Vodafone Plc: Comprehensive Financial Analysis & Management Report

This report provides a comprehensive financial analysis and management overview of Vodafone Plc, utilizing ratio analysis to assess the company's financial performance. It covers profitability, liquidity, gearing, and efficiency ratios, highlighting the challenges faced by Vodafone, including increasing its share in Asian markets and ensuring network security. The analysis reveals fluctuations in profitability ratios, liquidity concerns, and an aggressive gearing strategy. The report also touches upon market-based ratios and concludes with recommendations for Vodafone. Desklib offers this and many more solved assignments for students.

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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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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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Vodafone Plc
company has declined meaning that the business will collect the accounts receivable less
number of times.
Hence, going by the computation, it can be commented that the liquidity position of the
company is under immense difficulties. This is due to the fact that there is a sharp fluctuation
in the level of current assets and current liabilities.
 Gearing ratio
As per the computation of the gearing ratio, it can be commented that the company is
aggressive when it comes to gearing. It has crossed 100% and hence indicates that the
company is more inclined to debts. On the other hand, in terms of asset financing it is neither
conservative nor aggressive in nature. It is higher than 35% and less than 65% indicating a
balanced action.
 Efficiency ratio
Efficiency ratios, which are generally referred to as the activity ratios, helps to determine the
income which is generated by an organization using their assets. The main function of the
efficiency ratio is to analyze the time period which is required by the organization in order to
convert its inventory into cash or make sales in simple language. This type of ratios is not
only helpful for the organization's management to make purposeful and efficient decisions
but also it helped the shareholders and investors of the company to estimate the profitability
aspect of the business. The efficiency of the company is weak because inventory turnover
period has increased meaning more days will be undertaken to convert the stock into cash. On
the other hand, the accounts payable days has reduced from 70 day to 65 days. This means
the company needs to make payments earlier. Hence, the efficiency of the company is
disturbed.
Market based ratio
Price to earnings ratio: this ratio can be evaluated by dividing the current price of the share
sold by the business with the reported earnings per share. The value which is obtained by
calculating the price to earnings ratio is used to compare the price conditions of the shares
sold by the company to its competitors.
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Vodafone Plc
The ratios are not very much analyzed by the managers of the company because the managers
are generally more concerned with the operational issues of the business. The ROE of the
company is negative in number and hence, a very critical situation for the company. It
indicates the downfall in the earnings and questions on the profit earning capacity. Further,
the EPS of the company is negative in numbers meaning that the company is losing money.
Further, the dividend payment has declined meaning that the company is unable to generate
adequate profits.
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Vodafone Plc
Challenges faced by Vodafone
 Increasing share in the Asian markets
There are many unseen and untamed services and factors that are needed to be performed by
the Vodafone Company in order to grow in the world market. The improvement in the
business of the company in the developing countries like India has also provided the
company with a huge opportunity of expanding the customer base. The market size said to
have over 150 million customers of which Vodafone is holding 3.72% (Vodafone Plc, 2018).
It is very necessary for the company Vodafone in order to improvise the coverage facilities in
these emerging markets so that it can sell the mobile plans in a much responsible rate by
reducing the cost and realizing the capitals that are made in order to enhance the networks.
The company should try to focus on the increment in the retail base of the selling department
by adding new agents and subscribers who can help to build a costly distribution
infrastructure (Vodafone Plc, 2018). An exponential growth was observed in the Asian
markets which made it necessary for Vodafone to keep up with the pace of the market. It was
made necessary for the partners of the company in order to grow and handle the distribution
of products and services by application of logistics and improvise infrastructure.
 Network security
The improvisation of the phone technology by the application of new generation technology
has resulted in the great changes to be observed in the market. This is a very major concern
for Vodafone as it can now provide the customers with new mobile phones having access to
this technology. The application of 5G mobiles and services will improve eyes the sales of
the telecommunication industry. The wide approach will also attract many kinds of ethical
hackers who may use the technologies to cause harm to other customers. Therefore it should
be observed by the company that it needs to diversify the optimal quality of service that it
provides to the customers with a better endowment of the plans. The company should also try
to keep in mind the context of security so that the customers can be kept safe from any kind
of vulnerability present in the system. The company should the company should start the
practice of informing the customers and the staff about their responsibility towards protection
from technological advancements thus stating their role in order to identify the potential
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Vodafone Plc
threats that may prevail upon them (Vodafone Plc, 2018). The expansion and growth that has
been observed in the mobile industry have opened a lot of new gates and potentials that can
be achieved by the company in near future with the help of technological advancements
(Petersen & Plenborg, 2012). It has been clearly stated in the reports that the present data
services and providers are not able to cater all the needs of customers this leading to
enhancement of the market. The prices at which the services are available are observed to be
very high in order to be purchased by the customers
The company Vodafone should always keep in mind that with the application of new services
that are having low prices the customer will try to shift his needs. The major mobile brands
like O2 and T mobile are trying to improve their image in the market. Therefore the substitute
products are major factors that may affect the profitability of the firm over the years
Assumption and Limitation
The assumption taken into consideration is that the accounts of the company depicted a true
and fair view of the state of affairs of the company. Hence, it is assumed that the accounts of
the company reflect a correct position and on the basis of it, the computations of ratios are
done. Financial ratio helps in comparison of the figures of one year with that of another.
However, it must be ensured that the data are genuine. In the case of Vodafone, it is assumed
that the financial data that is selected for ratio computation is correct and the results depend
on the data. Any differences in the amount or a deviation can lead to a significant change in
the comparison and the study as a whole.
 Limitations
There are many disadvantages or limitations that are experienced while analyzing the
different ratios of the organization. The ascertainment of the short-term fluctuations is very
difficult because short-term changes are not easy to study. Ratio analysis is a potent tool
however; the information that is undertaken is historical in nature that means the same results
will not happen in the future. Moreover, the information that is projected on the income
statement of Vodafone is provided in current costs while various elements of the balance
sheet are projected at historical cost. It is one of the biggest disparity when it comes to the
usage of the ratios. Further, the change in the rate of the inflation remained unchanged and
hence, no accountability is given to the concept of inflation.
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Vodafone Plc
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Vodafone Plc
Recommendation
It is highly recommended for Vodafone Plc that it must stress the performance as it is
operating under losses. In order to structure the operation, it must stress the performance and
keep a hold on the operating expenses. Further, the liquidity of the company is disturbed that
implies it will face an acute problem when it comes to discharging of debts. Hence, it must
ensure that it has sufficient current assets under its possession. Moreover, Vodafone Plc
should ensure that higher level of debt is dangerous for the company and in the wake of it
ensure that the debt level should be kept in tune with the equity component of the company.
Further, it should try to introduce more of innovations so that it gets the first mover
advantage. It is very clear that the customers will flow towards the company which provides
them with the best and cheap offers. The competitive market makes it harder for the company
to retain its customers. Therefore, new and advanced techniques of attracting the customers
should be used in order to retain them. The poor barrier to entry of new products and services
will increase the buying power of the customers which can be corrected by the use of
elevated entry barrier
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