Managing Financial Resources and Performance

This report focuses on extracting financial information of Vodafone Group Plc and computing various financial ratios for the years 2016 and 2017. It compares Vodafone's performance with its competitor Deutsche Telekom and explains the possible reasons for the differences in performances. It also discusses why Vodafone should be concerned regarding Deutsche Telekom's performance.

Running head: MANAGING FINANCIAL RESOURCES AND PERFORMANCE
Managing financial resources and performance
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1MANAGING FINANCIAL RESOURCES AND PERFORMANCE
Table of Contents
Introduction................................................................................................................................2
Company background................................................................................................................2
Task 1.........................................................................................................................................3
Ratio computation for Vodafone............................................................................................3
Task 2.........................................................................................................................................3
Financial analysis...................................................................................................................3
Possible reasons for differences in performance....................................................................7
The reason why Vodafone shall be concerned regarding Deutsche Telekom.......................7
Reference....................................................................................................................................9
Appendix..................................................................................................................................11

2MANAGING FINANCIAL RESOURCES AND PERFORMANCE
Introduction
The report will be focussed on extracting the applicable financial information of
Vodafone Group Plc. those will be used to compute various financial ratios for the year ended
2016 and 2017. Vodafone’s performance will be then compared with its competitor Deutsche
Telekom. The report will further explain the possible reasons for the differences in the
performances and the implication for the Vodafone. Based on the analysis it will also be
mentioned in the report that whether Vodafone shall be concerned regarding the performance
of Deutsche Telekom (Vodafone.com 2018).
Company background
Vodafone Group Plc. That was incorporated on 17th July 1984 is engaged in
telecommunications business. Business of the organization is into 2 geographic regions –
Europe and Africa, Middle East and Asia pacific. It is engaged in acquiring licenses and
spectrum for using radio frequencies for delivering mobile services. On the other hand, the
core business of Deutsche Telekom is sale and operation of connections and networks. It is
the 3rd largest telecommunications company in world and in Europe it is in number 1
(Vodafone.com 2018).

3MANAGING FINANCIAL RESOURCES AND PERFORMANCE
Task 1
Ratio computation for Vodafone
Task 2
Financial analysis
Various ratios have been calculated in part 1 for assessing the performance of
Vodafone Group Plc for the year ended 2016 as well as 2017. These are as follows –
 Return on capital employed – it is the financial ratio used for measuring the
profitability of the company and the efficiency with which the capital of the
organization is employed. It is calculated through dividing the EBIT by capital
employed. This ratio is significantly useful while comparing the entities from capital-

4MANAGING FINANCIAL RESOURCES AND PERFORMANCE
intensive segments like telecom sectors (Zietlow et al. 2018). Looking into the return
on capital employed for Vodafone Group Plc it can be identified that the ROCE of the
company has been increased from 1.04% to 3.00% over the years from 2016 to 2017.
However, if the same is compared with the main competitor of Vodafone that is
Deutsche Telekom it can be identified that the ROCE for the company 6.64% that is
significantly high as compared to Vodafone (AG 2018).
 Return on assets – it is used for measuring the net income generated by the entity
through its total assets during the particular period of time. To be more specific, it is
used for measuring the efficiency of the organisation regarding management of its
assets for generating income. Looking into the return on assets for Vodafone Group
Plc it can be identified that the ROA of the company for both the years is in negative
as the company was not able to generate any positive earnings for both the years
(Ahmad 2016). However, if the same is compared with Deutsche Telekom it can be
identified that the ROA for the company for 2017 is 2.39% that is far better as
compared to Vodafone.
 Asset utilization ratio – it is used for identifying whether the entity is putting its assets
for good use or just wasting the same. From the above computation table it can be
identified that the asset utilization ratio of Vodafone for both the years is 0.29.
However, if the same is compared with Deutsche Telekom it can be identified that it
is 0.52 for it. Hence, it can be stated that the Deutsche is more efficient in putting its
assets for good use (Ma et al. 2019).
 Gross profit margin – it is the amount remained with the entity from its sales revenue
after paying the cost of selling the goods from the revenue. Gross profit alone can be
used for how much profit is made by the company after paying off the cost of selling
the goods. From the above computation table it can be identified that the gross profit

5MANAGING FINANCIAL RESOURCES AND PERFORMANCE
margin of Vodafone has increased from 26.29% to 27.41% over the years from 2016
to 2017. However, if the same is compared with Deutsche Telekom it can be
identified that it is 52.17% for the year 2017. Hence, it can be stated that the gross
profit margin of Deutsche is significantly high as compared to Vodafone.
 Current ratio and quick ratio – both the ratios are liquidity ratios and are used for
measuring the liquidity position of the company that is the ability of the organization
to pay off the short term liabilities with the short term assets. Generally, the liquidity
ratio of 1 or more is considered as that the company is efficient in meeting its short
term obligations. However, looking in to the liquidity ratios of both the companies for
it can be identified that the liquidity ratios are less than 1. It indicates that both the
companies are not able to meet its short term obligation with the available short term
assets.
 Gearing ratio – gearing ratio is used for measuring the proportion of fund borrowed
by the entity as compared to the equity. It indicates the company’s financial risk.
Higher proportion of debt indicates that the company is highly leveraged that may
lead to un-sustainability in the long run. From the above computation table it can be
identified that the gearing ratio of Vodafone has increased from 0.99 to 1.10 over the
years from 2016 to 2017. However, if the same is compared with Deutsche Telekom it
can be identified that the gearing ratio of the company is 1.57 for the year 2017.
Hence, it can be stated that Deutsche is more leveraged as compared to Vodafone.
 Interest coverage ratio – it is used for measuring the ability of the entity to meet the
interest expense. It measures the times the entity is able to make the interest payment
on the borrowing with the EBIT. Looking into the interest coverage ratio for
Vodafone Group Plc it can be identified that it has been enhanced from 1.04% to
3.00% over the years from 2016 to 2017. However, if the same is compared with the

6MANAGING FINANCIAL RESOURCES AND PERFORMANCE
main competitor of Vodafone that is Deutsche Telekom it can be identified that the
interest coverage ratio for the company is 2.98 that is better as compared to Vodafone
(Fender and Lewrick 2015).
 Stock days – it indicates the number of days the inventories of the company remains
in stock of the company. If both the companies are compared it can be identified that
Vodafone is more efficient is selling or replacing its inventories as compared to
Deutsche as its stock days for both years is lower as compared to that of Deutsche
(Robinson et al. 2015).
 Current trade receivable days – it is a liquidity ratio that is used for measuring the
time taken by the debtors to settle the short term payments due. Timely and efficient
collection of the debt is major part of the cash flow management and working capital
management of the company. It can be identified that Vodafone Group Plc takes 82 to
83 days to collect its receivables whereas Deutsche takes 65.38 days for collecting its
receivable. Therefore, it can be stated that Deutsche is more efficient in collecting its
debt as compared to Vodafone (Greenbaum, Thakor and Boot 2015).
 Current trade payable days - it is a liquidity ratio that is used for measuring the time
taken by the company to settle the short term payments due. Timely and efficient
payment of the dues improves the working capital management of the company. It can
be identified that Vodafone Group Plc takes 193 to 202 days to pay its dues whereas
Deutsche takes only 108.55 days to pay its dues (Wahlen, Baginski and Bradshaw
2014). Therefore, it can be stated that Deutsche is more efficient in paying its dues as
compared to Vodafone.
 Return on equity – it is a profitability ratio that measures the number of dollars earned
by the company on each dollar of investment made by the shareholders. Looking into
the return on equity for Vodafone Group Plc it can be identified that the ROE of the

7MANAGING FINANCIAL RESOURCES AND PERFORMANCE
company for both the years is in negative as the company was not able to generate any
positive earnings for both the years (Weygandt, Kimmel and Kieso 2015). However,
if the same is compared with Deutsche Telekom it can be identified that the ROE for
the company for 2017 is 11.53 that is far better as compared to Vodafone.
Possible reasons for differences in performance
With regard to download speed Deutsche Telekom is leading for the last quarter of
April with the average download speed of 15.11 Mbps for both 3G and 4G whereas the same
for Vodafone is 14.07 Mbps. Further, Deutsche have started laying foundations for 5G
services all over Germany with 3 antennas in Berlin. It created thereat to its competitor
Vodafone which in turn created difference in performance (Luke 2018).
The reason why Vodafone shall be concerned regarding Deutsche Telekom
Comparing the financial performance of Vodafone against Deutsche Telekom it can
be stated that the considering the profitability ratios it can be identified that for both the years
Vodafone was not able to generate any positive earnings for its shareholders and therefore the
ratios for analysing the return created for shareholders like return on capital employed, return
on assets and return on equity is negative for it (Chandra 2017). Further, if the efficiencies are
considered it can be stated that Deutsche Telekom is efficient in paying and receiving the

8MANAGING FINANCIAL RESOURCES AND PERFORMANCE
debts as compared to Vodafone. Hence, Vodafone shall be concerned regarding Deutsche
Telekom.

9MANAGING FINANCIAL RESOURCES AND PERFORMANCE
Reference
AG, D. 2018. Home. [online] Telekom.com. Available at: https://www.telekom.com/en
[Accessed 22 Dec. 2018].
Ahmad, R., 2016. A Study of Relationship between Liquidity and Profitability of Standard
Charterd Bank Pakistan: Analysis of Financial Statement Approach. Global Journal of
Management And Business Research.
Chandra, P., 2017. Investment analysis and portfolio management. McGraw-Hill Education.
Fender, I. and Lewrick, U., 2015. Calibrating the leverage ratio. BIS Quarterly Review,
pp.43-58.
Greenbaum, S.I., Thakor, A.V. and Boot, A. eds., 2015. Contemporary financial
intermediation. Academic Press.
Luke, T. 2018. Germany: Deutsche Telekom and Vodafone lead our speed tests. [online]
Tutela.com. Available at: https://www.tutela.com/blog/germany-deutsche-telekom-and-
vodafone-lead-our-speed-tests [Accessed 22 Dec. 2018].
Ma, J., Dong, X., Shi, H., Xu, J. and Ma, X., 2019. China’s Leverage Ratio and Systemic
Financial Risk Prevention. In A New Era (pp. 83-111). Palgrave Macmillan, Singapore.
Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., 2015. International financial
statement analysis. John Wiley & Sons.
Vodafone.com. 2018. Visit the Vodafone corporate website. [online] Available at:
https://www.vodafone.com/content/index.html [Accessed 22 Dec. 2018].

10MANAGING FINANCIAL RESOURCES AND PERFORMANCE
Wahlen, J., Baginski, S. and Bradshaw, M., 2014. Financial reporting, financial statement
analysis and valuation. Nelson Education.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting.
John Wiley & Sons.
Zietlow, J., Hankin, J.A., Seidner, A. and O'Brien, T., 2018. Financial management for
nonprofit organizations: Policies and practices. John Wiley & Sons.

11MANAGING FINANCIAL RESOURCES AND PERFORMANCE
Appendix
Ratios for Deutsche Telekom
Return on capital employed 6.64%
Return on assets 2.39%
Asset utilization ratio 0.52
Gross profit margin 52.17
Current ratio 0.75
Quick ratio 0.59
Gearing ratio 1.57
Interest coverage ratio 2.98
Stock days 18.4
Current trade receivable days 65.38
Current trade payables ratio 108.55
Return on equity 11.53