Comprehensive Analysis of Vodafone's International Finance Report

This report provides a comprehensive analysis of Vodafone's international financial performance, examining the impact of various external factors and incidents on the company's operations. It delves into the company's dividend policy, sources of finance, and the influence of financial ratios on its overall performance. The report includes a detailed discussion of liquidity, efficiency, profitability, and investment ratios, calculated using data from Vodafone's financial statements, comparing the company's performance across different financial years. The analysis highlights the significance of financial ratios in assessing the company's solvency, efficiency, and profitability, providing insights into its financial health and strategic decisions, and the impact of global economic uncertainties and regulatory changes. The report also touches upon Vodafone's risk management strategies, accounting standards, and competitive landscape, offering a holistic view of its financial standing within the telecommunications industry.

Running head: INTERNATIONAL FINANCE
INTERNATIONAL FINANCE
Name of the student
Name of the university
Author’s note

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Executive summary
The paper aims to highlight the recent international financial development and incidents which
has impacted the company’s performance. The paper studies how different external factors affect
the company’s dividend policy and the sources of finance of the company. The paper concludes
that financial ratios play a crucial role in studying the performance of the company. It concludes
that the financial ratios help to compare one business performance with its competitors as well as
in comparison to the whole industry.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................4
Answer a......................................................................................................................................4
Answer b......................................................................................................................................5
Answer c......................................................................................................................................6
Liquidity Ratio.............................................................................................................................6
Efficiency Ratio...........................................................................................................................8
Profitability Ratio......................................................................................................................10
Investment Ratio........................................................................................................................13
Conclusion.....................................................................................................................................14

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Introduction
Any international business which is conducting its business operations in several
countries is generally affected by the change in the environmental and economic changes
happening in all those countries. The change in the external environment usually affects the
internal environment of the company. The external factors can be in terms of the change in the
technology, rules and regulations, new product development, creation of new demand, change of
government, subsidies and tariffs or restriction and allowance of free trade can have a direct or
indirect effect on the business. The change in the environment directly affects the internal
environment in which the business is operating. Companies prepare financial statements to show
the financial position of the business. The financial statements are prepared with the objective of
providing financial information about the performance of the company. It is prepared basically
for the use of stakeholders so that they can make decisions concerning the company for their

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benefits. The financial statements include income statements, balance sheet and the cash flow
statements. The company also prepare annual reports at the end of an accounting period to show
the overall performance of the business and to show their strategic plans for future growth. The
company uses financial ratios to show the company’s performance. Besides, financial analysts
calculate these financial ratios to know the true financial position of the company. The financial
ratios are very useful for the investors as they can use these ratios as the indicator of the
company’s solvency or insolvency. The ratios are very significant for the investors as it helps
them to make decisions concerning investment in the company.
Discussion
Answer a
Vodafone plc. is a multinational telecommunication company. it was established in the
year 1982 in Newbury, United kingdom. Vodafone plc started operating together with its
subsidiary Vodafone India. The Vodafone Corporation collaborated with the Idea cellular
limited. This created a new business known as the Vodafone India limited. This is a company
which is owned by the Vodafone and Aditya Birla Group. The business collaborations using
acquisitions and mergers affects the financial performance of the business. Big businesses
always adopts the method of acquisitions and mergers to gain synergy and improve the
performance and revenue with wider economies of scale. After acquiring the company, it
becomes important to seek every financial information concerning the performance of the taken

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over subsidiary entities. Vodafone also included the major change in the organizational system.
It presented the annual report incorporating all the facts of these business activities and also
presented the segment financial reporting.
The other development in the international financial framework that affected the
company is depicted in its 2019 annual reports. The company states that the frequent changes in
the financial regulatory framework have developed many challenges to the company. The
adoption of IFRS 9 in 2018 is new challenge for the company’s financial reporting team. The
company included it in the key matters that affected the company’s performance reporting.
All these limits the company’s growth. There was a decrease in the prepaid services, and
thus it affected the revenue of the company badly. The company has overseas clients who
account for more than 50% of clients. The whole world is seeing the economic uncertainties, and
since the company has 50% global clients, the business faces many unknown challenges. The
company develops action plans to face these continuous challenges and increase the demand for
its various networking services. Risk management strategies of the company are based on the
upcoming challenges that the business sees as a hurdle. The company specifies that the
derivative instruments can help the company to attain growth in the financial market. The
strategic position is to develop a hedge position which can help the company to reduce the
financial risk and sustain growth. However company specifies that it does not use the derivative
instrument for speculative purposes.
There weretwo major accounting standards adopted by the Vodafone in 2018 ans those
were; IFRS 15 “Revenue from Contracts with Customers” and IFRS 9 which specifies the
standards of financial instrument. As per IFRS 9, company made so many changes and the
financial statement of the company was influenced significantly. The cash and cash equivalent

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and short term investment which were recorded at amortized cost is classified as fair value in the
income statement. However company mentions that these do not have material impact on the
business materiality. The carrying amount of account receivables and contractual assets are
decresed by lifetime estimated future credit losses on the date of recognition while earlier the
credit losses were not used to be recognized on such assets. The new IFRS 9 has changed the
requirements of accounting reporting of some assets. However, it do not affect much the
financial reporting of the company.
Answer b
Through successful risk management activities, the company continue to increase its
revenue and generated 7071 million euros in cash from the operating activities in 2019. The
optimum cash generation helped the company to conduct capital improvement plans. It also
distributed a dividend which showed the company’s solvent and healthy position. In addition to
this, in 2019 the company also paid dividend of amount 4022 million euros to keep the interest of
the stakeholders a priority. As per the annual report of the company, there are several factors that
determine the dividend policy of the company. All the dividends paid by Vodafone Corporation
are declared by the company in euros. The dividend payable by the company depends on many
factors such as earnings of the company, liquidity position, financial conditions of the company
etc. the share pricing trends and the consumer developing interest to use digitalization helps to
determine the overall revenue of the Vodafone corporations. The company states that the share
prices may rise or fluctuate by the company’s recent strategic positions of investments in other
businesses. The company mentions that the revenue of the business has gone down by 10%
because it is facing tough competition in the prepaid market. The company fails to develop the
successful planning which can create a competitive advantage and helps the business to deal with

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the price competition within the international market. However, company shows in the latest
annual report that it has generated good revenue from the fixed line services. The revenue from
the fixed line services has increased to 12%. The reason behind increasing higher revenue from
these fixed line service is the increase in the customer base which reached to 307000 broadband
consisting of 2.5 million of customers. The company faced tough competition from strong
organic growth and revenue of the company hit by the continuously fluctuating financial market
(Halff, Younes and Boersma 2019).
Answer c
Analysis of financial performance using profitability, efficiency, liquidity and investment
ratios.
Liquidity Ratio
Formulas
Current ratio – current assets/
current liability
Quick ratio- Quick
assets/current liabilities
company
Years 2019 2018
Liquidity ratio
Current Assets 39,817 24,131
Current Liabilities 25,523 39,024
Current Ratio 1.560 0.618
cash and cash
equivalents+
Receivables less
allowances+
marketable secuirities 53,298 26938
Quick Ratio 2.088 0.690
Working Capital
turnover 14,294 -14,893
Vodafone plc.

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Working capital- current assets- current liabilities
The liquidity ratio of the company denotes the amount of liquid assets with the company that
helps the company to deal with the short term obligation and working capital requirements. The
current assets of the company in the year 2019 is at 39817euros million, and the current assets of
the company in the year 2018 is 24131 euros million. The current liabilities of the company is
25523 euros million in the year 2019 and 39024 euros million for the year 2018. The current
ratio calculated by dividing the current assets by current liabilities (Gurr 2018). The current ratio
for the financial year 2019 is 1.560, and for the financial year, 2018 is 0.618. The quick assets of
the company are 53298 euros million for the year 2019 and 26938 euros million for the financial
year 2018. The quick ratio calculated using the financial data available in the latest annual
reports of the company. The quick assets ratio for the FY 2019 is 2.088 and 0.690 in the FY
2018. The working capital of the company in both financial years is showing dissimilar state
which is negative. The working capital of the firm is 14294 euros million in the FY 2019 while
the working capital of the company for the year 2018 is 14893 euros million. The liquid ratio of
the company is equal to1.5 in the financial year 2015, which is equal from the standard current
assets ratio (Farfan et al. 2017). The telecom industry runs on large economies of scale and the
investments of the company are basically in fixed assets like towers and majority expenses are
on the technology. The lower current assets ratio can predict that the company can be in trouble
and facing difficulty in repaying short term debts within 12 months. However, the profitability
ratio is also not showing the company’s financial position as good. The reason for the lower
liquidity ratio in 2018 is the short term assets. The company has optimum short term assets for
paying its liabilities within 12 months. Moreover, it can be said that the current ratio, quick
assets ratio and the working capital has been deteriorated by the previous financial year 2018.

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The other competitors of Vodafone plc shows greter liquidity position. This is a trait that the
company has made heavy investments in fixed assets and growth plans (Arkan 2016).
Efficiency Ratio
Account receivable turnover ratio- revenue or net credit sales/ Average account receivables
Average collection period- 365/ Account receivable turnover ratio
Total asset turnover ratio- revenue or net credit sales/ Average total assets
company
Years 2019 2018
Efficiency ratio
Revenue 21,870 23,496
Account Receivables 11,995 9,795
Account Receivable
Turnover Ratio 1.823 2.399
Number of days in
the period 365 365
Average Collection
Period 200.19 152.16
Revenue or net sales 21,870 23,496
Average Total Asset 142,862 145,611
Total Asset
Turnover Ratio 0.15 0.16
Days to sale the
average inventory 2384.30 2262.00
Vodafone Plc.
Account receivable turnover ratio- revenue or net credit sales/ Average account receivables
Average collection period- 365/ Account receivable turnover ratio
Total asset turnover ratio- revenue or net credit sales/ Average total assets

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The account receivable turnover ratio helps to know how frequently the company is able
to recover the amounts from its debtors with respect to the net credit sales of the company
(Andjelic and Vesic 2017). The Account receivable turnover ratio of the Vodafone Corporation
has declined from the year 2019 to 2018. The account receivable turnover ratio of the financial
year 2019 was 1.823, while the account receivable turnover ratio for the financial year 2018 was
2.399 approx. However, the average collection period has improved from the previous year
average collection period. The ratio was 200.19 in the financial year 2019 while it was 152.162
in the FY 2018. The asset turnover ratio of the company helps the investors know how efficiently
the company is utilizing its assets to generate sales. The higher turnover ratio shows that the
company is efficient in utilizing its assets. The total asset turnover ratio has improved from the
financial year 2018 to 2019. It shows Vodafone Corporation has efficiently utilized its current
assets as well as fixed assets efficiently (www.vodafone.com 2020).
Profitability Ratio
Formula
Gross profit – (gross profit/ net sales)*100
Operating profit – (operating profit/ net sales)*100
ROA (%)- (net income / average total assets)*100
ROE (%) – (net income/ total shareholders’ equity)*100

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Company
Years 2019 2018
Profitability ratio
Revenue 21,870 23,496
Cost of Revenue 14,997 16,563
Gross Profit 6,873 6,933
Gross Profit
Margin (%) 31.43% 29.51%
Operating Expenses 20,750 21,205
Net sales or revenue 21,870 23,496
Operating
Expenses ratio 0.95 0.90
Operating Profit 1,120 2,291
Revenue 21,870 23,496
Operating Profit
Margin (%) 5.12% 9.75%
Net Income -55 1,308
Average Total Asset 39,817 24,131
ROA (%) -0.138 5.420
Net Income -55 1,308
Total Shareholder's
Equity 142,862 145,611
ROE (%) -0.04% 0.90%
Vodafone Plc.
The gross profit margin of the company in the financial year 2019 is 31.43%, and the
gross profit margin for FY 2018 is 29.51%. The gross profit of the company has been reduced as
compared to the previous year. The operating expense ratio is 0.95 in the financial year 2019
while the ratio was 0.90 in the financial year 2018. There is not much difference in the company
spending in terms of operating expenses. However, the cost of revenue has decresed over the
years from 16563 euros million to 14997 euros million (Kim and Im 2017). This has led to the
decrease of the gross profit because of the fact that the revenue from sales has decreased from
the FY 2019 with respect to FY 2018 (Jones, Hillier and Comfort 2017). The operating profit for