Financial Analysis and Management of Vodafone Plc

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Financial analysis and Management

Vodafone Plc
Executive Summary
Financial performance of a business can be ascertained and projected with the help of ratios
and financial statements evaluation. There are many factors that contribute to the benefit of a
business and such factors determine whether the business will taste success or not. In this
report, Vodafone Plc is selected for the purpose of study and the report will stress upon
various factors like performance of the company, ratios computation, challenges faced by the
company, etc. To ensure a balanced study, PEST analysis has been done that sheds light on
the challenges and other factors from the external environment.
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Vodafone Plc
Contents
Introduction...........................................................................................................................................4
Vodafone business overview.................................................................................................................4
Ratio analysis........................................................................................................................................5
 Advantages....................................................................................................................................5
Financial performance...........................................................................................................................5
 Profitability ratio...........................................................................................................................5
 Liquidity ratio................................................................................................................................6
 Gearing ratio..................................................................................................................................7
 Efficiency ratio..............................................................................................................................7
Market based ratio.................................................................................................................................7
Challenges faced by Vodafone..............................................................................................................9
 Increasing share in the Asian markets............................................................................................9
 Network security...........................................................................................................................9
 Limitations...................................................................................................................................10
Recommendation.................................................................................................................................12
Conclusion...........................................................................................................................................13
References...........................................................................................................................................14
Appendix.............................................................................................................................................23
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Vodafone Plc
Introduction
Financial statements of an organization are the documents that are used to determine the true
position of the company in the market. The financial statements are very helpful to the
stakeholders of the company because they provide major information which can be used by
them in order to make crucial decisions. Specific terms and data are contained in the
statements which will help to maintain the principle of the disclosure. Additionally, the
evaluation of ratios is done in order to improve the financial performance of the company
(Laux,2014).
The different types of ratios that are used by the customers in the process of decision- making
are liquidity ratio, profitability ratio, gearing ratio and investor’s ratio. Hence, the
computation of different type of ratios will be made in order to evaluate the financial position
of Vodafone PLC.
Vodafone business overview
The main business around which the company Vodafone operates is the key technology and
resources of the telecommunication licenses and well-developed infrastructure. It has been
observed that the company Vodafone is having a diversified business control over 22 well-
established markets spread around the world. The major function of the company is to
provide telecommunication services and also fixed line services in some of the countries
where it functions. The company aims to work on a long-term scale and have very diversified
approaches to the marketing schemes. It helps them to promote the growth with ease and
flexibility does arise a necessity of network infrastructure that provides mobile as well as
fixed voice services and data services. The main objective of the organization was to
establish a network of voice call routing system which can help the customers to connect.
The organization always look to fulfil and carder all the needs of its customers by providing
them with the wild ranges of facilities and services. Therefore this has also helped the
company to improve its efficiency buy enhancement and increment in the workforce. There
are many facilities like secure remote access, applications, etc. which provide the solid base
in order to function the business. These functions and facilities that are conducted by the
organization have helped the company to pursue new and ample opportunities. The customers
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Vodafone Plc
are also having and beneficial and enhanced experience with the improvement in the
infrastructure of the company (Vodafone Plc, 2018). The development of the company which
had have made in the past years is the main reason behind immense progress.
Ratio analysis
The process of ratio analysis is very important when it comes to analyzing the financial
activities that are operated or conducted by the company. It is not only beneficial in order to
find the profitability of the organization but it also helps to analyze the various areas of
capital structure, investment performance, etc. This information that is collected with the help
of ratio analysis is used by shareholders in order to prepare strategies and decisions.
 Advantages
There are many uses of the financial ratio that can be used by the customers in order to
evaluate the performance of an organization or compare data with other competing
companies. The information that is collected can be used to analyze the performance certain
period of time which helps in completion of the main aim to study the organization (Leo,
2011).
Financial performance
 Profitability ratio
Profitability ratio can be utilized to know about the capacity of the business to generate
earnings in comparison to the overall expenses and other costs that appear to be relevant in
nature. When it comes to the computation, it can be commented that the maximum of the
ratios should project a higher value that indicates the potential of the business. Even if the
ratios are better as compared to another period, it stresses the fact that the business is running
in a strong fashion (Merchant, 2012). For Vodafone, the common profitability ratios
computed are the asset turnover ratio, gross profit margin, and net profit margin. After
evaluating the ratios of Vodafone PlC, it came to the forefront that the ratios have fluctuated
and there is a sharp decline in all the profitability ratios except the gross profit margin
Gross profit margin can be defined as the ratio that stresses the financial health of the
company that projects how actively the company is using the labor, as well as material. From
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Vodafone Plc
the computation, it can be seen that the ratio has fluctuated in all the past 5 years and
remained in the range of (25-30%). This is owing to the fluctuation in the sales of the
company.
On the other hand, the net profit margin indicates the manner in which the company utilized
the operational expenses. For the company to have a strong ratio, it is essential that the
operational expenses should be managed in a prudent manner (Choi & Meek, 2011). The
NPM for Vodafone has declined in all the 5 years and was negative in 2016 and 2017 that
indicates losses for the company. The operating profit margin is positive yet resides on a
weak ground and any fall will lead to trouble for the management. The net return on assets is
negative and meaning assets could not be utilized properly. Hence, profitability of the
company is under immense pressure.
 Liquidity ratio
Liquidity and efficiency are used to ascertain the resources of short-term that belong to the
company and the management that supports the company. The liquidity ratio is being
projected by the current and the quick ratio. Both the ratio provides an interpretation that
whether the company is in a position to repay the debts of short tenure. This, in turn, projects
about the future position of the company in terms of growth or downfall in the scenario of
performance (Deegan, 2011).
The current ratio indicates the ability of the company to honor the obligations. As per the
computation of ratio, it can be commented that the ratio kept on fluctuating in all the five
years and remained below 1 in all the years except 2017. Hence, Vodafone has less than $1 of
current assets for every $1 of current liabilities that project a huge danger for the company in
the foreseeable future.
Similarly, acid test ratio is a better indicator of liquidity as it excludes stock. From the
computation, it is clear that Vodafone has a disturbance in liquidity as the quick ratio is even
lower than 1. The liquidity of the stock is not considered in this scenario as this ratio
eliminates the stock at the very beginning (Needles & Powers, 2013).
The cash ratio of Vodafone has declined and below 30% meaning the cash position is not
adequate to meet the current liabilities. On the other hand, the accounts receivable ratio of the
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