Analysis of Financial Performance of Vodafone

ANALYSIS OF FINANCIAL PERFORMANCE OF VODAFONE 1
ANALYSIS OF FINANCIAL PERFORMANCE OF VODAFONE
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Introduction
The report aims to present financial analysis of one of the organization listed on London
Stock Exchange. It will present financial performance analysis of Vodafone over the latest
five years. This would entails analysis of Vodafone financial outlook in the latest five years,
its financial ratio analysis which is aimed at estimating its weaknesses and financial strength
over this period. The report is concluded with company’s financial standings and
recommendations for future improvements.
Overview of Vodafone
Vodafone is one of the international mobile operators in Britain with its headquarters being in
Newbury (Vodafone Group Plc 2017). In essence, it is the world’s leading
telecommunication firms by revenue. In other words, Vodafone is the largest and most
popular multinational firm in UK and the leading form in the telecommunication industry all
across the globe. The company manoeuvres across the world where it provides a broad array
of the telecommunication services dealing directly with the clients and providing services for
the businesses. Some of its services and products include voice, messaging, devices to assist
client in meeting the total communications, fixed line as well as data solutions. The
organization or entity vision is to be the global leader in the telecommunication sector. It has
made significant growth all across the globe since its inception (Vodafone Group Plc 2016).
The company has been broadening its presence within enterprise communication marketplace
both locally and across different countries. It prioritises free cash flow creation and
concentrates on emerging marketplace instead of expansions which is fundamental.
Financial Ratio Analysis
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This is a technique utilized in assessing account of a specific organization (Grzegorz 2011). It
is a significant aspect in analysis since it offers easy and quick outcome to an organization. In
essence, ratio analysis is the easiest means in evaluating an organization’s financial
performance compared to the income statement and balance sheet (Cox 2007). The analysis is
also of greater importance to an organization in determining whether it is accomplishing all
the desired objectives as well as assist in assessing how its rivals are doing. In essence, ratio
analysis offers valuable information regarding an organization’s financial standing and
position (Gibson 2011). Besides, ratio analysis is utilized for analysing financial statements
of a specific firm in comparing itself with its competitors and comparing its performance over
a specified period. It offers relationship between different items within the financial
statements (Schroeder, Clark & Cathey 2009).
Liquidity Ratios
Such ratios are usually obtained from the organization’s balance sheet and help in assessing
the capacity of an entity or company in settling its debts (Costae 2008). The ratios include;
Current ratios
The ratio is said to display whether the short-term assets of Vodafone could cover its short-
term or current liabilities (Gibson 2011). As from Table 1 below, it can be stated that
Vodafone has some challenges in settling its short or current debts in most part of its latest
five years. This is due to the notion that the company experienced relatively lower current
ratio below 1 between 2013 and 2016 except in 2017 where the company experienced
relatively higher current ratio mostly above one. Such trend is a clear sign that for most part
of its operations, the company was struggling with its current or short-term debts whenever
they came due.
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Quick ratios
This ratio helps in measuring short-term liquidity of Vodafone over the last five years
(Gibson 2011). As such, it is evident from Table 1 below that for the past five years, the
company experienced low quick ratio over time. In essence, it is evident that for the past five
years, Vodafone experienced decreasing and increasing quick ratio over time. Such trend
means that the company might need extra finances or ought to opt to sanction part of its long-
term loans in order to improve its liquidity standings, which is helpful in future.
Table 1: Liquidity Ratios
2017 2016 2015 2014 2013
Current Ratio 1.01 0.84 0.69 0.99 0.75
Quick Ratio 0.54 0.65 0.54 0.78 0.58
Profitability Ratios
These ratios assist in analysing how profitable a given organization is operating (Costae
2008). They comprises of the followings;
Gross Profit margin
The ratio play a crucial role within an organization since it tells about the total amount of
profit earned via selling products (Foster 2009). From the analysis, Vodafone gross profit
margin experienced a decreasing trend in the latest five years. Such implies that Vodafone
profitability is decreasing over time. The reason for such decline is due to increased goodwill
costs as well as PPE that the firm might have purchased within this time frame.
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