Financial

Financial Management

Introduction

1) Presentation of the company:

Vodafone Group Plc is a multinational communication company based on the Britain. It is a public limited company, which headquarter is in London. Typically, it provides mobile network service approx overall world including Asia, Africa, Europe and Oceania. Vodafone is known as the second largest telecommunication company after China Mobile.

The company has more the 435.9 million customers as of 2014. Along with this, Vodafone is fifth largest company according to revenue rank. The name of Vodafone is come from the Voice Data Fone that is selected to solve the customers’ problem regarding the phone and data (Brigham & Ehrhardt, 2013).

  1. Activity:
  2. Products and services offered

Vodafone has a wide range of product and services. The List of the Vodafone products and services includes the voice, data, messaging and line solutions and devices to help the customers. The services and products of the Vodafone are totally based on the communication needs of the peoples.

http://www.vodafone.com/content/annualreport/annual_report10/business/products-and-services.html

Major geographical markets covered

Names of current CEO and other key managers (if available).

 In the current time, Chief executive officer of Vodafone is Vittorio Colao is since the July 2008. It is forth CEO of the company after Sir Gerald Whent, Sir Christopher Gent and Arun Sarin. 

  1. Brief history of the company.

Vodafone was launched o January 1985 with the new name Racal-Vodafone. On 16 September 1991, it was become Vodafone group. Once again the name of th company has changed and now company become Vodafone group plc. In the current scenario company is known with this name.

  1. Any recent meaningful development in the company 
  2. Industry:
  3. Other major players in the industry. Which is your benchmark company?

Three UK

In the same industry, Three UK is also a well known company that is special list in the 3G and  4G mobiles phone plan. It also provides the broad band services plans with dongles and SIM cards or portable WIFI devices.

O2

O2 is also a major player in the telecommunication industry. It provides landline, mobile network and broadband services. Even though. O2 is depended on the various companies and produces.

Virgin

Virgin is also competitor in the telecommunication industry. It provides telecommunication services and broadband services in the telecommunication industry.

  1. Is the industry very concentrated of fragmented? Explain.

iii. Approximate market share of the company.

The below graph shows that market share of Vodafone in the different market inducing Africa, Germany, Italy, Spain U K and India.

Financial

  1. Major recent changes in the industry (e.g., technology, regulatory environment)

2. Ratio Analysis

Ratio analysis is a significant technique of measuring the financial performance of the company. It is a kind of quantitative analysis that contains the information and data from the balance sheet, income statement and cash flow statement. It is useful to evaluate the operational and financial efficiency of the organisation.

In the other words, ratio analysis is financial analysis that helps to quick indication of the financial situation of the company in the various areas (Higgins, 2012).

It is most used technique to analyse the financial performance of any organisation. Financial or accounting ratio is helpful for judging the efficiency of the company in the term of the operation efficiency. It is also used to identify the strengths weakness of the company.

By the help of the ratio analysis, management prepares further strategy and plan to run the organisation. Along with this, it is also essential for the organisations to know how well it operation over the years and as compared to the other firms.

Ratio analysis allows users to compare the financial performance of the two companies. The technique of the financial ratio is based on formulas and methods. Typically, the ratio analysis can be divided into some categories such as iquidity, solvency, efficiency, profitability, market prospect, investment leverage, and coverage (Chandra, 2011).

In this,

  1. Liquidity ratios:
  2. Current Ratio
  3. Quick Ratio
Ratio Formula 2016 2015 2014 O2
Liquidity ratios
Current ratio (Current Assets/Current Liabilities) 0.84 0.69 0.99 0.71
Current Assets 28144 19847 24722 11235
Current Liabilities 33395 28897 25039 15801
Quick ratio (Quick Assets/Current Liabilities) 0.74 0.66 0.94 0.67
Quick assets 24688 19065 23597 10611
Current Liabilities 33395 28897 25039 15801

 

  1. Asset Management ratios:
  2. Days Sales Outstanding (DSO) (or Average Collection Period)
  3. Days Inventory (or Average Inventory Period).

iii. Days Payable.

  1. Total Asset Turnover (TATO)  
Ratio Formula 2016 2015 2014 O2
Assets management ratio
Average collection period Avg. account receivable / sales revenue * 365 76.58 77.28 84.58 62.59
Average account receivable 8597 8941 8886 6434
Sales revenue 40973 42227 38346 37522
Days inventory Inventory /cost of sales * 365 6.78 5.7 5.76 15.9
Inventory 565 482 441 624
Cost of sales 30435 30882 27942 14323
Days payable Account payable / purchase * 365 17.95 14.9 17.44 179.6
account payable 1501 1264 1339 8254
purchase 30435 30882 27942 16729
Total asset turnover Net sales / average total assets 0.31 0.34 0.31 1.13
Net sales 40973 42227 38346 37522
Average total assets 133713 122573 121840 33306

 

  1. Debt Management ratios:
  2. Debt ratio.
  3. Times Interest Earned (TIE) 
Ratio Formula 2016 2015 2014 O2
Debt management ratio
Debt ratio Total liabilities / total assets 0.5 0.45 0.41 0.47
Total liabilities 66396 54840 50059 15801
Total assets 133713 122573 121840 33306
Times interest earned EBIT / annual interest expense 8.19 7.2 5.48 139.35
EBIT 10538 11345 10404 10451
Annual interest expense 1287 1576 1897 75

 

  1. Profitability ratios:
  2. Gross Margin (if appropriate).
  3. Operating Margin.

iii. Net Profit Margin.

  1. Basic Earning Power (BEP).
  2. Return on Asset (ROA).
  3. Return on Equity (ROE).
Ratio Formula 2016 2015 2014 O2
Profitability ratio
Gross margin Gross profit / net sales 0.26 0.27 0.3 0.38
Gross profit 10538 11345 11404 14323
Net sales 40973 42227 38346 37522
Operating margin Operating income / net sales 0.03 0.05 -0.1 0.23
Operating income 1377 1967 -3913 8773
Net sale 40973 42227 38346 37522
Net profit margin Net income / net sales -0.09 0.14 1.55 0.18
Net income -3818 5917 59420 6799
Net sales 40973 42227 38346 37522
Basic earning power EBIT / total assets 0.08 0.09 0.09 0.31
EBIT 10538 11345 10404 10451
Total assets 133713 122573 121840 33306
Return on assets Net income / total assets -0.03 0.05 0.49 0.2
Net income -3818 5917 59420 6799
Total assets 133713 122573 121840 33306
Return on equity Net income / average Shareholder equity -0.06 0.09 0.84 0.39
Net income -3818 5917 59420 6799
Shareholder equity 65885 66145 70802 17505

 

  1. Market Value ratios:
  2. Price/Earnings ratio.
  3. Price/ EBITDA ratio.
Ratio Formula 2016 2015 2014 O2
Market value ratio
Price earnings ratio Net earnings / Number of share 0 0 0.01 0
Net earning 15.08 21.75 223.84 3660
Number of share 26692 26489 26472 310220067
Price EBITDA ratio EBITDA/ Revenue 0.28 0.28 0.29 0.28
EBITDA 11612 11915 11084 10451
Revenue 40973 42227 38346 37522

 


  1. DuPont Analysis
Ratio Formula 2016 2015 2014 O2
Du Pont analysis Profit margin*total assets turnover * financial leverage -0.01 0.02 0.2 1.27
Profit margin -0.09 0.14 1.55 2.37
Total assets turnover 0.31 0.34 0.31 1.13
Financial leverage 0.5 0.45 0.41 0.47

3. WACC

– Define what the WACC is and what it consists of.

– What assumptions are you using to estimate the WACC?

– Use the CAPM model to estimate the company’s cost of equity.

= Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market – Risk-Free Rate of Return)

where

Risk-Free Rate of Return = 1.08%

Beta of Asset = 0.84

(Expected Return of the Market – Risk-Free Rate of Return) = 6%

Cost of Equity = 1.08% + 0.75 * 6% = 58%

– Estimate the firm’s cost of debt and, if appropriate, the firm’s cost of other capital components.

– Estimate the weights of the firm’s various capital components.

– Calculate the firm’s WACC.

WACC = E / (E + D)  * Cost of Equity + D / (E + D) * Cost of Debt *(1 – Tax Rate)

where

w = the respective weight of debt, preferred stock/equity, and equity in the total capital structure

t = tax rate

D = cost of debt

P = cost of preferred stock/equity

E = cost of equity

=          0.6079 * 5.58% + 0.3921 * 3.8431% * (1 – -1213.895%)

=          23.19%

4. Free Cash Flow

Definition of the free cash flow

Calculation of free cash flow

Free cash Flow = Operating cash flow – Capital expenditure

Calculation for 2016

Operating cash flow = 10,481000000

Capital expenditure = 8600000000

Free cash flow = 10,481000000 – 8600000000

= 1,88,10,00,000

Calculation for 2015

Operating cash flow = 9,715000000

Capital expenditure = 9200000000

Free cash flow = 9,715000000 – 9200000000

= 515000000

Calculation for 2014

Operating cash flow = 6227000000

Capital expenditure = 7100000000

Free cash flow = 6227000000 – 7100000000    

= -873000000

5. Value of Operation

6. Conclusion and Recommendation

References

Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice. UK: Cengage Learning.

Higgins, R. C. (2012). Analysis for financial management. USA: McGraw-Hill.

Chandra, P. (2011). Financial management. USA: McGraw-Hill Education.

Vodafone (2016). Annual report. Retrieved from: http://www.vodafone.com/content/annualreport/annual_report16/downloads/vodafone-full-annual-report-2016.pdf

Vodafone (2015). Annual report. Retrieved from: https://www.vodafone.com/content/annualreport/annualreport15/assets/pdf/full_annual_report_2015.pdf

Vodafone (2014). Annual report. Retrieved from:

http://www.vodafone.com/content/annualreport/annual_report14/downloads/full_annual_report_2014.pdf

 

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