financial period while its competitor is able to realize a positive return on its sales. This implies
that Vodafone need to take measures for reducing its operational expenses for releasing profits
from its net sales incurred (Damodaran, 2011).
Gross Profit Margin
The ratio is used for examining the ability of a company to realize profit from it sales
after meeting the cost of sales. The gross profit margin of the company has depicted a slight
increase over 2016-2017 from 26.29% to 27.41% while its competitor Deutsche Telekom is
having a higher gross profit margin over the period. However, the ratio has depicted a slight
decrease from 49.27% to 49.08% for Deutsche Telekom but is better as compared to Vodafone.
This means that Vodafone is incurring higher cost in realizing sales as compared to its
competitor which is not good for supporting its future growth prospects.
Return on Equity
It depicts the returns realized by a company on the equity base invested by its
shareholders. Vodafone has realized negative returns on its equity base that has depicted an
increasing negative trend from -5.73% to -7.65% during 2016-2017. On the contrary, Deutsche
Telekom has reported an increase in its ROE from 8.065 to 13.65% during 2016-2017 and this
depicts that it has realized a higher returns on its equity investment of the shareholders. The
means that Vodafone is having higher liability as it is using higher debt proportion and is not
able to realize income for its shareholders. This is a potential red flag for Vodafone as it would

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have a negative impact on the mind of its future investors to invest within the company and this
can restrict its business growth and development (Damodaran, 2011).

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Liquidity Analysis
The analysis has been carried out to examine the financial performance of Vodafone in
terms of the liquid assets possessed by it for avoiding the risk of not able to meet its current
liabilities as they become due as compared to its selected competitor. The analysis has been
carried out with the use of following ratio:
2016 2017 2016 2017
Vodafone Group Deutsche Telekom
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
Liquidity Ratios
Times
(Vodafone: Annual Report, 2017 and Vodafone: Annual Report, 2016); (Deutsche: Annual
Report, 2017 and Deutsche: Annual Report, 2016)
Current Ratio
It provides a measurement of the current assets possessed by a company for meeting its
current financial obligations. The ratio for Vodafone has depicted an increasing trend from 0.76
to 0.83 during 2016-2017 while for its competitor has depicted a decreasing trend from 0.80 to
0.75 during 2016-2017. This means that Vodafone is able to maintain a higher base of liquid
assets that can be converted to cash for meeting its financial liabilities as compared to Deutsche
Telekom. However, ratio for both the companies is lower than 1 indicating there is financial risk
for not able to meet their financial liabilities as they are having less current base in comparison to
the current liabilities (Damodaran, 2011).
Quick Ratio
This ratio measures the amount of most liquid assets that a company owns, that are
accounts receivable or cash equivalents, which can be quickly transferred to cash for meeting the

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short-term obligations. The quick ratio has also improved from 0.75 to 0.82 for Vodafone while
for Deutsche Telekom it has decreased gradually from 0.75 to 0.67 during 2016-2017. This
means that Vodafone possess higher cash equivalent asset base for meeting the financial
liabilities as compared to Deutsche Telekom.
Efficiency Analysis
The analysis measures the effectiveness of Vodafone to utilize its assets and liabilities for
generating sales in comparison to its competitor. The analysis is carried with the use of following
ratios:
2016 2017 2016 2017
Vodafone Group Deutsche Telekom
0.00
20.00
40.00
60.00
80.00
100.00
120.00
0.29 0.29 0.50 0.52
6.98 6.82
17.11 17.28
34.84
40.38
46.44 46.47
62.85
72.25
106.59
101.45
Efficiency Ratio
Times
(Vodafone: Annual Report, 2017 and Vodafone: Annual Report, 2016); (Deutsche: Annual
Report, 2017 and Deutsche: Annual Report, 2016)

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Asset Utilization Ratio
The ratio provides a measure of the revenue realized by the company by the use of its
asset base. Vodafone has maintained a very low asset utilization ratio over the financial period
2016-2017 that ahs nearly remained constant over the selected financial period. The ratio for
Deutsche Telekom has been significantly improved from 0.50 to 0.52 over 2016-2017 and is
higher than Vodafone Group. This indicates that Vodafone is not able to use it asset base
properly as the ratio is very low as compared to its competitor. This means that Vodafone need to
improve the asset efficiency by maintaining updated asset base such as replacing the inefficient
plant and machinery so that it is able to provide higher productivity and sales.
Stock Days
The ratio is used for determining the effectiveness of a company to replace its inventory
and realizing sales. The ratio for Vodafone is consequently lower as compared to its competitor
Deutsche Telekom. It has depicted decreasing trend from 6.98 to 6.82 over the selected financial
period as compared to Deutsche which has depicted an increasing trend from 17.11 to 17.28 over
the financial years. This means that Vodafone possess higher efficiency to replace its inventory
and convert it into sales as compared to Deutsche Telecom. This implies that Vodafone is
incurring less cost in holding stock in hand as compared to Deutsche Telecom which is holding
stocks for higher number of days and thus it can negatively impact its operating income in the
future context (Damodaran, 2011).
Current trade receivable days
The ratio is helpful for knowing the number of days a customer invoice is outstanding
before it is collected. The ratio has increased from 34.84 to 40.38 for Vodafone which is
considerably lower as compared to Deutsche Telecom that is maintained 46.44 to 46.47 during
2016-2017. This implies that Vodafone efficiency to collect credit from its customers is good as
it is taking less number of days as compared to its competitor. However, the ratio for Vodafone
has depicted an increase over the selected financial period which cannot be regarded as good for
supporting its future growth plans. This implies that Vodafone need to take measures for
improving its efficiency to collect money from its debtors by improving its credit policies.
However, its efficiency to collect amount of credit sales is better as compared to Deutsche
Telecom which is means it is having good supplier relationships or credit payment policies.
Current trade payable days
The ratio is used to determine the number of days a company takes for settling its debts
from the suppliers. The ratio for Vodafone has depicted an increase from 62.85 to 72.25 but is
significantly lower as compared to Deutsche Telecom that ahs also reported a decline from
106.59 to 101.42 over the financial period 2016-2017. This means that Vodafone efficiency is
better to meet its debt obligations rising from its bills and invoices whereas Detusche Telecom
efficiency is lower to meet its bills and invoices obligations (Brigham and Michael, 2013).

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Solvency Analysis
It depicts the ability of Vodafone to meet its debt obligations on its long-term loans and
interest incurred on the debt obligations. It can be carried out by examining the following ratios:
2016 2017 2016 2017
Vodafone Group Deutsche Telekom
0.00%
50.00%
100.00%
150.00%
200.00%
250.00%
300.00%
350.00%
400.00%
98.63% 109.83%
282.25%
232.79%
0.65
2.65
3.38
3.73
Solvency Ratios
In Percentage/Times
(Vodafone: Annual Report, 2017 and Vodafone: Annual Report, 2016); (Deutsche: Annual
Report, 2017 and Deutsche: Annual Report, 2016)
Gearing Ratio
This ratio provides an analysis of the amount of debt and equity that is being used by a
company for financing its assets. The ratio for Vodafone has been increased from 98.63% to
109.83% over the financial period 2016-2017. This means that it is incorporating higher use of
leverage over the selected financial period. On the other hand, Deutsche Telecom ratio has
depicted a decrease from 282.25% to 232.79% during the financial period but is significantly
higher as compared to leverage position of Vodafone. This implies that Vodafone is associated
with less risk of not able to meet its debt obligations in the future context as compared with
Deutsche Telecom. This is good for supporting the future growth prospects by seeking funds
from the investors as compared to that of Deutsche Telecom (Brigham and Michael, 2013).
Interest Coverage ratio
The ability of a company to meet its interest expenses incurred on its long-term debt
obligations effectively. The interest coverage ratio for Vodafone has increased from 0.65 to 2.65
during the financial years 2016-2017. The ratio for Deutsche Telecom has however reported a

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slight decrease from 3.38 to 3.73 during the financial period 2016-2017. This means that interest
obligations of Vodafone are significantly lower as compared to that of Deutsche Telecom and
this is the reason for lower ratio of the company.
Overall Assessment of Vodafone Financial Performance as Compared to Deutsche Telecom
It can be stated on the basis of overall results obtained with the use of financial ratio
technique that Vodafone need to improve its profitability position as compared to Deutsche
Telecom. This is the major point of concern for the company as it is not able to achieve adequate
return on its sales which can negatively impact its competitiveness in the telecom sector.
However, its liquidity, efficiency and solvency position is better and thus not a point of concern
as compared to Detusche Telecom (Brigham and Michael, 2013).
Conclusion
The financial performance of Vodafone is not so good in terms of its profits realized due
to negative return on sales and equity. This can negatively impact its plan of future growth and
expansion. The company needs to take adequate measures for improving its operational
efficiency as compared to its competitor for maintaining its competitiveness in the global
telecom sector.

15
References
Brigham, F. and Michael C. 2013. Financial management: Theory & practice. Canada: Cengage
Learning.
Damodaran, A, 2011. Applied corporate finance. USA: John Wiley & sons.
Deutsche: Annual Report. 2016. Deutsche Telecom. [Online]. Available at:
https://www.telekom.com/en/investor-relations [Accessed on: 20 May, 2019].
Deutsche: Annual Report. 2017. Deutsche Telecom. [Online]. Available at:
https://www.telekom.com/en/investor-relations [Accessed on: 20 May, 2019].
Vodafone: Annual Report. 2016. Vodafone Group Limited. [Online]. Available at:
http://www.annualreports.com/Company/vodafone-group-plc [Accessed on: 20 May, 2019].
Vodafone: Annual Report. 2017. Vodafone Group Limited. [Online]. Available at:
http://www.annualreports.com/Company/vodafone-group-plc [Accessed on: 20 May, 2019].