SUMMATIVE ASSESSMENT

Financial Performance Management

 Table of Contents

Abbreviations.......................................................................................................................................2
1. Introduction..................................................................................................................................3
2. Financial Performance Using Ratio Analysis..........................................................................4
2.1. Liquidity Ratios.................................................................................................................4
2.2. Profitability Ratios:...........................................................................................................5
2.3. Leverage Ratios:...............................................................................................................7
2.4. Working Capital Ratio......................................................................................................7
2.5. Valuation Ratios:...............................................................................................................8
2.6. Solvency Ratio...................................................................................................................9
3. Balanced Scorecard.................................................................................................................10
3.1. Vodafone Balanced Scorecard:...................................................................................11
4. Integrated Reporting.................................................................................................................12
4.1. Vodafone Integrated Reporting...................................................................................13
5. Conclusion.................................................................................................................................15
6. References.................................................................................................................................16
7. Appendices................................................................................................................................18

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Abbreviations

AT&T – American Telephone & Telegraph Company

BSC – Balanced Scorecard
EBIT – Earnings before Interest and Tax
EPS – Earning per share
IT – Information Technology
LTE – Long-term evolution
P/E Ratio – Price Earnings Ratio
ROA – Return on Assets
ROCE – Return on Capital Employed
ROE – Return on Equity
4G – Fourth Generation
5G – Fifth Generation

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 1. Introduction
By ratio analysis, this study contrasts and examines the financial performance of two
telecommunications companies. The Balanced Scorecard will be used to classify areas that
the company can improve. After that, the benefits and challenges of incorporating Integrated
Reporting for Vodafone are objectively analyzed.

Both Vodafone and AT&T compete in separate markets; Vodafone is a European

corporation, while AT&T is an American company. Both organizations, as
telecommunications providers, have almost identical technological services, such as cellular
communication, internet connectivity, and control networking. Although some of their
offerings have distinct comparative advantages, some do not.

The two telecommunications corporations are Vodafone and AT&T, but their market share is
very different. Despite their many distinctions, AT&T and Vodafone are both high-yield
payout stocks in the telecom industry. In the United States, 5G and the Time Warner merger,
as well as Latin America, will drive AT&T's future expansion. The majority of Vodafone's
growth will come from developing markets.

Figure 1: Market Capitalization of telecom companies 2018 (Source: Nasdaq)

AT&T has a $219 billion market capitalization (AT&T, 2020). Vodafone has a market
capitalization of €37 billion more than 500 million smartphone users as well as around 30
million fixed-line subscribers. It serves in 30 countries worldwide and collaborates with
platforms in another 50 (Vodafone, 2020).

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 2. Financial Performance Using Ratio Analysis
Ratio analysis is a popular financial analysis technique. The method of calculating and
analyzing financial ratios to measure and measure a company's performance and use the
results to make a decision is known as ratio analysis (Madura, 2009). It is characterized as
the effective analysis of ratios to balance sheet and income statement to ascertain a firm's
qualities and shortcomings, as well as its past performance and existing financial condition
(Kanagavalli and Saroja Devi, 2018).

Table 1: Financial Ratios

2.1. Liquidity Ratios

The liquidity ratio is used to assess a capacity of a company to meet its existing obligations
(Masyitoh and Adhariani, 2010). The lower a company's liquidity, the more difficult it is for it
to carry out its obligations.

Both Vodafone and AT&T are on track to meet their current ratio expectations, and the quick
ratios are weak. Graphs 1 and 2 have been developed based on Table 1 for both
companies. Vodafone's current ratio and quick ratio are both high in 2019. In the year 2019,
the company's cash ratio was also high. Between 2019 and 2020, these ratios were
decreasing. While In the case of AT&T, only the Current ratio was increasing from 2019 to
2020, and the rest of the two other ratios were decreasing. In 2020, the current liability of

4
Vodafone has increased due to short-term borrowings to the company. While in contrast, the
current liabilities of AT&T has decreased in 2020. The liquidity ratios of both firms reflect
their ability to produce cash efficiently and proportionally to their current ratios. 1 is the
optimal quick ratio which means that AT&T was not able to pay their short-term obligations.
Overall, Vodafone outperformed in the liquidity position of their company.

1.8
1.6
1.4
1.2
1
0.8 1.56
0.6
1.01
0.4 0.82 0.79
0.2
0
Vodafone AT&T

2020 2019

Graph 1: Current Ratios

0.6

0.5

0.4

0.3
0.53
0.2 0.41

0.1 0.18
0.15
0
Vodafone AT&T

2020 2019

Graph 2: Cash Ratio

2.2. Profitability Ratios:

Profitability ratios are a series of metrics used to assess a company's ability to generate
profits. As these ratios increase over a growth curve or when they outperform competitors'
outcomes, they are deemed favorable (Zeff, 2008). Profitability rates are calculated by
comparing revenues to various expenditure categories on the income statement.

According to Vodafone's profitability analysis, gross and operating margins increase

marginally from 2019 to 2020. While the operating margin was negative in 2019 because of

5
impairment losses. Vodafone has also depicting negative percentages for Net Profit Margin
which means that the company is spending more than its earnings. Furthermore, ROE and
ROA are also negative describing that Vodafone has incurred loss in both the years and they
are not using their assets effectively. AT&T, company has faced a negative gross profit
margin indicating that the company is unable to control the cost in 2020 and spend more
cost on production. AT&T also facing a reduction in every profitability ratio. A reduction in the
ratio from the previous timeframe means that the company's operating productivity has not
improved. The greater the ratio, the more efficient the company is, but a lower ratio causes a
high amount of production expenditures. This happened because of the Covid situation that
suppliers weren’t able to provide the material and it led the company to utilize more cost than
actual. As a result of the pandemic, ROE and ROA have decreased due to revenue causes,
as seen in Graphs 3 and 4. As a result, Vodafone and AT&T will need to improve their
performance.

10
AT&T; 6.88
5 AT&T; 2.89

0
Vodafone
Vodafone; -0.73 AT&T

-5

-10

Vodafone;
-15 -12.05

2020 2019

Graph 3: ROE

3 AT&T; 2.52
2
AT&T; 0.98
1
0
Vodafone
Vodafone; -0.27 AT&T
-1
-2
-3
-4
-5
-6 Vodafone; -5.35

2020 2019

Graph 4: ROA

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 2.3. Leverage Ratios:
The leverage ratio, according to (Weston and Brigham, 2001), is used to determine how
much of a company's financial requirements are funded by debts. The greater the proportion
of financial operations secured by debt, the more reliant the company is on loans to carry out
its operations.

Both firms have a low-interest coverage ratio, as shown by their leverage ratios. This would
make it difficult for the firm to maintain a consistent revenue stream and satisfy its interest
obligations. The amount of EBIT that would be used to fund the company's loans is seen in
graph 5. Between 2019 and 2020, AT&T's interest coverage ratio fell sharply, owing to a
drop in EBIT due to losses in Video, Broadband, and Business Wireline, while Vodafone's
interest coverage ratio fell to a negative level, indicating that the firm is having difficulty
paying its debt to remain in business. The debt-to-equity ratios of Vodafone and AT&T
increased slightly from 2019 to 2020, showing that they are performing best in the case of
leverage, reflecting a reduction in debt to finance activities. As a result of the leverage rates,
Vodafone outperforms AT&T.

4
AT&T; 3.32
3
2
1 AT&T; 0.81
Vodafone; 0.35
0
Vodafone AT&T
-1
-2
-3
-4 Vodafone; -3.48

2020 2019

Graph 5: Interest Coverage Ratio

2.4. Working Capital Ratio

Working capital is required to carry out a company's tasks, and it is critical in ensuring the
seamless running of the business operations so that it can continue to operate efficiently
(Lukman, 2015).

Vodafone's optimal inventory days for 2019 and 2020 are 6.9 and 8.5, respectively, implying
that the company sells and restocks its inventory every 1-2 months. Although AT&T has a

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higher number of inventory days, this indicates that the firm keeps inventory for a longer
period due to poor revenue and perhaps no promotion. Vodafone has much higher trade
receivable days than trade payables days, meaning that the company pays the suppliers in
fewer days on average. That also suggests that companies aren't taking advantage of trade
credit that has been extended to them. While it is the opposite for AT&T because their
payable days are more than receivable days. AT&T's working capital period is negative,
indicating that existing liabilities surpass current assets.

2.5. Valuation Ratios:

Valuation ratios bring the knowledge into perspective for a company's stock price, making
them valuable methods for assessing investment opportunities (Zimmermann, 2018).

From 2019 to 2020, the P/E ratio for both companies is increasing. Because of the lower
revenue in 2020, both companies' EPS are declining. Since both firms' securities are
undervalued, the book value of their equity is also declining. Charts 6, 7, and 8 referring to
Table 1 show a slight change in AT&T and Vodafone's P/E ratios from 2019 to 2020, even
though Vodafone's dividend yield has increased slightly while AT&T's has decreased.

AT&T; 15.97
AT&T
AT&T; 52.08

Vodafone; 0.06
Vodafone
Vodafone; 0.43

0 10 20 30 40 50 60

2020 2019

Graph 6: P/E Ratio

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 30 AT&T; 27.59
AT&T; 25.04
25

20

15

10

5
Vodafone; 2.3
Vodafone; 2.13
0
Vodafone AT&T

2020 2019

Graph 7: Book value per share

7 Vodafone; 6.62

6
Vodafone; 5.35
5

1
AT&T; 0.05 AT&T; 0.07
0
Vodafone AT&T

2020 2019

Graph 8: Dividend Yield

2.6. Solvency Ratio

A solvency ratio is a ratio that contrasts the profitability of a company to its liabilities. An
investor or creditor may use a solvency ratio to determine how likely a firm is to satisfy its
debt commitments in the future (Agusta, 2018). Vodafone's solvency rates are marginally
higher, indicating financial resilience. In stark comparison, AT&T has a lower percentage, or
is on the poor side, indicating potential financial difficulties.

When the financial ratios of Vodafone and AT&T are compared, it is apparent that Vodafone
surpasses AT&T despite having negative ROA and ROE and a lower market share in the
telecom industry. AT&T's financial results are expected to remain steady in 2021, owing to
the company's efforts to outshine the industry, with minor volatility in 2020, which may be
attributable to geopolitical uncertainties or unavoidable disasters and setbacks in Covid-19. If
they do not want their cash flows to suffer, they must deal with these risks.

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 3. Balanced Scorecard
The BSC is an effective method for selecting a balanced range of benchmarks and goals
that represent an organization's strategic agenda, assisting organizations in meeting
stakeholder needs, articulating and communicating strategic goals, and evaluating their
execution It does this by translating the vision and strategic goals into practice, allowing
participants to engage with one another and see their role in the organization's mission,
allowing for changes in the level of services delivered, and providing constant input and
learning (Quesado et al., 2018). As a result, it strikes a balance across external processes
linked to consumers and stakeholders and internal processes about important functions like
creativity, learning, and development (Kaplan & Norton, 2000). When it became clear that
the Balanced Scorecard could help them enhance their results by connecting their
subgroups and executives in a coordinated attempt to achieve the company's mission and
strategic targets, several leading organizations quickly adopted it.

The BSC's most groundbreaking feature is its ability to produce strategic learning, offering a
global view of corporate success and favoring awareness of organizational goals through
restricting the series of measures as mentioned in Fig.2 using for four aspects: financial,
consumer, internal processes, and learning and growth. In this way, it acts as a
management mechanism by exception, prompting managers to rely solely on the most
important collection of metrics for the organization's success (Kanji and Sá, 2001). As a
result, the BSC is set up as an optimal instrument for strategic management reform, effective
for delivering a context, framework, and expression for communicating the project and
policy, as well as using metrics to remind workers about the factors that have contributed to
current and potential progress (Kaplan & Norton, 2004).

By addressing obstacles, specifically illustrating value creation procedures, and emphasizing

the vital importance of intangible assets, BSC improves organizations' capacity to execute
strategies and improve efficiency. It defines the implicit connections that are required to tie
an organization's intangible asset changes to actual effects on consumers and financial
elements of the strategy. The need for the BSC in the implementation of strategic strategies,
as per Kaplan and Norton (1996b), allows managers to concentrate on problems that
encourage productivity rather than those that decrease costs and improve performance.

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 Figure 2: Balanced Scorecard

3.1. Vodafone Balanced Scorecard:

One of the four viewpoints is the financial aspect, and that is how the company's success is
seen by its owners. Many aspects of the financial performance of a company will affect
shareholders, but they will be highly involved in the Return on Invested Capital, Gross Profit
Margin, Net Profit Ratio, Inventory Levels, and Liquidity Ratios. Return on Capital Employed
relates profits, that is EBIT, to capital spent, which is a company's shareholders' assets and
long-term obligations. Vodafone Group Plc's ROCE for the year ended 2020 was 6.1
percent, up from 5.3 percent in 2009. Furthermore, Vodafone's gross profit rate for the fiscal
year ending in 2020 was 31%, implying that with every Euro Vodafone earned, they
maintained 31 cents for variable costs. For the fiscal year ending in 2020, Vodafone's net
profit percentage was -1 percent. The shareholders want this percentage to rise as quickly
as possible. Vodafone investors will be pleased and their stake in the company will be
boosted.

The consumer perception is the second perspective, and it is how businesses determine
who their consumers are or what their expectations are. Vodafone's management
understands that in building consumer retention, loyalty, and the ability to maintain and
attract new customers, they must win existing customers' confidence. Vodafone cites three
key factors that enable them to win customers' trust: network stability, seamless and
equitable offer, and privacy-related protection. The Net Promoter Score is also used by

11
Vodafone to assess customer loyalty (Vodafone,2020). They've made significant strides in
strategies and have improved their commercial success in both Europe and Africa.

Vodafone aspires to be the best by providing traditional and cell phone and internet access
to both people and businesses. For companies, they have a professionally controlled digital
connectivity solution that includes static and wireless communications, allowing them to save
costs by having Vodafone handle the whole operation. They provide innovative products and
services for private individuals, such as Vodafone 360, which gives users broadband access,
social media platforms, and emails on mobile phones (Vodafone, 2020). Organizations like
Vodafone must be vigilant to not ignore their existing brands and consumers, particularly
those that can keep up with emerging technologies while focusing their time and money on
innovation.

By spending on the employees' learning and growth, Vodafone will continue to expand and
evolve. Vodafone hires 93,000 employees around the world and has a 19% employee
turnover. The Vodafone Way is a new project initiated by Vodafone (Vodafone, 2020). This
establishes the principles for all workers, emphasizing the importance of bringing goods and
services to market efficiently, making it easier for consumers and business collaborators,
and confidence, in which employees behave with dignity, transparency, and honesty, are
trustworthy and open, and respect the interest that people put in the organization.

4. Integrated Reporting
The International Integrated Reporting Council describes integrated reporting as "short,
medium, and long-term correspondence about how an organization's policy, administration,
results, and opportunities, in the light of its external world, contribute to the development of
valuation" (IIRC, 2013). Integrated reporting was created to combine financial and non-
financial results into a single report. The backdrop was the financial crisis, which saw
creditors put increasing pressure on companies to be more transparent and provide
information about environmental capital (Higgins et al., 2014). IR can be viewed as one form
of corporate reporting from this viewpoint. Unlike other ways of reporting, which is not an
add-on, but rather an integral part of the structure.

The core components, which include an organizational summary and external climate,
governance, business plan, opportunities and risks, planning and resource utilization,
efficiency, and forecast, form the chains of the IR Framework. Companies must publish facts
about their business plan under the IR Framework. Investors use business strategy research

12
to evaluate a company's potential to generate and maintain long-term value. This is true in
every industry, but it is especially true in creative businesses.

Integrated reporting is a difficult task that demands a significant shift in the organizational
system, procedures, and thought (Stent & Dowler, 2015). The development of useful
Integrated Reports entails the cooperation and engagement of different operational areas,
which can be difficult. Integrated Reports offer managers a better path for reporting and help
them identify the shortcomings of their action plans; however, the mechanism does not
always impact workers' daily operations activities. Managers still have different viewpoints
about whether integrated planning promotes teamwork and encourages the dismantling of
corporate organizational boundaries. Economic, physical, environmental, intellectual, social
and partnership, and manufactured capital are among the six capitals covered in the
integrated report.

Figure 3: Integrated Reporting Framework (Source: IAS)

4.1. Vodafone Integrated Reporting

For the fiscal period 2020, this report examines Vodafone's policy and business strategy,
challenges, and opportunities, as well as organizational and sustainability efficiency. It
encompasses the Vodafone Group's operations as well as all of its corporate subsidiaries.
Reporting from subsidiaries is entirely integrated, both financial and non-financial.

The pandemic is overturning conventional economic practices around the world, closing
down some segments of the economy, undermining distribution networks, and significantly

13
limiting consumer spending. They've taken several steps in response to the global epidemic
to ensure the welfare of our workers on-site, as well as to keep people, families, companies,
and governments involved. They serve 115.5 million engaged consumers that use their
entire brand portfolio. Audio, data, email, and financial services are among Vodafone's key
customer goods and services, which are available on both wired and wireless networks.
Financial facilities, self-service treatment, and entertainment are among the growing sectors
they are entering.

Vodafone secures bandwidth, invests in wired and wireless networks as well as

communication technology, develops and distributes a diverse variety of products and
services targeted to specific consumer markets, and maintains robust customer support and
brand program. These processes help them to maintain the highest level of sales growth and
cash flow, which they use to spend in the capital and partnerships they have to do
businesses and execute on their core objective of connecting for a better future.

Vodafone upholds human and intellectual capital by engaging in consumption and

investment and support for professional growth. Throughout the markets, they spent 430.3
million in executive recruitment and leadership growth, including educating workers for
digitalization. They also offer Efficient organizational processes that span several business
divisions. They have maintained a strong emphasis on diversity and are committed to
maintaining their status as a good employer. Vodafone continues to invest in coverage and
IT performance, a consistently strong user experience, and segmented services and
products to sustain quality partnerships. Daily investor consultation, constructive
engagement with regulators, absolute enforcement, and driving a social contribution is also
included in it. Effective governance systems are also providing social benefits through
networking and digital facilities such as equitable banking, literacy, healthcare, and farming.
Vodafone is now investing strategically to maintain its network and IT lead. Via new radio
access structural reform programs, they are facilitating 2G, 3G, and LTE/4G along with the
same network devices. They're also working on frameworks and applications that will allow
Advanced Analytics.

Vodafone is using wise capital spending strategies to diversify business growth zones. They
want to keep their legal and regulatory processes and finance staff in place. Via the
Vodafone Procurement Company, they are now reaping the rewards of buying control on
network infrastructure, computers, and maintenance costs. They place a strong emphasis on
network energy efficiency. They're looking at ways to use the Internet of Things to promote
power management, such as demand management, recycling devices, and reusing
connected devices.

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 5. Conclusion
Vodafone and AT&T are being forced to reinvent their plans and turn into more sustainable
companies as a result of a pandemic and a rising telecom industry. Financial ratios vary
significantly between the two companies, and there are certain possible shortcomings in
both. Vodafone has little equity, so their ROE and ROA are negative, but they have ample
capital and low debt. AT&T has a positive return on equity (ROE) and return on assets
(ROA), showing that they are well managing their assets. They have a fair interest coverage
ratio, but poor liquidity ratios and lower profitability than Vodafone.

BSC may demonstrate that Vodafone is advancing or not improving in each of the four major
insights. On the positive side, it encourages Vodafone to concentrate not just on its financial
performance, but also on the various aspects of the company that affects those outcomes.
On the downside, it may not teach Vodafone how to deal with any issues that might occur.

Vodafone's Integrated Report looks back at last year's results but still looking forward. How
the organization has prepared itself for growth in a quickly developing environment has been
established. The study has been concluded to provide answers to the following questions
that How are they build an effective value and what is their strategy for achieving high
financial progress.

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 6. References
Agusta, R., & Hati, S. (2018). Calculation of Liquidity, Solvency, and Profitability Ratio in
Manufacturing Company. Journal of Applied Accounting and Taxation, 3(2), 110-116.

AT&T Annual Report. (2020). Annual Report – Telecommunications Industry.

Dr. G. Kanagavalli and R. Saroja Devi. (2018) Financial Performance of Selected

Automobile Companies. International Journal of Management, 9 (4), pp. 14–23.

Higgins, C., Stubbs, W., Love, T. (2014), “Walking the talk(s): organizational narratives of
integrated reporting", Accounting, Auditing, and Accountability Journal, Vol. 27 No. 7, pp.
1090-1119.

International Integrated Reporting Council. (2013). The International < IR > Framework.

Kanji, G., & Sá, P. (2001). Kanji’s Business Scorecard. Total Quality Management, 12(7/8),
898-905.

Kaplan, R., & Norton, D. (1996b). Using the Balanced Scorecard as a Strategic Management
System. Harvard Business Review, 74(1), 75-85.

Kaplan, R., & Norton, D. (2000). El Cuadro de Mando Integral (The Balanced Scorecard).
Barcelona: Ediciones Gestión 2000.

Kaplan, R., & Norton, D. (2004). Mapas Estratégicos: Convirtiendo los Activos Intangibles en
Resultados Tangibles. Barcelona: Ediciones Gestión 2000.

Lukman, F. (2015). Epistemologi Intuitif dalam Resepsi Estetis HB Jassin terhadap AlQur’an.
Journal of Qur'an and Hadith Studies, 4(1), 37-55.

Madura, J. (2009) The Pricing of IPOs Post-Sarbanes-Oxley. Financial Review, Vol. 44,
Issue 2, pp. 291-310.

Masyitoh, O.C. and Adhariani, D. (2010), “The analysis of determinants of going concern
audit report”, Journal of Modern Accounting and Auditing, Vol. 6 No. 4, pp. 26-37.

Quesado, P., Aibar Guzmán, B., & Lima Rodrigues, L. (2018). Advantages and contributions
in the balanced scorecard implementation. Intangible Capital, 14(1), 186.

Stent, W., & Dowler, T. (2015). Early assessments of the gap between integrated reporting
and current corporate reporting. Meditari Accountancy Research, 23, 92-117.

Vodafone Annual Report. (2020). Annual Report – Telecommunications Industry.

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Weston, J.F. and Brigham, E. (2001), Dasar-Dasar Manajemen
Keuangan, Erlangga, Jakarta.

Zeff, S. A. (2008). The contribution of the Harvard Business School to management control,
1908–1980. Journal of Management Accounting Research, 20(s1), 175-208.

Zimmermann, H., 2018. EXPLAINING THE HIGH P/E RATIOS: THE MESSAGE FROM THE
GORDON MODEL. Journal Of Investment Management, 16(4), pp.64-78.

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 7. Appendices

Appendix 1: Summary Financial Ratios

18
Appendix 2: Income Statement of Vodafone

19
Appendix 3: Balance Sheet of Vodafone

Appendix 4: Summary of Vodafone Financials

20
Appendix 5: Income Statement of AT&T

21
Appendix 6: Balance Sheet of AT&T

22
Appendix 7: Summary of AT&T Financials

23