Financial Accounting and Auditing and Taxation

Running Head: Financial and Auditing Studies
Financial Accounting and Auditing and Taxation

Running Head: Financial and Auditing Studies
Introduction
Purpose and objective of the report:
This report presents the financial analysis of two leading corporations: Vodafone Group Plc.
and Talk-Talk Telecom Group Plc. Both the companies are operating in the
telecommunication industry of United Kingdom and also are listed on the London Stock
Exchange. The financial analysis is undertaken to assess the financial health of both the
companies using the key technique of financial analysis i.e. Ratio analysis. As a part of ratio
analysis various financial ratios are determined to evaluate the company’s financial
performance in terms of profitability, liquidity, efficiency, solvency and its investment worth.
The financial information in relation to the said aspects is derived from the annual reports for
the year ending on 31st March, 2016. Both, inter-firm and intra-firm comparison of the
financial performance is carried out under this report. The intra-firm analysis of performance
of both the companies is carried by comparing the financial results of FY 2016 with that of
FY 2015 in order to determine whether the overall financial performance has improved or
deteriorated and to identify the reasons of the variation in the performance over the last two
years. The inter-firm analysis is undertaken to identify and analyse as to which company is
performing better and what are the factors that have contributed to provide competitive
advantage to one company over other.
Background of the companies
Vodafone Group Plc. had started its business in 1984 and is headquartered in Newbury,
United Kingdom. The company operates its business in Europe, Africa, Middle East and Asia
Pacific Regions. It provides a wide range of products of mobile services to its customers such
as call, text, broadband, voicemails, mobile money services, television offerings and various
other communications solutions like Vodafone Meet Anywhere and Vodafone One Net

Running Head: Financial and Auditing Studies
Enterprise. Moreover, Vodafone provides internet of things connection to the users of its
network so as to allow them to communicate in the secured and reliable manner over the
internet using its cloud services. Further, various carrier services are also being provided by
the company like for example international voice, IP transit and message services. Along
with the said services, Vodafone is also engaged in the provision of mobile virtual network
services. Currently, the company is serving over 536 million customers for its mobile
services and around 20 million customers for its broadband services. The company has a
customer base which comprises of domestic businesses of varied sizes, commercial units, and
various public sector units at national and international level both. Its 4G network is
successfully running across 90 countries in the world. Vodafone Group is the holding
company of various companies such as Vodafone GmbH, Vodafone Limited, Vodafone
Marketing UK, Quickcomm Pty Limited, Vodafone Espana, S.A.U., CWGNL S.A. and
Vodafone Albania Sh.A.
Talk-Talk Telecom Group Plc. is also a provider of telecommunication services across
London. The company had commenced its operations in 2003 and is headquartered in
London only. It provides its customers a wide range of services such as broadband, voice
telephony, mobile communication and telephone services. Currently, Talk-Talk Group is
serving over 4 million customers from both residential as well as commercial units through
its Talk-Talk business brands. It offers 3 customer propositions: Simply Broadband, Essential
TV and Plus TV. The company is a business to business telecom service provider that is
serving around 180000 business units and public sector units of the nation. The products and
services of the company includes connectivity & networking, hosted solutions, internet
protocol telephone systems and voice as well as data services mainly offered to small and
middle sized units of UK (Financial Times, 2018).
Limitations of comparison under ratio analysis

Running Head: Financial and Auditing Studies
Although, ratio analysis is a useful technique of measuring and analysing the financial
performance of the company but it suffers from certain limitations which has influenced the
financial analysis. The problem with this type of financial comparison is that the accounting
policies that have been used by the companies while preparing the financial statements might
be different which does not provide a common ground to carry out the comparison. Also, the
financial statements of both the companies are presented into two different currencies as
Vodafone Group has published its financial reports in Euro Currency whereas Talk-Talk
Group has prepared and published its annual financial statements in Pound Sterling due to
which makes it difficult for the users of report to compare the performances (Foster, 2004).
Ratio Analysis
Refer Appendix for the ratio calculations:
PROFITABILITY
Gross profit Margin
RATIOS Vodafone Group Plc. Vodafone Group Plc. Talk-Talk Group Plc. Talk-Talk Group Plc.
2016 2015 2016 2015
Gross
profit
Margin 25.72% 26.87% 53.95% 54.60%
The gross profit margin ratio measures the percentage of company’s sales revenue which is
remained after meeting the production cost of goods sold by the company (Singh
&Schmidgall, 2002).
Intra-firm analysis: