2012

Financial Analysis

By
Asra Isar

By
Asra Isar

Introduction
Vodafone Group Plc. is one of the world's largest mobile companies providing a wide range of services
including voice, messaging, data and fixed broadband.
How it works:

Vodafone provides better coverage due to its increasing number of base station sites. (Strategy, (2012),

Available from: Vodafone Annual Report 2012 (Accessed 12 September 2012)).

It also has leading robust IT systems to create a single view of our customers across the Group which
links together all customer activity and information on various sales channels online, retail and contact
centres. (Strategy, (2012), Available from: Vodafone Annual Report 2012 (Accessed 12 September

2012)).
Their 3G network has been reconfigured to run on 900 MHz frequency spectrum instead of 2100 MHz,
which enables the radio signal to travel longer distances and provides better indoor coverage. (Strategy,

(2012), Available from: Vodafone Annual Report 2012 (Accessed 12 September 2012)).
Investment in high capacity backhaul using ethernet, microwave and optical fibre transmission
equipment by Vodafone supports high speed data capability across its network. (Strategy, (2012),

Available from: Vodafone Annual Report 2012 (Accessed 12 September 2012)).

Vodafone has deployed more single radio access network (RAN) base station sites, which comprise of
2G, 3G and 4G technology in one single unit, that deliver energy operating cost savings of up to 40% to
traditional RAN units as compared to three different, and more expensive units. (Strategy, (2012),

Available from: Vodafone Annual Report 2012 (Accessed 12 September 2012)).

The online self-care service has been extended from PC to smartphones and tablets in 17 of Vodafones
markets so that its customers can view their billing information, their usage and information about their
price plan, across any of their connected devices. (Strategy, (2012), Available from: Vodafone Annual

Report 2012 (Accessed 12 September 2012)).

Using more online capabilities, has allowed 57% of Vodafones customers in Europe to receive an
electronic bill which saves money and also helps the environment. (Strategy, (2012), Available from:
Vodafone Annual Report 2012 (Accessed 12 September 2012)).
Services:

Vodafones customers enjoy a range of services including simple voice calls, text and picture messaging, and
data services such as mobile internet browsing, social networking sites, downloading applications (apps) and
sending emails via smartphones.
Vodafone has launched a range of services designed to support data usage on smart devices and build longer
term relationships with customers. These services include:

Vodafone Cloud: It automatically uploads or saves customers photos and videos to the cloud which can
then be retrieved from any device. (Strategy,( 2012), Available from: Vodafone Annual Report 2012

(Accessed 12 September 2012)).

Vodafone Contacts: It is another cloud based solution that backs up customers phone contacts, so all
their numbers are always safe. (Strategy, (2012), Available from: Vodafone Annual Report 2012

(Accessed 12 September 2012)).

Vodafone Protect: This service locates lost or stolen phones and laptops, and wipes the content to keep
them secure. (Strategy, (2012), Available from: Vodafone Annual Report 2012 (Accessed 12 September

2012)).
Vodafone Guardian: Vodafone Guardian helps protect children, with smartphones, against unwanted
communication, promote responsible use of mobile technology, and help parents control how their
childrens use smartphones. (Strategy, (2012), Available from: Vodafone Annual Report 2012 (Accessed
12 September 2012)).
Vodafones business scope:

Vodafone operates in over 30 countries with a significant presence in Europe, the Middle East, Africa,
Asia Pacific and the United States through the Company's subsidiary undertakings, joint ventures,
associated undertakings and investments.

(http://www.vodafone.com/content/index/about/about_us/where.html)
It first emerged in UK in 1985 and has expanded to cover 26% of UKs market. (Where we are heading,

(2012), Available from: Vodafone Annual Report 2012 (Accessed 12 September 2012)).
Vodafone owns 35% market share in Germany due to customers who are loyal to its fixed broadband
services. (Where we are heading, (2012), Available from: Vodafone Annual Report 2012 (Accessed 12
September 2012).

Even with recession imminent across Europe, Vodafones flexible cost structure and low handset
subsidies have made it manageable for Vodafone to keep its overall profitability in Italy. The market for
Vodafone in Spain, however, has declined due to cutback in spending. (Where we are heading, (2012),

Available from: Vodafone Annual Report 2012 (Accessed 12 September 2012).

India and Africa are the emerging markets that are of interest to Vodafone due to the growing need of
mobile internet and data services respectively. (Where we are heading, (2012), Available from:

Vodafone Annual Report 2012 (Accessed 12 September 2012).

The largest market share is provided by Verizon Wireless in US, with 45% controlling interest, mainly
because of greater usage of mobile data services. (Where we are heading, (2012), Available from:
Vodafone Annual Report 2012 (Accessed 12 September 2012).

Overall performance
The major component for Vodafones profitability is an increased demand in mobile data and internet services
as well as improvements in 3G technologies and innovative solutions. However, higher investments in
smartphone by consumer, competition and macroeconomic variables have had a negative impact on the
revenue. This has increased the Groups revenue only slightly by 1.2%. The AMAP region which consists of
Africa, Middle East and Asia Pacific showed an increase in revenue by 8% attributable to Indias growing
customer base as well as Qatar, Ghana and Vodacom in Africa. Whereas Europe exhibited decline in revenue
which was mostly offset by improved performance in Germany, UK, Netherlands and Turkey. (Operating
Results, (2012), Available from: Vodafone Annual Report 2012 (Accessed 12 September 2012).
Financial Analysis

Name

2012
2011
2010
LIQUIDITY RATIOS
Current Ratio
0.833
0.627
0.496
Quick
0.799
0.597
0.475
Operating Cash Flow
0.5309
0.443
0.456
ACTIVITY RATIOS
Inventory Turnover
61.673
63.534
69.678
Receivables Turnover
4.641
5.086
5.408
Payables Turnover
2.104
2.148
2.144
Fixed Asset Turnover
2.390
2.247
2.229
Total Asset Turnover
0.319
0.297
0.287
LEVERAGE RATIOS
Debt to Equity
0.797
0.727
0.732
Debt Ratio
0.439
0.4209
0.421
PROFITABILITY RATIOS
Net Profit Margin
0.1508
0.171
0.193
Gross Profit Margin
0.320
0.328
0.338
ROA
0.0481
0.05106
0.0556
ROE
0.0851
0.0884
0.0976
EPS
0.138
0.1501
0.163
P/E
0.0813
0.0941
0.124
Ratio Analysis:
Current Ratio: The figures from 2010 to 2012 show an increasing trend. This specifies that Vodafones liquidity
is improving as well as its ability to pay short term debt.
Quick Ratio: Since this ratio does not include inventory which is why the quick ratio is lower than the current
ratio. However, Vodafones highly liquid assets have increased from 2010 to 2012 which indicates the ability to
pay its current liability has improved.
Operating Cash Flow: This ratio shows that Vodafones current debt is not entirely covered by its cash from
operations and it needs to generate more cash from its operations as cash is how bills are paid off.
Inventory Turnover: Inventory turnover has decreased gradually which means that it either has excess inventory
with a rate of return of zero or if it is high compared to industry averages then it implies either strong sales or
ineffective buying.
Receivables Turnover: This ratio is also declining steadily which implies that most of its sales get tied up in
accounts receivable and this trend is increasing. Vodafone will have to improve its collection policy for its
customers to ensure the timely collection of imparted credit that is not earning interest for the firm.
Payables Turnover: Since the turnover ratio is falling from one period to another, this is a sign that Vodafone is
taking longer to pay off its suppliers than it was before.
Fixed Asset Turnover: There is an upward trend in this ratio which specifies that Vodafone is gradually
increasing its investment in fixed assets to generate revenues. When companies make these large investments,

investors watch this ratio in following years to see how effective the investment in the fixed assets was.
Total Asset Turnover: Vodafones efficiency to use its assets to generate sales or revenue is increasing every
year. This also indicates that the companys profit margin is decreasing. However this trend should not continue
for long.
Debt to Equity: Vodafones debt to equity ratio is increasing which means that it is financing its growth with
debt. This can result in volatile earnings as a result of the additional interest expense.
Debt Ratio: Debt ratio is less than 1, but rising every year, indicates that Vodafone has more assets than debt.
Net Profit Margin: This ratio is declining which implies that Vodafones costs are increasing and hence it needs
to control these costs in order to improve its profit margin otherwise even if its sales increase its earnings will
decrease due to higher financing costs i.e. interest expense.
Gross Profit Margin: This margin is also decreasing which indicates that raw material costs must be rising due
resulting in higher Cost of Goods Sold.
Return on Assets: Vodafones ability to convert its investments into earnings is falling, which might be a
concern to its investors as investors money or investment is being used inefficiently to bring in earnings.
Return on Equity: Shareholders usually watch this ratio as this ratio indicates how the shareholders money is
being used to earn net income. This ratio is decreasing which means that Vodafone should be careful in utilizing
the shareholders money in the future.
Earnings per share: EPS of Vodafone is showing a downward trend which indicates that Vodafones earnings is
at a declining trend and need to be looked at because this ratio also indicates that profitability is decreasing.
Price to Earnings Ratio: Since this ratio is not considered as a good indicator of growth in earnings as earnings
can be manipulated. However by looking at the historical P/E ratios of Vodafone, earnings are declining
steadily.
Conclusion:
Vodafone needs to assess its decline in net income as well as its growing costs. It needs to control its costs
otherwise costs will continue to rise and it wont be able to pay its debt because of less cash generated through
its operations. The recession may be a contributing factor towards declining net profit which is visible in Spain,
which is one of the markets Vodafone is currently operating in. However, since Vodafone is good at innovating
technology it might be acceptable to say that Vodafone may find solution to control its costs through
revolutionizing its businesses.

Annexure

Ratio

Formula

2012

2011

2010

20,025/24,025

17,003/27,075

14,219/28,616

Current Assets / Current

Current
Liabilities
(Cash + Marketable
Quick (Acid

Securities + Net

(10744+1323+71 (6252+674+9259)/ (4423+388+8784)/

Test)

Receivables) / Current 38)/24025

27075

28616

11995/27075

13064/28616

Liabilities
Cash Flows from
Operating Cash
Operations / Current

12755/24025

Flow
Liabilities

Ratio

Formula

2012

2011

Inventory

COGS / Average

31546/

30814/

2010
29439/(433+412)/2

Turnover

Inventory

(486+537)/2

(537+433)/2

Receivables

Sales / Average

46417/

45884/

44472/

(9259+8784)/2

(8784+7662)/2

Turnover

Accounts Receivables (10744+9259)/2

COGS-Beg
inventory+ending

(31546-537+486)/ (30814-433+537)/ (29439-412+433)/

inventory/ Average

(15236+14698)/2 (14082+14698)/2

Payables Turnover
(14082+13398)/2

Accounts Payables
Fixed Asset

Sales / Average Fixed

Turnover

Assets

46417/

(18655+20181)/2 (20181+20642)/2
46417/

Total Asset

45884/

44472/
(20642+19250)/2

45884/

Sales / Average Total

44472/
(139576+151220) (151220+156985)/

Turnover

Assets

(156985+152699)/2
/2

Bibliography:
Vodafone Group Plc. (2012). Vodafone Annual Report. Available from:
http://www.vodafone.com/content/index/investors/investor_information/annual_report.html (Accessed 12
September 2012).
Vodafone Group Plc. (2012). Where we are. Available from:
http://www.vodafone.com/content/index/about/about_us/where.html (Accessed 12
September 2012).