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Managerial Finance

Vodafone Group

Student’s Name

Institutional Affiliations

Course

Instructor

Date

Word Count: 1492

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Table of Contents
1.0 Introduction of Vodafone Group..............................................................................3

2.0 Vodafone Group Percentage Movement..................................................................4

3.0 Five Financial Ratios................................................................................................5

3.1 Operating Profit Margin.......................................................................................5

3.2 Acid Test Ratio....................................................................................................5

3.3 Inventory Period (Days).......................................................................................6

3.4 Gearing Ratio.......................................................................................................6

3.5 Earning Per Share.................................................................................................6

4.0 P/E Ratio Vodafone Group Versus Verizon Communications................................7

5.0 Vodafone Group Share Price Versus FTSE AIM All Shares Index........................8

6.0 Analysis of Vodafone Group.................................................................................10

6.1 Percentage Movement Analysis.........................................................................10

6.2 Financial Ratios Analysis...................................................................................10

6.3 Recommendations..............................................................................................12

Reference List..............................................................................................................13
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1.0 Introduction of Vodafone Group

Vodafone is a telecommunications giant, which has achieved a global mark for its

wide coverage and provision of innovative services (Vodafone, 2024). From its beginning in

1984 as Racal Telecom, the company gained wide popularity, and later rebranded to

Vodafone Group in 1991, signifying that the company is a telecommunications powerhouse.

Vodafone, which has its headquarters in London, is a leading provider of communication

services both in the UK and over 35 other countries, serving more than 300 million customers

globally (Vodafone, 2021).

As Vodafone is geared to solve the communication problems of today in an

innovative manner with its mobile communication systems, it has been at the forefront of

technological advancement all through. Vodafone has led the way from when it was the first

to invest in the development of GSM networks to nowadays when it’s still the one that’s

implementing 3G and 4G technologies (Vodafone, 2023). Being a pioneer of innovative

telecommunications technology has seen the group realise sustained profits in subsequent
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years amidst stiff competition from other big services providers such as Verizon, AT&T,

Deutsche Telekom, and China Mobile. Meanwhile, Vodafone aims to generate revenue from

the implementation of infrastructure sharing and tower monetization contracts (Yamajo,

2022). Therefore, Vodafone Group, which is concentrated on operational efficiency and

revenue optimization, serves with a strong financial performance and can drive sustainable

growth and shareholder value.

Source: (Sherif, 2024)

On the other hand, the company is highly invested in the exploration of the Internet of

Things, which gives shelter to innovations involving cloud computing, 5G networks, and new

mobile services. To expand the product suite and customer base, it is strategic to continue in

the partnerships and acquisitions to make Vodafone a one-stop of everything

telecommunications and more.

2.0 Vodafone Group Percentage Movement

Previous Year % Movement

Current Year Ended
Ended March 31st, ((2023 – 2022)/
March 31st, 2023
2022 2022))*100
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Revenue (€m) 45,706 45,580 0.28%

Gross Profit (€m) 14,856 15,006 9.96%
Operating 14,296 5,813 145.93%
Profit/Loss (€m)
Total capital 56,454 + 64,483 = 63,329 + 57,073 = 0.44%
employed = long- 120,937 120,402
term liabilities +
Total equity (€m)
Net Cash generated 18,054 18,081 0.15%
in operating
activities (€m)
Number of 96,117 95,008 1.17%
employees
Earnings per share 42.77 7.71 454.73%
(basic) (€c)
Total dividend paid 9.0 9.0 0%
per ordinary share
(€c)
Year-end share price 89.30 124.84 28.47%
(€p) (Yahoo!
Finance, 2024)
Year-end market = 89.30 * 0.01 * 124.84* 0.01* 31.75%
capitalisation = 27,680,000 = 29,012,000 =
Year-end share price 24,718,240 36,218,580.8
* Number of shares
(basic)

3.0 Five Financial Ratios

3.1 Operating Profit Margin

Current Year Ended March Previous Year Ended March

31st, 2023 31st, 2022
Revenue (€m) 45,706 45,580
Profit before finance charges
12,816 4,103
and tax (€m)
Operating Profit margin %
(Profit before finance
28.04% 9%
charges and tax/Revenue) *
100%

3.2 Acid Test Ratio

Current Year Ended March Previous Year Ended March

31st, 2023 31st, 2022
Current Assets (€m) 30,662 27,578
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Inventory (€m) 956 836

Current Liabilities (€m) 34,584 33,647
Acid Test ratio: (current 0.859:1 0.795:1
assets – inventory)/ Current
Liabilities

3.3 Inventory Period (Days)

Current Year Ended March Previous Year Ended March

31st, 2023 31st, 2022
Inventory (€m) 956 836
Cost of Sales (€m) 30,850 30,574
Inventory Period (Days) = 11 days 10 days
Inventory/cost of sales * 365

3.4 Gearing Ratio

Current Year Ended March Previous Year Ended March

31st, 2023 31st, 2022
Long-term debt (€m) 56,454 63,329
Total Equity (€m) 64,483 57,073
Total capital employed = 56,454 + 64,483 = 120,937 63,329 + 57,073 = 120,402
long-term liabilities + Total
equity (€m)
Gearing ratio (%) = (Long (56,454/ 120,937) * 100 = (63,329/ 120,402) * 52.6%
term debt/Total capital 46.68%
employed) * 100%

3.5 Earning Per Share

Current Year Ended March Previous Year Ended March

31st, 2023 31st, 2022
Profit after tax 12,335 2,773
Preference dividend 2,502 2,483
Number of ordinary shares 27,775,000 29,109,000
EPS (diluted) = (Profit after = (12,335 – 2,502)/27,775 = (2,773 – 2,483)/29,109
tax – profit dividend ) / ≈ 0.354 ≈ 0.009
Number of ordinary shares
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4.0 P/E Ratio Vodafone Group Versus Verizon Communications

The P/E ratio is a pivotal indicator, which is worked out by dividing the market value

price per share by the earnings per share (Sajeetha et al., 2023). This can indicate that the

stock price is high relative to the EBITDA and very expensive accordingly. On the other

hand, a low P/E ratio could show that the current stock rate is lower than it should be

compared to its profit. In this case, the P/E ratio for Vodafone Group is compared against

Verizon Communications, one of its main competitors in major markets across the globe.

Figure 1: Vodafone Group's P/E ratio

Vodafone Group's financial accounts show a decrease in the ratio of profitability, such

as operating profit margin net profit margin, and ROE, from 2021 to 20233, taking into

account. The more a company's Earnings Per Share are not growing fast enough as more and

more its stock price, the more significant increase in the P/E Ratio is. On the other hand,

Verizon Communication’s P/E ratio stands were 13.2 as of the end of 2023. Verizon's

financial reports indicated the fall of earnings ratios such as operating profit margin, net

profit margin, and ROE from 2021 to 2023 in a 2-year period (YCharts, 2024). Nevertheless,

the stock price trend for doing business is not directly included in the search results, and this

is how determining the current P/E Ratio today is getting hard.

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In this case, the P/E Ratio of Verizon Communications Inc. is higher than Vodafone

Group indicating that investors would have more confidence about the continuation of growth

in earnings by Verizon. These could be caused by a couple of factors like Verizon's financial

position, its sector's niche, and the ability to handle the challenges of evolving situations.

5.0 Vodafone Group Share Price Versus FTSE AIM All Shares Index

The FTSE AIM All Shares Index is a market-weighted index measuring the

performance of all companies listed on the LSE Alternative Investment Market (AIM), a sub-

market of the London Stock Exchange (LSE). The comparison of the FTSE AIM All Shares

Index Vodafone Group's share price shows how much support Vodafone has from the

broader market, which includes all the fast-growing companies.

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Between May 11th and October 9th, 2023, The FTSE AIM All-share Index was higher

than Vodafone Group plc's share price, which registered a continuous decline during the said

period (Google Finance, 2024). In this case, the FTSE AIM All-share Index outperformed the

company’s share, which could push away potential investors in the company. However, the

month of October, 2023 saw the company matching the FTSE index, frow when again it

outperformed it.
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For the better part of April to May this year, Vodafone Group’s share price performed

rather well compared to the FTSE Index, mostly due to increased investment in cloud

technology and innovation.

6.0 Analysis of Vodafone Group

Vodafone Group is in a fairly good position, by making use of its international

presence and the variety of telecommunication services that suit its customers’ needs. This is

further elaborated in the analysis in the following section.

6.1 Percentage Movement Analysis

The Vodafone Group Percentage Movement analysis reveals a mixed bag of

performance indicators for the company. On the positive side, the operating profit has seen a

significant increase of 145.93% from €5,813 million to €14,296 million, indicating a

significant improvement in the company's operational efficiency. Additionally, the earnings

per share (EPS) have also experienced a substantial growth of 454.73% from €0.0771 to

€0.4277, reflecting the company's ability to generate higher profits per share. However, the

revenue growth has been relatively modest at 0.28%, indicating that the company's top-line

growth has been slow, and an innovative approach must be geared towards generating more

revenue for the company. Furthermore, the gross profit has experienced a decline of 9.96%

from €15,006 million to €14,856 million, which could be a concern for the company's

profitability.

6.2 Financial Ratios Analysis

The operating profit margin of Vodafone Group reported a notable gain, upturning

from "9%" in 2022 to "28%" in 2023. This significant rise shows a wide improvement in the

company's ability to generate profits, especially from its main business operations.
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On the other hand, the Acid Test Ratio, a measure of a company's short-term liquidity,

has improved slightly from 0.795:1 to "0.859:1. This improvement indicates that the liquidity

of the company's shorter-term obligations i.e., those that can be met by the most liquid assets

of the company has improved. Additionally, this is a positive signal that implies a better

liquidity situation for Vodafone Group, which allows it to quickly pay its obligations without

having to use a large part of the inventory.

Vodafone Group’s Inventory Day rose to 11 days in the period under review

compared to 10 days previously, which is an indication of a slight worsening in the efficiency

of the inventory management of the company. The company's inventory turnover is a bit

slowed down compared to the previous fiscal year. The Inventory period will definitely be

longer and therefore may affect the cash flows and use up the capital at least in the short

term.

The Gearing Ratio has dropped from 52.6% to 46.68%, an indication of a reduction in

debt financing compared to 2022, which limits the company’s dependence on debt. As such,

the fact that this decrease is shown means that investors have a lower financial risk that may

be associated with debts.

The Vodafone Group’s Earnings Per Share (EPS), increased considerably, from

£0.009 to £0.354. The rise in EPS is realized as a result of the significantly improved Profit

after tax from €2.773M to €12.335M. This is a positive sign that investors look at in order to

see whether Vodafone can pay more on a share basis, comparing the profits and shares

outstanding, and this might increase the shareholder value and confidence in the company’s

performance.
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6.3 Recommendations

An assessment of the success of Vodafone Group reveals both positive and negative

factors, based on financial performance indicators. The corporation has demonstrated

significant progress with respect to the cardinal areas including operating profit margin, net

cash from operations, and earnings per share, implying increasing in operational capability

and profitability. Moreover, the higher number of employees in addition to the retainment of

stable dividends per share depict a favorable and steady economic business environment. On

the other hand, some issues may arise, e.g. a decrease in revenue growth rate, reduction of

gross margin, and the rapid increase of the inventory period which may affect negatively the

company's actual status of finances.

Thus, considering that a drop in sales revenue, profit, and inventory control can cause

an imbalance, I can not advise someone to venture into Vodafone Group’s stocks. Moreover,

the creditors may become the main risk factor for the investor due to the very fact of the

significant debt securitization, demonstrated by the gearing ratio.

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Reference List

Google Finance (2024) Vodafone Group Plc (VOD) stock price & news. Available at:

https://www.google.com/finance/quote/VOD:LON?

sa=X&ved=2ahUKEwjx8ZP6joWGAxVvh_0HHcGkBWQQ3ecFegQIdRAh&compa

rison=INDEXFTSE%3AAXX&window=1Y (Accessed: 11 May 2024).

Sajeetha, A.M., Nusaika, M.F. and Safana, M.N. (2023) ‘An empirical study on determinants

of price earnings ratio: Evidence from listed food, beverage and tobacco companies in

Colombo Stock Exchange’, Asian Journal of Economics, Business and Accounting,

23(10), pp. 32–43. doi:10.9734/ajeba/2023/v23i10968.

Sherif, A. (2024) Revenue of Vodafone Group 2023, Statista. Available at:

https://www.statista.com/statistics/241610/revenue-of-vodafone-since-2008/

(Accessed: 11 May 2024).

Vodafone (2021) Home Page, Vodafone IR. Available at: https://investors.vodafone.com/

(Accessed: 11 May 2024).

Vodafone (2023) Technology, Vodafone.com. Available at:

https://www.vodafone.com/about-vodafone/what-we-do/technology (Accessed: 11

May 2024).

Vodafone (2024) What we do, Vodafone.com. Available at:

https://www.vodafone.com/about-vodafone/what-we-do (Accessed: 11 May 2024).

Yahoo! Finance (2024) Vodafone Group plc (VOD.L) Interactive Stock Chart – Yahoo

Finance, Yahoo! Finance. Available at:

https://uk.finance.yahoo.com/quote/VOD.L/chart (Accessed: 11 May 2024).

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Yamajo, T. (2022) ‘Development of infrastructure sharing in the mobile market’, Policies

and Challenges of the Broadband Ecosystem in Japan, pp. 1–22. doi:10.1007/978-

981-16-8004-5_1.

YCharts (2024) Vodafone group Pe Ratio, YCharts. Available at:

https://ycharts.com/companies/VOD/pe_ratio (Accessed: 11 May 2024).