Vodafone Finance Report Case Study Example | Topics and Well Written Essays - 2500 words

Vodafone Finance Report - Case Study Example According to Reuters (2005) analysts' opinion, the company is outperforming currently (financial ratios provided can be seen in Appendix 1). The group turnover was 34,133 m on the year ended March 31, 2005, which was 33,559 in 2004 and 30,375 in 2003 (Vodafone Annual Report, 2005, p. 78). Presented in percentage, the growth of turnover in 2003/04 was 10.4% and in 2004/05 it was 1.7%. The rise of the group turnover represents the addition of new customers and the increase of revenue from value added services. Looking at the five-year annual growth of turnover given on the diagram 1 it can be easily seen that the company's rate of expansion is decreasing. During previous years the company was rapidly expanding due attraction of new customers; now the customer audience of Vodafone is stable. The interim results of six months ended September 30, 2005 show that the group turnover has increased 9% to 18,250 m (Reuters, 2005). Reasonably the cost of sales in 2005 has increased along with the group turnover, leading to the gross profit of 13,380 m. In 2004 gross profit was 14,098 m and in 2003 it was 12,479 m (Vodafone Annual Report, 2005, p. 88). This gives us the ability to evaluate gross profit margin providing us with the information on how much of the group turnover can cover the non-operational costs by dividing gross profit on group turnover. The following diagram shows the three-year perspective. As can be seen there is hardly a trend can be outlined, but it can be concluded that the gross profit margin has fallen to 39.19%, indicating the rise of operating costs. Diagram 2: Gross profit margin (%) The group's operating loss was 5,304 m, 4,842 m, 5,052 m in 2005, 2004, and 2003 respectively (Vodafone Annual Report, 2005, p. 78). Thus we can calculate the net profit margin, showing us basically the percentage of profit earned on sales, or in this case the percentage of losses lost on sales. Basically, net profit margin shows the profitability of the company. It is found by dividing operating profit (loss) on group turnover. The next diagram shows the net profit margin of three years. As can be seen the previous year 2004 was more profitable for Vodafone than 2005. Additionally Reuters (2005) report of net income 23% decrease to 2,780 m in the first half of 2006. The reasons of the decreasing profitability are increased operating costs, administrative expenses and a decrease of non-operating income. Diagram 3: Net profit margin (%) Liquidity Liquidity is important for the company as it reflects the ability of meeting its liabilities. High liquidity can detract from profits, because liquid assets are low returning investments. Low liquidity stunts company's growth and eventually leads to bankruptcy. Liquidity ratio is measured with dividing the current assets of the company by the its current liabilities. Current assets of Vodafone were 11,794 m and 13,149 m in 2005 and 2004 respectively (Vodafone Annual Report, 2005, p. 79). Current liabilities to creditors were 14,837 m in 2005 and 15,026 m in 2004 (Vodafone Annual Report, 2005, p. 79). The comparison of liquidity ratios for 2004-2005 can be found in the following table. Along with current ratio there is a quick ratio, which shows the ability of a company to repay its liabilities with cash only excluding inventory assets (sales of inventory are often