Vodafone Managing Operations and Finance 1

VODAFONE MANAGING OPERATIONS AND FINANCE

 Vodafone Managing Operations and Finance 2

Introduction
Vodafone is a technology communication company operating in the Asian African and

European Market. With its headquarters currently in Berkshire, United Kingdom, the company

was founded in 1982 at Newbury and has expanded to be a market leader in the communication

industry. The company primarily deals with three key market segment areas including voice call,

internet connectivity, and the manufacture of electronics. More specifically it operates in over 40

market segments in the 23 countries where it provides its services and sells its products (Kerr and

Moloney 2018). During the 2020 financial years, Vodafone reported a total revenue of €44.97

billion demonstrating the capability of the organization to generate high revenues through its

operations (Vodafone, 2020). This articles explores the financial performance of the organization

based on the recent financial report. The objective of this analysis is to provide information on

the implication of the financial positions of the organizations and how the management should

utilize this information in making future financial decision.

Market Analysis
Information from the market analysis of Vodafone demonstrates the significant level of

market control that the company exerts in its areas of operations. Statistics that show the market

shared of different countries that the company operates reveals that Vodafone enjoys a healthy

market position. In the United Kingdom where the company was founded, Vodafone is the third

largest company in terms of market share falling slightly behind BT and O2 which hold a market

share of 28% and 26% (Kerr and Moloney 2018). Vodafone on the other hand holds 21.35 of the

market share in the United Kingdom with 0.8% going to the fixed market while 20.5% going to

the mobile market. The company is also ranked third in Spain with a total market share of 19.4%

(Alsop 2020). However, the company is the market leader in Germany and Italy with a total
 Vodafone Managing Operations and Finance 3

market share of 41.3% and 35.25% respectively for both mobile and fixed market. The graph

below depicts Vodafone’s market share in different countries around the world.

Outside Europe, Vodafone has the biggest market share is South Africa with a total of

46.7 % control of the market. The company operates under Vodacom Group, a subsidiary, in

South Africa which controls almost 50% of the market share in the country (Alsop 2020). Other

countries in Africa where Vodacom control the largest proportion of the market include

Tanzania, Lesotho, Kenya and DR Congo. In Asian, India is the biggest market for Vodafone

with the company having a market share of 28.3% of the country making it the second largest

communication company in the country. The Indian market is also crucial for the company

because of the countries populations and the number of customers. In Australia, Vodafone
 Vodafone Managing Operations and Finance 4

controls 42% of the market behind Telstra and Optus which take 33.6% and 26.3% of the market

share in the country.

Vodafone customers are also spread across the world with millions of subscribers from

all the countries that it operates. The market of each of this counties have different characters and

demographics that affects the performance of the company in each country. Vodafone has

managed to maintain a revenue of €40 billion since 2009 largely because of its global presences

and the large customers in the countries where it operates (Alsop 2020). In countries such

Australian and Kenya Vodafone operates through a joint venture and as an associate

respectively. In Australian for example, Vodafone operates jointly following a merger between

TPG Corporation Limited and Vodafone Hutchison Australia Limited. In Kenya, Vodafone and

its affiliate company Vodacom owns 40% of the country’s leading communications company

Safaricom. The direct control and indirect influence have enabled the organization gain million

customers. In all the markets which Vodafone operates India makes up the highest number of

customer.
 Vodafone Managing Operations and Finance 5

The chart above represents the number of customer that Vodafone and its affiliated

companies has in some of its biggest markets from 2013 to 2020. As mentioned has always made

the biggest percentage of the company’s total number of customers. The company’s popularity in

the country increased peaking at 334.1 million customers in 2019 (O'Dea 2020). The rapid

growth of the company in India significantly contributed to the global expansion of the company

making it cross the 200 million mark. However, the company lost a substantial level of the

market India with the number plunging to 297 in 2020 (O'Dea 2020). Flowing India is South

Africa which significantly contributes to the total number of the global clients of the company.

Germany is the leading country in Europe in terms of the total number for subscribers to the

services of the company.

Vodafone in the recent years has sought to invest in know technology to expand its

operations and influences its market share. The enrolment of the Next Generation

Network (NGN) creates new opportunities for the organization to diversify its operations. NGN

is a packet-based network system which utilizes multiple broadband to provide connectivity

services to its customers as well and telecommunication services. This technology has shown a

promising future for the organizations particularly in Europe where Vodafone has provided an

approximate of 136 million homes with NGN fixed-line network as of 2020. Germany lead in the

number of marketable homes with 36 million while United Kingdome has 29 million households

fitted NGN fixed-line network. The chat below shows the number of marketable homes in

Europe that have NGN fixed-line network as of 2020.

 Vodafone Managing Operations and Finance 6

Financial Ratio Analysis

The financial statement produced by Vodafone in 2020 reveals significant changes to the

financial performance of the organization that reflect the decline in the company’s market share

for the previous years. Vodafone has maintain a revenue of over 40 billion since 2009 implying

that the company has performed fairly will in the market. Vodafone reported a revenue increase

in 2020 from €43.66 the previous year to €44.97 billion despite the decline in the number of

customer and the market share of the company in various countries. The financial analysis of the

2020 financial report of the organizations could significantly assist the managers in

understanding the performance of the organization and provide guidance of future decisions of
 Vodafone Managing Operations and Finance 7

the organizations. This analysis has been divided into three sections: financial performance

evaluation, profitability and asset efficiency, short term and long term risk analysis. Each

sections has specific financial rations that is relevant to the type of information it will provide for

the management.

Financial performance Evaluation

The performance evaluations is concerned with evaluating the financial operations of the

business. This sections includes the analysis of two specific financial rations including the net

profit margin and the operating return on equity (ROE) (Delen, Kuzey, and Uyar 2013). Net

profit margin is the ratio of the net profit to the totally revenues of the company and is usually

expressed in the form of a percentage (Drake and Fabozzi 2012). The net profit margin

demonstrates how much Euro collected by the company translates to profit. ROE on the other

hand is an important measures of the financial performance of an organizations which is obtained

by dividing net income by shareholder’s equity also expressed as a percentage. ROE is a

measures of the profitability of an organizations relative to shareholder equity.

Net Profit Margin = (NI) ×100%

Net profit margin Operating return on equity (ROE)
Revenue ROE = Net Income × 100%
2020 2019 2020Shareholders’ Equity
2019
795 €m × 100% -2613 €m ×100% 795 €m × 100% -2613 €m ×100%
Where: NI = Net income
30,682 €m 30,160 €m 62,625 €m 63,445 €m
2.95% -8.66% 1.27% 4.12%

Managerial performance
Managerial performance evaluates the effectiveness of the work done by the company’s

managers and how this contributes to the overall performance of the business. Evaluation of the

financial performance of an organization particular the generation of profit is a crucial parameter

for evaluating managerial performance (Lin, Liang, and Chen 2011). Three major financial

rations where used in this sections. Debt collections period is the first financial ratio which refers
 Vodafone Managing Operations and Finance 8

to the time it take for an organization to receive payments owed by the customers (Golis,

Mooney, and Richardson 2010). Debts collection period is crucial for determine the cash

available for the organisation to meet its financial obligations.

Asset turnover ratio on the other hand, is a useful financial ration for examine how a

company effectively uses its assets to generate revenues. It is calculated by dividing the sales or

revenue of an organizations by the capital employees (Kazan and Ozdemir 2014). Inventory

turnover on the other hand refers to the frequency of selling and replacing inventory in a given

organizations. IT is calculated by dividing the costs of goods sold by the averages value of the

inventory on the company (Lin, Liang, and Chen 2011). Inventory turnover is a crucial financial

ratio that enables organization managers make crucial decisions regarding marketing,

manufacturing, pricing and procurement of new inventory.

Inventory Turnover = COGS .
Asset turnover = Sale . Value of Inventory
Capital employed
Where: COGS=Cost of goods sold

Debt Collect period Asset turnover Inventory turnover

2020 2019 2020 2019 2020 2019
10,378 €m x 365 5,170 €m x 365 30,682 €m 30,160 €m 30,682 €m 30,160 €m
30,682 €m 30,160 €m 135,682 €m 117,339 €m 585 €m 714 €m
135.75 62.56 0.23 0.26 52.71 42.24
 Vodafone Managing Operations and Finance 9

Risk Analysis
Risk analysis is concerned with evaluating the financial risk that the company operates

under particularly concerning the debts which have an impact on the operations of the

organization in both long term and short terms. This sections of the financial evaluation of

Vodafone involves the calculations of the current ration and the operating leverage of the

company as financial rations that provide information regarding the company’s position (Lin,

Liang, and Chen 2011). The two critical financial rations in this sections include the current

ration and the operating ratio. The current ratio measures the capacity of an organizations to pay

short term debts. This information is crucial for both the management and investors in determine

if the current assisting the organization can meet the short-term obligations of the organization

(Drake and Fabozzi 2012). Operating leverage on the other hand, measures the company’s

capability of an organization to increase its operating income by increasing its revenue. A high

Current Ratio = Current assets Operating leverage = Fixed assets × 100%

Current liabilities Current liabilities

leverage cost increases an organization forecasted risk.

Current ratio Operating leverage

2020 2019 2020 2019
32,644 €m 39,817 €m 133,917 €m × 100% 103,276 × 100%
32,456 €m 25,523 €m 168,168 €m 142,862 €m
1.00 1.56 79.63% 72.27%

Operational Analysis
The operations analysis of Vodafone can be analysed using the inventory turnover and

net profit margin. The company reported an inventory turnover of 52.71 and 42.24 in 2020 and

2019. This ratio represents a significant increase the company’s capability to generate revenues
 Vodafone Managing Operations and Finance 10

from the inventory unchanged. An inventory turnover ratio of 52.71 implied that Vodafone was

able to generate €52.71 for every inventory that was acquired for €1. This record demonstrates

that the company is operating effectively and is able to create substantial amount of profit for

small inventory that it buys. Also in 2020, the operations of the company resulted in a a net profit

margin of 2.95% which was a substantial improvement for the organizations which had recorded

an negative net profit margin for the previous.

Profitability and Assets Efficiency

Another approach of understanding the implications of the financial rations is understanding

the profitability and asset efficiency of Vodafone. This information is crucial for the

management for it enables them gain insight of how the company has been using its property to

generate profit and how this trend might affect the operations of the company in the near future.

Asset efficiency measures how Vodafone has used its asset to create profit. The operating return

on equity (ROE) and the assets turnover ratio are useful measures for gauging the asset

efficiency of Vodafone. The ROE for Vodafone was 1.27% and 4.12% for 2020 and 2018

respectively. The reductions in the ratio implies that the shared holder equity is contributing less

to the performance of the organization. Asset turnover ratio for the company was 0.23 and 0.26

for 2020 and 0.26, which is very competitive compared the market average of 0.22 for most of

the telecommunications company.

Short Term and Long Term Risk Analysis

Finally, the current ration and operating leverage provides vital information for determine

the performance of the organization on the short term and long term respectively. The current

ration of Vodafone is for both 2020 and 2019 are above 1 implying that the company has the

capability of meeting its short term objective. However, the current ration in 2020 was a
 Vodafone Managing Operations and Finance 11

significant reduction from 2019. The industry average for most publicly listed companies is 1.5

implying that Vodafone may struggle on the short term. Regarding the long terms risk, the

leverage operating cost in 2020 increases to 79.63% from 72.27% in 2019. This informations is

good news for the management given that the company has increases it capability of generating

more profits from its fixed-cost item.

Conclusion
In conclusion, Vodafone’s current financial status shows that the company has the

capability to generate profit from its assets. Vodafone is among the biggest telecommunications

company in the world operating in 23 countries including the United Kingdom where the

company was established. The company’s operations has produced a healthy profit generation

and asset efficiency. The evaluation of the asset turnover ratio has demonstrated that Vodafone is

able to generate profit from its assets to a degree that is slightly above the industry average. The

short-term and long-term risk analysis for the organization has also shown that company has the

capability of meeting its short term obligations evidence from the current ration of the

organization. The company also has the capability of turning its fixed assets into profit because

of the high operating leverage.

 Vodafone Managing Operations and Finance 12

References
Ahrendsen, B.L. and Katchova, A.L., 2012. Financial ratio analysis using ARMS

data. Agricultural Finance Review.

Alsop, T. (2020, July 30). Vodafone mobile/fixed market share by country 2020. Retrieved

March 16, 2021, from https://www.statista.com/statistics/261003/vodafones-market-

share-by-country/

Alsop, T. (2020, July 30). Vodafone: homes with NGN fixed-line network Europe 2020.

Retrieved March 16, 2021, from https://www.statista.com/statistics/1125638/marketable-

homes-with-ngn-fixed-line-network-by-vodafone-in-europe/

Colao, V., from Vittorio Colao, Chief Executive, Vodafone Group Plc. Retrieved March 16,

2021, from https://czasopisma.filologia.uwb.edu.pl/index.php/c/article/download/547/462

Delen, D., Kuzey, C. and Uyar, A., 2013. Measuring firm performance using financial ratios: A

decision tree approach. Expert systems with applications, 40(10), pp. 3970-3983.

Drake, P.P. and Fabozzi, F.J., 2012. Financial ratio analysis. Encyclopedia of Financial Models.

Golis, C., Mooney, P. and Richardson, T., 2010. Enterprise and venture capital: a business

builders' and investors' handbook. ReadHowYouWant.com.

Kazan, H. and Ozdemir, O., 2014. Financial performance assessment of large scale

conglomerates via TOPSIS and CRITIC methods. International Journal of Management

and Sustainability, 3(4), pp. 203-224.

Kerr, W.R. and Moloney, E., 2018. Vodafone: Managing advanced technologies and artificial

intelligence. Harvard business school.

 Vodafone Managing Operations and Finance 13

Lin, F., Liang, D. and Chen, E., 2011. Financial ratio selection for business crisis

prediction. Expert Systems with Applications, 38(12), pp. 15094-15102.

O'Dea, P. by S., & 9, J. (2020, June 9). Vodafone customer base by country 2013-2019.

Retrieved March 16, 2021, from https://www.statista.com/statistics/241577/number-of-

vodafone-mobile-customers-by-markets/

Vodafone (2020).Vodafone Group Plc. Annual Report 2020. Retrieved March 16, 2021,

https://investors.vodafone.com/sites/vodafone-ir/files/vodafone/annual-report/vodafone-

annual-report-2020.pdf

Vodafone. About. Retrieved March 16, 2021, from https://www.vodafone.com/about

Vodafone. Europe and Rest of World. Retrieved March 16, 2021, from

https://www.vodafone.com/about/where-we-operate

Xu, W., Xiao, Z., Dang, X., Yang, D. and Yang, X., 2014. Financial ratio selection for business

failure prediction using soft set theory. Knowledge-Based Systems, 63, pp. 59-67.

 Vodafone Managing Operations and Finance 14

Appendix
Balance Sheet
Vodafone Managing Operations and Finance 15
Vodafone Managing Operations and Finance 16
Vodafone Managing Operations and Finance 17