Managing Financial Resources and Performance

This report analyzes the financial performance of Vodafone for the years 2016 and 2017, comparing it with its competitor Deutsche Telekom. It examines various financial ratios and highlights the areas of concern for Vodafone. The report also discusses the reasons behind the difference in performance and suggests that Vodafone should be concerned about 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
Task 1 – Finding financial performance..........................................................................................2
Task 2 – financial analysis...............................................................................................................4
Performance of Vodafone................................................................................................................4
Performance of Deutsche Telekom.................................................................................................6
Reason of difference in performance...............................................................................................6
Vodafone to be concerned about Deutsche Telekom......................................................................8
Conclusion.......................................................................................................................................8
Reference.......................................................................................................................................10

2MANAGING FINANCIAL RESOURCES AND PERFORMANCE
Introduction
The main objective of the report to carry out the financial performance analysis of
Vodafone for the year ended 2016 as well as 2017. Financial performance will be analyzed
though carrying out difference financial ratios. Further the financial performance of the company
will be compared with one of its main competitor Deutsche Telekom. Based on the comparison
of their performance the report will highlight whether Vodafone is required to be worried about
the performance of its competitor Deutsche (DeFusco et al. 2015).
Task 1 – Finding financial performance
Ratio Definition 2017 2016
Return on capital employed ROCE is the financial ration used for
measuring the profitability of the entity an
its efficiency with which the capitals are
used.
Net operating profit -6079 -5122
Total asset - current liabilities 124089 127310
Net operating profit/(total assets-
current liabilities) -0.049 -0.0402
Return on sales it is used for analysing the operational
efficiency of the entity and it provides
insight into the fact of how much profit is
generated by the entity with each dollar of
sales
Net income -6079 -5122
Sales 47631 49810
Net income /sales -12.76% -10.28%
Asset utilisation ratio it is used for computing total revenue
earned by the entity with each dollar of
the assets owned by the entity
Sales 47631 49810
Average total assets 161895.5 169343
Sales/average total assets 0.29 0.29
Gross profit margin It is used for assessing the financial health
of the entity and the business model
through revealing the money left from the
sales after deducting COGS (Grimm and
Blazovich 2016)
Gross profit 13055 13097
Total sales 47631 49810
Gross profit/total sales 27.41% 26.29%
Current ratio current ratio is the liquidity ratio that
reveals the current assets proportion of theCurrent assets 25542 31938

3MANAGING FINANCIAL RESOURCES AND PERFORMANCE
entity against its current liabilities
Current liabilities 30595 41797
Current assets/current liabilities 0.83 0.76
Quick ratio quick ratio is used to measure the short
term liquidity of the entity and measures
its ability for meeting the short term
obligation with the most liquid assets.
Current assets 25542 31938
Inventories 576 716
Current liabilities 30595 41797
(current
assets-inventories)/current
liabilities 0.82 0.75
Gearing ratio it measures proportion of the company's
borrowed funds against the equity. it
indicates the business risk to which the
business is exposed as higher debt can
result into financial difficulties
(Loughran and McDonald 2014)
Long term liabilities 38576 41736
Total asset - current liabilities 124089 127310
long term liabilities/(total assets-
current liabilities) 0.31 0.33
Interest coverage ratio it is used for determining the efficiency
with which the entity can pay off its
interest obligations.
EBIT 3725 1320
Interest 1406 2046
EBIT/Interest 2.65 0.65
Stock days it is the financial ratio used for indicating
the average time taken by the entity to sell
its entire stock of inventories or the
inventories remain in stock before its sales
COGS 34576 36713
Average inventory 776 691.5
365/(COGS/Average inventory) 8.19 6.87
Current trade receivable days it is the time taken by the entity for
collecting its dues from the debtor to
whom credit sales are made (Brigham et
al. 2016).
Credit sales 47631 49810
Average trade receivables 5269.5 4172.5
365/(Credit sales/average trade
receivable) 40.38 30.58
Current trade payable days it is the time taken by the entity for paying
the dues from the creditor from whom
credit purchases are made.
COGS 34576 36713
Average payables 6816 5460.5
365/(COGS/average payables) 71.95 54.29
Return on equity it measures the efficiency of the entity
regarding generation of income from the
shareholder's equity investment (Nobes
2014)
net income -6079 -5122
average shareholder’s equity 79427.5 89422
net income/total equity -0.08 -0.06

4MANAGING FINANCIAL RESOURCES AND PERFORMANCE
Task 2 – financial analysis
Performance of Vodafone
2017 was a solid year for the company in context of financial performance as it was able
to deliver commercial momentum with the underlying sustained growth. With recovery of the
European revenues and strong continuous growth in Middle East and African operations the
entity was able to meet the financial guidance and was able to increase the dividend per share by
2%. Further, if the cash generation is consideration it is viewed as the key for delivering strong
return to the shareholders. It was able to deliver € 4.1 billion amount of free cash flow during the
year 2017 that was significantly higher as compared to € 1.3 billion of 2016 (Vodafone.com
2019)
Looking into the results of ratio computed in part 1, it can be identified that the company
was not able to generate profits for both 2016 as well as 2017 and hence, it was not able to create
return on its capital employed. Further, the return on capital employed of the company has been
further deteriorated in 2017 as compared to the year 2016. Further, the net of the company for
the years led to negative margin o n sales (Rohman and Bohlin 2014). Further the notable fact is
that the net loss margin has increased to 12/76% in 2017 as compared to 10.28% in 2016. It is
signifying that the company could not make any improvement to its performance for earning
profits from sales. Asset utilization ratio of the company has been same in 2017 as it was in
2016. Asset utilization is crucial to any entity as the success of the entity is generally tied with
the ability for managing the leveraging the assets. Optimal asset utilization ratio signifies that the
entity is more efficient with each dollar of the asset held by it (Robinson et al. 2015). However,
Vodafone was not able to improve its asset utilization ability and it was maintained at the same

5MANAGING FINANCIAL RESOURCES AND PERFORMANCE
rate in 2017 too. Gross profit margin of the entity is satisfactory and moreover the company was
able to enhance the same in 2017 as compared to 2016. It is identified that the gross profit
margin has been improved as the entity was able to reduce the cost of sales. Looking into the
liquidity ratio it can be stated that the liquidity ratios of at least more than 1 signifies that the
current assets of the company are sufficient to pay off the short term obligation upon becoming
due (Easton and Sommers 2018). However, the current ratio and quick ratio of the company for
both the years that is 2016 as well as 2017 is below 1 that is indicating that the company is not
able to pay off its short term obligations when they will become due. Gearing ratio that is used
for measuring the equity of the owners as compared to debt or borrowed funds indicating that the
company is lower leveraged as the same for the entity in 2016 is 0.33 and further improved to
0.31 in the year 2017. If the efficiency level of the company is taken into consideration it can be
identified that during 2016 the entity was taking on an average 6.87 days for selling or replacing
the entire stock of its inventories (Wahlen, Baginski and Bradshaw 2014). However, in 2017 the
same duration is increased to 8.19 days that is indicating that the efficiency of the company
regarding selling of its stock has been deteriorated. If the receivable days are analyzed it can be
found that during 2016 the entity was taking on an average 30.58 days for collecting the dues
from the debtors to whom it has made credit sales. However, in 2017 the same duration is
increased to 40.38 days that is indicating that the efficiency of the company regarding collection
of the dues has been deteriorated (Vodafone.com 2019). On the other hand, if the trade payable
days are considered it can be found that during 2016 the entity was taking on an average 54.29
days for paying the dues to the creditors from whom it has made credit purchases. However, in
2017 the same duration is increased to 71.95 days that is indicating that the efficiency of the
company regarding payment of the dues has been deteriorated (Vodafone.com 2019). Lastly, if

6MANAGING FINANCIAL RESOURCES AND PERFORMANCE
the return on equity is considered it can be identified that as the company was not able to
generate profit from sales for both 2016 as well as 2017, it was not able to provide any return on
shareholder’s equity. Hence it can be stated that the overall financial performance of Vodafone
for the year 2016 was not at all good. It is notable that the performance of the entity further
deteriorated in the year 2017 (Vodafone.com 2019)
Performance of Deutsche Telekom
On the other hand, if the performance of its main competitor Deutsche Telekom over the
same period is considered it can be identified that whereas the Vodafone could not generate
profit for both 2016 as well as 2017, Deutsche was able to generate profit from its sales and the
profit was amounted to € 5,551 and the same has been improved from € 3104 million during
2017 (AG 2019). It was found that the liquidity position of the company was not sufficient to
meet the short term obligation as the amount of current assets was not enough to cover up the
amount of short term obligation. However, it was found that the liquidity position of Deutsche
Telekom is significantly better as compared to Vodafone. Further, looking into the leverage
position of the entity it can be identified that the amount of debt is more than double the amount
of the equity. Hence, it can be stated that the entity is highly leveraged that will raise question on
its long term sustainability (AG 2019)
Reason of difference in performance
However, it is notable that whereas the profit of Deutsche Telekom has been improved,
Vodafone could not generate any profit for both the years. Moreover, the liquidity position of the
company is significantly low to meet the short term obligation. It can be identified that during
the past years European telecom sector did not perform as per the expectation. The main reason

7MANAGING FINANCIAL RESOURCES AND PERFORMANCE
behind that is there are improvement in the financial and customer’s trends in Italy and the strong
growth in Germany’s retail sector that reduced the churn in Spain and the consistent performance
over UK (Mariniello and Salemi 2015). Vodafone was required the regulatory clearance for 18.4
billion purchase of the Liberty Global Purchase Plc’s assets in the central Europe so that the
entity can compete with Deutsche in better way. It will further put the telecom tower in separate
business that will make easier for the entity for cutting the costs and sharing with the other
carriers. However, due to acquisition of Liberty Global Plc, Vodafone invested huge amount that
is € 18.4 billion which has a large impact on its performance (Mariniello and Salemi 2015)
However, owing to fall in the industry conditions both are performing to the downside.
Further, Vodafone has largest geographical diversification if it is compared with Deutsche
Telekom. It has exposure to US through 45% share in the Verizon Wireless that represents near
about 42% of adjusted operating profit of the entity. Further, it has lowest exposure to the
domestic market and can be expected that in near future it will improve its financial
performances (Sutherland 2014). Apart from that, high geographical diversification is the clear
positive factor for the company as the entity is not dependent overly on any particular market.
On the other hand, Deutsche Telekom is highly dependent on domestic market and is facing
fierce competition in the domestic market. Further, owing to the weak microeconomic situation
the competition is quite high. Even in the emerging market like Poland, it revealed poor
performance with the decrease in sales as well as lower margins (Pina, Torres and Bachiller
2014)

8MANAGING FINANCIAL RESOURCES AND PERFORMANCE
Vodafone to be concerned about Deutsche Telekom
However, Vodafone is required to be concerned about the performance of Deutsche
Telekom as the Deutsche Telekom is able to provide better return to its shareholders and better
return on its capital employed. Further, owing to its ability to generate profits during the year
2016 as well as 2017 it was able to generate return on its sales and provide return on
shareholder’s equity. Further, from the annual report of the entity it is observed that the trade
receivables of the company have increased at lower rates as compared to the rate of increase in
sales. Hence, it is signifying that the company is efficient is collecting its dues from the debtors.
Further, negligible increase in accounts payable is signifying that the company is making
payments for its dues on time (Mariniello and Salemi 2015). Whereas the efficiency of Vodafone
has been reduced in context of accounts receivable and accounts payable, Deutsche Telekom is
efficient in collecting its debts and making payments for its dues. Hence, the financial
performance of the entity has been improved whereas the performance of Vodafone is
significantly deteriorated over the years. Investors are generally concerned about the return on
their investment and that is confirmed through the better performance of the company. Hence,
likelihood is there that owing to bad financial performance of Vodafone; investors will withdraw
their holdings from the company and may move to Deutsche Telekom (Forsgren 2017).
Conclusion
From the above discussion it is concluded that over the years financial performance of
Vodafone is deteriorated in all aspects including profitability, liquidity and efficiencies. On the
other hand, it is found for its main competitor Deutsche Telekom was able to generate return on
its sales and provide return on shareholder’s equity. Further, it is observed that the trade
receivables of Deutsche Telekom have increased at lower rates as compared to the rate of

9MANAGING FINANCIAL RESOURCES AND PERFORMANCE
increase in sales. Hence, it is signifying that the company is efficient is collecting its dues from
the debtors. Further, negligible increase in accounts payable is signifying that the company is
making payments for its dues on time. Hence, it is stated that Vodafone is required to be
concerned about the performance of Deutsche Telekom as the investors are generally concerned
about the return on their investment and likelihood is there that owing to bad financial
performance of Vodafone investors will withdraw their holdings from the company and may
move to Deutsche Telekom.

10MANAGING FINANCIAL RESOURCES AND PERFORMANCE
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11MANAGING FINANCIAL RESOURCES AND PERFORMANCE
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