Financial Performance Report of Vodafone PLC
Evaluate the financial performance of Vodafone by explaining the purpose of financial statements, comparing the financial statements with another type of business, and using financial ratios to interpret the accounts over a three-year period.
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Added on 2019-12-03
Financial Performance Report of Vodafone PLC
Evaluate the financial performance of Vodafone by explaining the purpose of financial statements, comparing the financial statements with another type of business, and using financial ratios to interpret the accounts over a three-year period.
Added on 2019-12-03
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FINANCIAL MANAGEMENT
TABLE OF CONTENTSIntroduction......................................................................................................................................1Task 1...............................................................................................................................................1Task 2...............................................................................................................................................2Task 3...............................................................................................................................................3Task 4 calculation in appendix........................................................................................................5.........................................................................................................................................................5Task 5...............................................................................................................................................5Task 6 ..............................................................................................................................................6References........................................................................................................................................1Appendix..........................................................................................................................................1
IntroductionFinancial information produced from the financial statements is of great importance forthe company. It helps in taking many crucial monetary decision related to the business. Thepurpose of this report is to analyse the financial performance of Vodafone PLC on the basis ofratio calculation and annual statements. Task 1 The financial statements reflects the information about the results of operations, financialposition and cash flows within the business. Companies makes decisions related to allocation ofresources by using that information (Abraham, Deo and Irvine 2008). Every statement has itsown objective. These can be defined as follows:Balance Sheet – This statement is a snapshot of the company’s business at the end of thefinancial year. It includes all the assets and liabilities within the business. The purpose ofthe balance sheet is to state the current financial position of the company in terms ofliquidity, funding, efficiency, debt etc. Cash flow statement – This document shows the inflows and outflows of the cash duringthe reporting financial period (Statement of Cash Flows, 2000). The purpose of the cashflow statement is to reflect the nature of cash receipts and disbursements in variouscategories.Income statement – This document shows all the items related to income and expenseswithin the business. The purpose is to show the ability of the company to generate profits.It discloses the volume of sales and the nature of various types of expenses. It is alsocapable of analysing the trends related to the company’s operations. Terminology Debit and credit – Under the double entry bookkeeping system, debits and credits are theentries made in the account ledgers. It records the changes in the values which generatesfrom business transactions (Ball, Jayaraman and Shivakumar, 2012). It is to be noted thatsource destination for the event is credited and destination account for the event isdebited. 1
Books of prime entry – These are the books where initially all the transactions withinbusiness are recorded. Later on these books are used to generate entries in a double entrybookkeeping system (Ittelson, 2009).Accounts and ledgers – Ledger is a book of final entry which records all the financialevents in form of individual accounts. Accounts can be of different types such as real,nominal, personal etc. The transactions recorded in the journal follows three basicprinciples:Real account‘Debit’ what comes in & ‘credit’ what goes outNominal account‘Debit’ all losses & expenses, ‘credit’ all incomes and gains Personal account‘Debit’ the receiver & ‘credit’ the giver (Siano, Kitchen andConfetto, 2010)Trial balance - It is a measure adopted to check the accuracy of the ledge accounts. It isrequired that the debit side should match with the credit side. Financial accounts – These accounts are the summary and reporting of the financialtransactions which are made by the company. Every organization prepares final accountsat end of the business period. Task 2 Limited Company In such kind of business the liabilities of the members of the organization is limited to theextent they have invested into the business. It is being operated on a very large scale involvingmany complex reporting requirements (Vickerstaff and Johal, 2014). The control remains withthe major owners and shareholders of the company. These may be limited by share or buy guarantee. It can be public or private limitedcompanies. The main difference is that member limit of private ltd is restricted by law and thecompany’s rules. On the other hand any individual can buy share in the public ltd. For instanceVodafone is a public ltd organization headquartered in London, UK. The brand is listed on the2
London Stock Exchange and is a member of the FTSE 100 index (Vodafone. 2015). The controland management remains with the Board of Directors and major shareholder of the organization.It is mandatory for Vodafone to produce all the three financial statements according to theguidelines of IFRS and GAPE Sole Trader It is a very simplest form of business structure and it relatively involves very low cost forset up. As a sole trader the owner of the business holds the responsibility for all the legal aspects.He retains complete control on the assets and relevant financial decisions. There are very fewreporting requirements (Zoan, 2014). Very high amount of flexibility is there in adopting anykind of change or innovation. The size of the business is low however there are unlimitedliabilities which means all the personal assets are at risk in case if things go wrong. Thepreparation of the financial statements depends upon the willingness of the owner Partnership It is a kind of arrangement were parties known as the partners agrees to come together todo a particular business. These partners could be individuals, companies, entities, schools etc. thepartners are liable for the debts and obligations of the company. The ratio for sharing of profitsand losses is decided in an agreed ratio. For that purpose a partnership deed has been establishedbetween the parties (Ball, Jayaraman and Shivakumar, 2012). Under such business along withthe three financial statements, individual partner’s capital accounts are also prepared. Task 3 Ratio Analysis Current Ratio – This ratio shows the short term obligations of the business. It can beinterpreted that company has able to maintain a current ratio around less than 1. Thisreflects that company has maintained a conservative approach to the working capitalmanagement. Quick ratio – It shows the extent of cash and other current assets that are readilyconvertible into cash as compared to short term obligations of the business (Maynard,2013). The ratio is lower than the industry average and this suggests that Vodafone istaking too much risk by not maintaining a suitable safeguard of liquid resources. 3
Gross Profit Margin – It shows the underlying profitability of the core activities of theorganization. Gross profit for the three years is showing a decreasing trend. It is probablydue to the increasing competition within the industry. Operating Profit Margin – It measures the profit generating efficiency of the company.Vodafone has failed to maintain an appropriate operating profit margin. This decrease inthe ratio is due to increase in the proportion of selling, general and administrationexpensesROCE (Return on Capital Employed) – Very high amount of fluctuations can be noticedin the ROCE of the company. This thing can reduce the earning available to theshareholders (Zoan, 2014). Company is facing issues in maintaining the efficiency ofcapital usage.Receivable Days – It is the number of days that a customer invoice is outstanding beforeit is collected. The receivable rate for the business has deceased and this shows that thereis high effectiveness in the credit and collection efforts for the business. Payable Days - It tells how long a company takes to pay its invoices from the tradecreditors. The payable day’s period is stagnant and it is good for the business. It showsthat company is capable of paying its invoices in timely manner. Inventory Days – There are no too many fluctuations in the ratio (Vodafone. 2015). Theratio is considerable and company holds its inventory in effective manner before sellingit. Gearing – The debt to equity ratio is not too much high. It is considerable from industrypoint of view because Vodafone operates on a very large scale. Dividend Yield – Decrease in the dividend yield ratio can be noticed. However theshareholders might be satisfied from this rate of dividend. Earnings Per Share – It reflects the earning per share for the shareholders. In the currentyear the earing per share is very good because it reflects adequate amount of dividend forthe investors. Price Earnings Ratio – The price earnings ratio was very favourable for two years 2012-13 but it decreased in 2014 (Vickerstaff and Johal, 2014). It will decrease the marketvalue per share also for the company 4
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