Financial Analysis of Vodafone and Comparison with Deutsche Telekom

This report provides a financial analysis of Vodafone and compares it with Deutsche Telekom. It evaluates the liquidity, profitability, and asset utilization ratios of Vodafone. It also discusses the reasons for the differences in financial performance and the impact of competitors on Vodafone's financial position.

FINANCIAL ANALYSIS

FINANCIAL ANALYSIS 1
Contents
Introduction...........................................................................................................................................2
Overview of the organisation.................................................................................................................2
Task 1....................................................................................................................................................3
Task 2: Financial Analysis....................................................................................................................6
Compare to Deutsche Telekom..........................................................................................................6
Reasons of differences.......................................................................................................................7
Impact of competitors........................................................................................................................8
Conclusion.............................................................................................................................................9
Bibliography........................................................................................................................................11

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Introduction
Financial analysis is the process of evaluating the financial data to assess the performance of
an organisation. The position of the company is also analysed in order to expand the business
or to beat the competitors. There are different ways in which the company analyse its
financial performance such as vertical, leverage, growth, valuation, profitability, liquidity, etc
(CFI, 2019). The process helps the company to evaluate the growth rates in order to extend
the business in the different countries.
The main aim of this report is to understand the evaluation of financial ratio. In this report,
Vodafone has been taken into consideration in order to analyse the financial position of the
company. In this report, the financial ratio has been evaluated of the years of 2017 and 2016.
Deutsche Telekom has been taken into consideration in order to compare the financial
performance of Vodafone in the market.
Overview of the organisation
Vodafone Group plc is a British multinational company in England. The company operates in
the region of Asia, Europe, Africa and Oceania. The company have its own networks in the
different 25 countries and it also has the partner networks in 47 further countries. As the
company is operates in the different countries and have large business that is why; it is
required to evaluate the financial performance (Vodafone, 2018a). The company also have
the large number of competitors in the market. It is requires for the company to evaluate the
performance of Deutsche Telekom in order to evaluate the high threat of competition.
Deutsche Telekom is also a telecommunication company in German. It is one of the largest
telecommunication providers in the country of Europe (Deutsche Telekom, 2018). Deutsche

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Telekom can beat the company with the high competition that is why; it is selected to
evaluate the position of Vodafone in the industry.
Task 1
Financial Ratio
Analysis
Vodaf
one
Deutsche
Telekom
2016 2017 2017
Profitability
Ratio
Gross Profit
Margin Gross Profit
13,09
7 13055 2,547
Net Sales
49,81
0
0.2
6 47631
0.2
7 3,603 0.71
Return on Equity Net income
-
5,122
-6,079
4927
Average
Shareholders
equity
25389
6.5
-
0.0
2
11386
2.5
-
0.0
5 58939 0.08
Liquidity Ratio
Current Ratio Current assets 31938 25,542 23,890
Current liabilities
41,79
7
0.7
6 30,595 50,101 0.48

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Quick Ratio Quick assets 24483 18696 22230
Current liabilities
41,79
7
0.5
9 30595
0.6
1 50,101 0.44
Asset utilization
ratio
Fixed asset
turnover Net sales 49810
47,631 3,603
Average fixed
assets
36160
.5
1.3
8
47961.
5
0.9
9 2845 1.27
Average
Receivable days Receivables 11561 9861 8039
sales *365 49810
0.2
3 47631
75.
57
3,603
814.
39
Return on capital
employed Operating Profit 1320 3725 2,125
Capital employed
*100
12731
0
1.0
4
12408
9
3.0
0 71216 0.03
Return on Sales Operating profit 1320 3725 2,125
Net sales 49810
0.0
3 47631
0.0
8 3,603 0.59
Gearing ratio
Debt Ratio Total Debt 83971 80965 62378

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Total Asset
1,69,1
07
0.5
0
15468
4
0.5
2 121317 0.51
Debt-to-Equity Ra
tio Total Debt 83971 80965 62378
Total Equity
83,32
5
1.0
1 73,719
1.1
0 583939 0.11
Interest coverage
ratio EBIT -190 2,792 7151
Interest Expenses 2046
-
0.0
9 -1406
-
1.9
9 2517 2.84
stock days
Stock turnover
days Average Stock 691.5 934 1120.5
Cost of Goods Sold
*365
-
36,71
3
-
6.8
7
34,576 0.0
3 190201 2.15
(Source: Vodafone, 2017)
Task 2: Financial Analysis
The financial ratio of the company is evaluated of the year 2016 and 2017. As per the
evaluation, it has been seen that the liquidity ratio of the company is decreasing from the year
2016 and 2017 (Vodafone, 2017b). It is observed that the current asset and current liabilities

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of the company is reduces as compare to the last year. The liquidity ratio reflects that the
company is not able to pay its liabilities with the current assets amount. The debt of the
company is increases due to increasing the current liabilities (Robinson, Henry, Pirie, and
Broihahn, 2015).
The profitability ratio helps to evaluate the position of the company in terms of finance. It is
required to evaluate the profit to analyse the financial performance. In the case of Vodafone,
the gross profit margin ratio is evaluated in order to evaluate the financial capabilities. It is
the difference between the cost of goods sold and revenue. The ratio of the company is 0.26
to 0.27 that states the company net sales is decreases due to which net profit margin is also
decreases (Vodafone, 2017b). The increasing expenses is the major reason behind the
decreasing the profitability ratio of the company (Shpak, 2018).
Asset utilisation ratio defines the capability of an organisation to utilise the asset to attain the
success in the business. It is observed that the ratio of asset utilisation is decreases as the
efficiency to utilise the asset is reduces (Accounting tools, 2018b). The value of net sales is
reduces from 2016 to 2017 as 49810 to 47631respectively. The inappropriate use of asset
reduces to capability of the company to expand the business or invest in the other areas.
Compare to Deutsche Telekom
Vodafone and Deutsche Telekom are operated in the same industry due to which the
company face the challenges. Deutsche Telekom is the top competitor of the company that is
why, the financial performance is also evaluated. As per the evaluation, it has been seen that
the current profitability ratio of Deutsche Telekom is high as compare to Vodafone as its cost
of goods sold id less as compare to sale. In the year 2017, it is observed that the Deutsche
Telekom has 0.71 profitability ratio and Vodafone has 0.27 (Deutsche Telekom, 2017).

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The liquidity ratio of the companies states that the Vodafone is more capable in order to pay
its liabilities as compare to Deutsche Telekom (The balance small business, 2019). Deutsche
Telekom has the large amount of current liabilities as compare to current asset and the
difference between the borrowing and investment is high. Deutsche Telekom has 0.48 as a
liquidity ratio and the Vodafone has 0.76 (Deutsche Telekom, 2017). The difference between
current asset and current liabilities is less and it can be said that the company have a chance
to improve its services.
The average receivable days reflects the collecting in which the organisation can collect its
credit amount (Accounting tools, 2018a). It is observed that the Vodafone provides the
services on credit amount as compare to Deutsche Telekom. Vodafone can collect its credit
amount in 75.57 days even it has a large amount credit to collect (Vodafone, 2017b). In the
case of Deutsche Telekom, the company provides the fewer amounts of services on credit and
it also receive the credit in large number of days. As per average receivable days, it is
observed that the Deutsche Telekom is more effective as they do not provide the large
amount of services on credit (Deutsche Telekom, 2017).
Reasons of differences
Deutsche Telekom and Vodafone have a huge difference in financial terms. Although, both
the companies are operating under the same industry and provide the similar services to
consumers but the companies have different techniques to operate the business.
It has been seen that both the companies implements the different approaches to operate the
business. In the case of Vodafone, the company provides the services on credit to consumers
due to which the current asset is decreases and current liabilities are increases. But the
Deutsche Telekom provides the fewer amounts of services on credit (Tough Nickel, 2016).

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The difference between the companies that affects their financial performance is the demand
of consumers. The demand of consumers is high towards the Vodafone as it has high sales.
Deutsche Telekom has less sales but the revenue is high that is why; its profitability ratio is
more effective than the Vodafone. The difference between the gross profit and cost of goods
sold is high in the case of Vodafone due to which they face the challenges of less revenue
(Winkinson, 2013). It can be said that the company adopts the cost leadership strategy to
attract the consumers. As per the strategy, it provides the services in fewer amounts as
compare to its competitors so that the large number of consumer attracts towards it. The
company face the challenges because revenue is reduced.
As per the analysis, it has been seen that the Deutsche Telekom consume the large amount in
expenses. According to the annual report of 2017, Deutsche Telekom invests the large
amount of 190201 in providing the services to consumer. It is observed that the Vodafone
consume less amount in producing the goods and services as compare to Deutsche Telekom.
In this analysis, it can be said that the Deutsche Telekom are more effective as they maintain
the stock. That is why; Deutsche Telekom is more appropriate in terms of stock turnover
days.
Impact of competitors
Affect Financial Position
Deutsche Telekom attracts the consumers by providing the similar nature of services with
high quality of goods. Attracting the large consumer towards the services of the company
affects the financial position as the sales of product is fluctuated. The revenue of the company
is reduces that affects the financial position in the industry (Info entrepreneurs, 2018).
Reducing revenue

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It is observed that the revenue of the company is reduces. Deutsche Telekom attracts the
consumer by implementing the premium quality of services. Premium quality of services
attracts the consumers due to which the sale is decreases. Competitors of the company affects
the revenue of Vodafone as the sales of Deutsche Telekom is increases.
Investment in Assets
It has been seen that reducing the revenue affects the asset. The company can invest the
profit amount in asset so that they can expand the business at the international level (Gitman,
Juchau, and Flanagan, 2015). But due to reducing revenue, the asset of the company is also
reduces due to which the Vodafone faces the issues.
Conclusion
At the end, it is concluded that the Vodafone has to be take care of services in order to beat
the competitors. The competitors of the company give the high competition by adopting the
different techniques and strategies. Vodafone should be concerned about the Deutsche
Telekom as it affects the growth and revenue. As per the financial analysis, it is observed that
the financial performance of the company is decreases year by year. Vodafone is more stable
as compare to Deutsche Telekom in terms of financial condition. The financial position of the
company is also affected due to its competitors. The liability of the company is reduces from
the year 2016 to 2017 which is effective for the success. Current asset of the company is less
than the current liabilities due to which it cannot expand the business at the international level
(Economic Times, 2018). The competitors of the company have negative effects on the
performance of Vodafone in financial terms such as reducing revenue, investment in assets,
and affect the financial performance. Although, both the companies are performing well in
their financial condition but they has to improve their financial performance.

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Bibliography
Websites
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outstanding. [online] Available from:
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https://www.infoentrepreneurs.org/en/guides/understand-your-competitors/ [Accessed
23/05/12].

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Shpak, S. (2018) What Could Cause an Increase in Profit Margin?. [online] Available
from: https://yourbusiness.azcentral.com/could-cause-increase-profit-margin-
8447.html[Accessed 23/05/12].
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Effects-for-Businesses-Large-and-Small [Accessed 23/05/12].
Vodafone. (2017b) Annual Report 2017. [online] Available from:
https://www.vodafone.com/content/annualreport/annual_report17/downloads/Vodafone-
full-annual-report-2017.pdf [Accessed 23/05/12].
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Books
Gitman, L. J., Juchau, R., and Flanagan, J. (2015). Principles of managerial finance.
Pearson Higher Education AU.
Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A. (2015) International financial
statement analysis. John Wiley & Sons.

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