Finance for Strategic Managers: Vodafone Financial Performance Report

This report provides a comprehensive analysis of Vodafone's financial performance, tailored for strategic managers. It begins by assessing the importance of financial information in business, emphasizing its role in evaluating performance, ensuring solvency and liquidity, managing cash flows, allocating resources, and supporting lending, growth, and budgeting decisions. The report then identifies and discusses various business risks associated with financial decisions, such as over-investment, lack of reserves, market changes, and economic risks. The core of the report analyzes Vodafone's financial statements, including the income statement, balance sheet, and cash flow statement, interpreting their content and purpose. The report also includes a detailed financial ratio analysis, covering liquidity, profitability, turnover, and efficiency ratios to assess Vodafone's financial health and performance trends. Finally, the report examines corporate governance and ownership structures and their influence on decision-making.

Finance for Strategic
Managers

TABLE OF CONTENTS
INTRODUCTION.........................................................................................................................1
Task 1...............................................................................................................................................1
1.1 Assessment of the need of financial information in a business.............................................1
1.2 Business risks related to finance decisions:...........................................................................2
1.3 Summary of financial information needed for strategic decision making.............................3
TASK 2............................................................................................................................................3
2.1 Purpose, structure and content of published accounts...........................................................3
2. Interpretation of the financial information in these accounts..................................................7
3. Financial ratio analysis............................................................................................................7
Activity 3.........................................................................................................................................8
1. Difference between long and short term finance requirements for businesses.......................8
2. Comparing the source of long and short term finance for businesses.....................................9
3. Importance of cash flow management.....................................................................................9
TASK 4............................................................................................................................................9
1. Corporate governance, legal and regulatory requirements of different business ownership
structure.......................................................................................................................................9
2. Comparing roles and responsibilities of owners in decision making for different business
ownership structures..................................................................................................................10
CONCLUSION..............................................................................................................................10
references.......................................................................................................................................11

TABLE OF FIGURES
Figure 1: Income Statement of Vodafone........................................................................................4
Figure 2: Balance sheet of Vodafone...............................................................................................5
Figure 3: Cash flow statement of Vodafone....................................................................................6
LIST OF TABLES
Table 1: Financial Ratio analysis.....................................................................................................7

INTRODUCTION
The financial statement of a company reflects its performance. A company has limited
finance available with it as such it is of utmost importance that these resources are used
efficiently (Murphy and Yetmar, 2010). The strategy and objectives are woven around the
finance availability of a company. The current research project is based on finance for strategic
managers and it has chosen Vodafone which is one of the leading organization of UK. Study will
discuss different available sources of finance for various decisions and different methods for
analysing financial information of the organization.
TASK 1
1.1 Assessment of the need of financial information in a business
Management of the company is responsible for the decision making and strategy
formulation. The financial statement of the company act as a guide which helps in decision
making. The managers can evaluate performance of Vodafone as well as the future of the
company can be decided. The need of financial information for Vodafone is: To evaluate the performance of Vodafone: The most important aspect for any business is
to see whether it is profitable or not. The financial statements provide breakup and the
figures of sales, expenses, revenues, etc. which are very beneficial for the managers to
study the business (Menifield, 2013). Solvency: The solvency needs to be maintained in the long run. A proper track of the
financial position of Vodafone ensures that the solvency is maintained. This would be
impossible without income statements. Liquidity: There should not be any shortage of cash and liquidity with vodafone. The
financial management ensures that this situation does not arise as it may be determined
for the business. Cash Flows: Inflows and outflows could be studied and the area in which the money is
used can be tracked. If unwanted expenses are there it can be rectified. Allocation of scarce resources: Financial decisions and management decisions together
help in allocating scarce resources as management has the better idea about availability of
the resources. They can allocate it properly and effectively (Watson and Head, 2010).
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 Lending decisions: There can be situations where the company has to lend money to carry
out business activities or to buy any asset. The financial statement helps in understanding
amount of loan needed and where it has to be used.
 Growth potential and Stability: All the decisions regarding investments, growth and
maintaining stability can also be taken by available infomrtaion of finance.
 Budgeting: The budgets for future can be made by comparing the financial data from the
previous years and thereby allocating proper budgets to respective expenses and revenue
activities (Grossmann, 2014).
1.2 Business risks related to finance decisions:
Evaluating the financial statements and taking decisions on the basis of this requires lot
of thinking and knowledge. A specialized person is required to make sure that the decisions are
in favor of Vodafone and both long as well as short term goals are fulfilled. The risks related to
financial decisions are: Over investments: If Vodafone is too aggressive in its growth than there can be situation
where they find the funds over invested in the business. This kind of situation can be
detrimentalfor the business and it would lead to decrease in revenue of Vodafone. So the
investments should be properly planned and executed. Lack of reserves: There can be some unexpected situations where Vodafone needs funds
urgently. These needs to be kept in mind and some funds should be available if required
in future (Melo, 2012). Market changes: As per the market data all decisions are based on hidtorical infomrtaion
of the organization. . The market may not behave like the previous yars it did. Loss of goodwill, assets and poor financial management: If decision making is not done
properly it would result in loss of goodwill, assets and finance for the business. Finance
risk includes risk of capital loss, increase in obligation and loss to shareholders. Economic risk: The Economic risk and its impact on the business activities can be very
detrimental for Vodafone. These days companies are doing business globally and as such
economic risks needs to be dealt with.
 Rules and regulations: The government of a country has also laid down rules and
regulations that need to be complied with. So, Vodafone ensures that these rules have
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been followed by them as it would result in penalty or other actions against the company
(Viviers and Cohen, 2011).
1.3 Summary of financial information needed for strategic decision making
Financial information plays very important role in strategic decision making process of
Vodafone. Information is recorded in the financial statement of the organization. Income
statement includes data about all income and expenses of the organization by which organization
can make decisions about reduction of cost and increment in sales of the firm. Balance sheet of
the Vodafone includes information about assets and liabilities of the organization which is
important for taking decisions about purchase of any new assets for raising financial
performance of the firm (Nelson, 2012). Along with this, cash flow statement helps in collecting
information about cash inflow and put flow of Vodafone which helps in taking different
decisions of costing and cash flow.
TASK 2
2.1 Purpose, structure and content of published accounts
Published accounts are financial statements which include balance sheet and profit and
loss statements as well as Cash flow statement that companies publish every year to show the
performance of Vodafome. The report, includes the published information of Vodafone
Company as an example.
The purpose of creating published accounts are:
 Providing information about the yearly performance of a company including sales,
profits, revenues and expenses.
 Comparison can be done with other year's performance of Vodafone.
 Revealing information about the products of the company and the profits earned by them.
 Giving details about obligations and liabilities of Vodafone.
 Strategy, policies and future plans are provided in the statements. To provide information to all stakeholders, investors and government (Gitman, 2013).
Structure and content of financial statements:
The company Vodafone has been taken as an example to illustrate structure of financial
statements.
 Income statements: The Income statements include profits, gains, losses and expenses for
the company. Vodafone Company can evaluate their sales, profits, administration,
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expenses and gains or losses in the Income statement. It helps the managers to see where
the company has gained and where they have lost the money (Vitez, 2013).
Figure 1: Income Statement of Vodafone
(Vodafone Group PLC, 2015)
 Balance sheet: The Balance Sheet of Vodafone contains fixed assets, Long term
liabilities, current assets and current liabilities. So all the details related to debtors,
creditors, shareholders and all the tangible and non-tangible assets can be seen here.
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Figure 2: Balance sheet of Vodafone
(Source: Vodafone Group PLC, 2015)
Cash flow statements: the cash flow of Vodafone Company shows the inflows and outflows of
the cash and also the sources from which they arise. This would help in avoiding cash crunch
situations.
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Figure 3: Cash flow statement of Vodafone
(Source: Vodafone Group PLC, 2015)
Furthermore published statements contains:
 A report from director
 Information for the shareholders.
 A report from the auditor who has done auditing of financial statements and he gives his
opinion about the reliability of the same.
 It includes plans, investment strategy, expansion, mission and vision of the company.
So all the information that is considered material and is likely to effect the decision
making of the shareholders. Such information sholud be disclosed in the published accounts of
the company (Davis and McKevitt, 2013).
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2. Interpretation of the financial information in these accounts
Income statement of Vodafone has reflected that total sales revenue of the company is
£m42227 and cost of sales is £m30882. It has reflected that company is managing its cost by
generating sufficient amount of sales. Gross and net profit margin have shown that company has
strong financial position in the market. Net profit is less as compare to gross profit so, company
needs to reduce the operating expenses of the organization. As per the balance sheet Vodafone is
managing its assets and liabilities of the firm. But, Value of assets has declined from last year
and liability has increased so, it can affect the liquidity position of Vodafone. Cash flow
statement of Vodafone has shown that, in year 2015 cash outflow of the organization is high as
compare to cash inflow due to the investment activities. But, cash balance of last year has helped
in managing cash of the organization. Net cash of Vodafone for year 2015 is £m6861 (Correia
and Flynn, 2012).
3. Financial ratio analysis
Ratio analysis is one of the important methods for analyzing the financial position of
Vodafone (Elearn, 2013). It helps in determining profitability, liquidity and efficiency of the
organization. Calculation of financial ratios of Vodafone are as follows:
Table 1: Financial Ratio analysis
Ratio Analysis Formula Ratios (In Millions)
2015 2014 2013
Liquidity
Ratio
Current
ratio Current assets/ current liabilities 0.69 0.99 0.75
Quick ratio Liquid assets/ current liabilities 0.56 0.81 0.57
Absolute
liquid
ratios
Absolute Liquid assets/ current
liabilities 0.39 0.46 0.43
Profitability
Ratios
Gross
profit ratio (Gross profit/ net sales) *100 26.87 27.13 30.16
Net profit
ratio (Net profit/ net sales) *100 14.01 154.96 1.73
operating
costs (Operating cost/ net sales) *100 22.21 37.80 38.69
Earnings
per share
NPAT & preference dividend /no.
of equity shares 0.01 2.20 -0.03
Turnover Inventory Cost of goods sold/Inventory 64.07 63.36 59.04
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ratios
ratio
Debtors
turnover
ratio
Net sales /Account receivables 5.24 4.32 4.72
Creditors
turnover
ratio
Net credit purchases/ accounts
payables 2.07 1.80 1.89
debt
collection
period
receivables* Months or days in a
year / net credit sales 69.61 84.58 77.30
average
payable
period
Average trade creditors/ net credit
purchases*100 176.43 202.54 193.58
Efficiency
ratio
Debt equity
ratios
Total long term debt/ shareholders
fund 0.26 0.18 0.12
proprietary
ratio shareholders fund /Total assets 0.69 0.72 0.65
Financial ratio analysis have reflected that profitability position of Vodafone has
decreased from last two years because gross and net profit have declined. Along with this,
current and quick ratios have also shown that liquidity position of organization has also declined
in year 2015 as compare to 2014 and 2013. Turnover ratios have reflected that company is
utilizing all assets in effective manner for generating sales (Watson and Head, 2010). Overall,
financial ratio analysis have reflected that Vodafone have appropriate financial performance but
needs to focus on reducing cost and expenses of the firm because it reduces the overall financial
performance of the firm.
ACTIVITY 3
1. Difference between long and short term finance requirements for businesses
As per the business operations Vodafone required finance for long and short time span.
Difference between long term and short term finance requirements are as follows:
Short term finance Long term finance
 This types of financing is required for
basic operation such as changes in
existing product line, additional
marketing and advertisement, training
and development program and decision
 Vodafone required long term sources of
finance for various operations such as
global expansion, research and
development, purchase of land and
other fixed assets, vehicles and [plan
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regarding marketing changes, etc
(Davis and McKevitt, 2013).
investment, etc.
2. Comparing the source of long and short term finance for businesses
As per the needs of short term finance Vodafone can raise its capital by short term bank
loan, financial institutes, factoring, trade credit from suppliers, etc. In contrast, Vodafone can
obtain funds from different long term sources for satisfying long time requirements of the
company. These sources include bank loan, issue of shares and debentures, leasing and hire
purchase, fully drawn in advance, venture capital and crowd funding. Overall Vodafone needs to
use different sources for satisfying long term and short term financial requirements (Viviers and
Cohen, 2011).
3. Importance of cash flow management
For managing cash flow Vodafone can use different techniques such as identification of
sources of deficit, development of temporary cash flow solution, balance future income and
outlays to prevent future crisis, etc. Managing cash flow is very necessary and important task for
Vodafone because it helps in determining the deficit and arrears of Vodafone. Along with this,
appropriate management of cash flow helps in balancing future income and preventing future
crisis of Vodafone. It is important for making investment in different activities such as
investment sand finance, etc. Overall, it beneficial for managing cash inflow and outflow of the
organization (Grossmann, 2014).
TASK 4
1. Corporate governance, legal and regulatory requirements of different business ownership
structure
Sole traders, partnership firm and limited liability organizations are the major types of
ownership structure. In which Sole proprietor needs to follow different corporate governance
policies related to license, organization name, payment of taxes and self-employment taxes, etc.
On the other hand, partnership firm needs to follow different types of acts such as Fair Trading
Act, Corporations Act, Partnership Act, Competition and Consumer Act and Privacy Act, etc.
Limited Liability Company needs to define their corporate governance policies in appropriate
manner (Vitez, 2013). For financial reporting LLC needs to disclose number of information such
as registration number, company name, registered office address, etc.
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2. Comparing roles and responsibilities of owners in decision making for different business
ownership structures
 Sole Proprietorship: In this type of business all important decisions are taken by single
owner of the firm. According to Corporate governance, legal and regulatory requirements
organization needs to develop Profit and loss account for financial reporting of the firm.
 Partnership firm: In this type of business all decisions are taken by number of partners.
Organizations needs to develop profit and loss account and balance sheet for showing
profits and investments of all partners.
 Limited liability Company: Organization needs to develop all financial statements for
financial reporting of the firm. In addition, all decisions are taken by board of director
and different managers of the company (Correia and Flynn, 2012).
CONCLUSION
The current research project has concluded that financial managers and their decisions
plays very important role in strategic position of Vodafone. All important decisions regarding
finance, sales, cost and expenses can affect the overall performance of the organization. Along
with this, all financial information can be summarized in different financial statements such as
income, profit and loss and balance sheet account.
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REFERENCES
Books and journals
Correia, C. and Flynn, D., 2012. Financial Management. Business Enterprises.
Davis, P. and McKevitt, D., 2013. Microenterprises: how they interact with public procurement
processes. International Journal of Public Sector Management. 26(6). pp.469-480.
Elearn, 2013. Financial Management Revised Edition.Routledge publication.
Gitman, J. L., 2013. Personal Financial Planning. Cengage Learning publication.
Grieve, I.,2013. Microsoft Dynamics GP 2013 Financial Management.Packt Publishing Ltd.
Melo, T., 2012. Slack-resources hypothesis: a critical analysis under a multidimensional
approach to corporate social performance. Social Responsibility Journal. 8(2). pp.257–
269.
Menifield, E. C., 2013. The Basics of Public Budgeting and Financial Management
Updates.University Press of America.
Murphy, S. D. andYetmar, S., 2010. Personal financial planning attitudes: a preliminary study of
graduate students. Management Research Review. 33(8). pp.811–817
Nelson, L. S., 2012. Quick Books 2013. John Wiley & Sons.
Viviers, S. and Cohen, H., 2011. Perspectives on capital budgeting in the South African motor
manufacturing industry. Meditari Accountancy Research. 9(1/2). pp.75–93.
Watson, D. and Head, A., 2010. Corporate Finance. 5th ed. Essex: Pearson Education Limited.
Online
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[Online]. Available Through: <
http://www.nytimes.com/2014/01/02/business/smallbusiness/a-business-owner-seeks-an-
alternative-to-working-seven-day-weeks.html?ref=casestudies&_r=0 > [Accessed on 14th
March 2016].
Vitez, O., 2013. Definition of Financial Resources of Business. [Online]. Available Through: <
http://www.ehow.com/about_6321989_definition-financial-resources-business.html >.
[Accessed on 14th March 2016].
Vodafone Group PLC, 2015. [pdf]. Available through: <
https://www.vodafone.com/content/annualreport/annualreport15/assets/pdf/
full_annual_report_2015.pdf>. [Accessed on 14th March 2016].
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