Evaluating Vodafone's Global Performance

Introduction

The evaluation of the performance of an organisation is a crucial task for external and internal individuals of an organisation. This evaluation assists different stakeholders for taking different decisions as per the business performance. The performance of an organisation is also being carried with reference to both financial and non-financial perspective. In this context, this report considers different tools such as ratio analysis and balanced-scorecard for the assessment of business performance (Cornwall, Vang and Hartman, 2016). For the present report, Vodafone Group PLC has been taken as target Company for carrying out performance evaluation with reference to different tools. Vodafone Group plc is identified as British multinational telecommunication which is having headquarters in London. The company has business operations in different regions of Asia, Africa, Europe, and Oceania. Vodafone is ranked fourth in the total number of mobile customers worldwide. It owns and operates networks in 25 countries along with 47 other nations with partner companies.

LITERATURE REVIEW

The evaluation of business performance is carried out using different performance management tools such as ratio analysis. In the context, the study of Finkler, Smith, Calabrese and Purtell (2016) has found that ratio analysis is identified as a great tool for examining the financial performance of an organisation. This approach offers different ratios to examine profitability, liquidity, gearing, investor’s etc. All these ratios have found very effective to examine overall financial performance with reference to financial outcomes of the previous year. The research of Penman (2015) has examined that financial ratios have played important role to examine performance related trends and comparison of financial data. In addition to that Ratio analysis is an invaluable aid to management through which top manager is able to manage different basic function within an organisation such as planning, forecasting, control etc. It helps the management in preparation of different budgets to formulate policies along with the preparation of the future plan of action etc. Furthermore, financial ratio determines the degree of organisational efficiency and utilisation of the assets. This information helps management in the decision-making process related to financial and non-financial management decision. As per research of Cornwall, Vang and Hartman (2016), it can be stated that ratio analysis has provided significant assistance to management or stakeholders for performing the Intra firm comparisons with reference to financial health. It facilitates the management to increase understanding about the profitability of other companies in a similar industry so as top management is able to develop appropriate plans to manage current business operation as per the current market trends. On the other hand, Crowther (2018) has evaluated that balanced-scorecard plays an important role in carrying detail assessment of financial and non-financial performance. An appropriate balanced-scorecard assists different stakeholders in order to examine different elements of organisational performance such as financial, learning and growth perspective to evaluate overall business outcomes. In addition to that, the approach of Balanced Scorecard offers a powerful framework for controlling different aspects of building and communicating business strategy. BSC offers a systematic business model that has played an important role in order to visualised business goals in strategy Map. McKinney (2015) determined that the strategy map help managers for carrying detail investigation about cause-and-effect relationships among various strategic objectives. This approach has found very effective for increasing understanding of different strategic goals. It supports to examine performance outcomes so as top management in an organisation can make significant changes in future business operation to meet strategic goals.

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COMPARISON OF RESULT AND RATIO ANALYSIS

The present report examines different tools for examining the performance of Vodafone Group PLC. For a comparison of financial performance, the financial ratio has been addressed as a great tool to evaluate financial statements of an organisation. Therefore, evaluation of the financial performance of Vodafone Group PLC is carried out below through ratios:

Net profit ratio: This ratio has found very effective to determine the net profit of the company with reference to its total sales. As per the net profit ratio of Vodafone Group PLC, it can be stated net profit of the company is improved because the net profit margin of the company in 2018 is reached to 5.24%. In the context of the current business environment, mobile company has kept positive growth because Vodafone Group PLC has addressed the loss of 13.22% in 2017. Therefore, it can be stated that the company has formulated different business plans and management strategies for increasing profit volume for covering up the total loss of previous years (Vodafone Group PLC, 2018). Gross profit ratio: This ratio evaluates relationship in gross profit and total sales of the company. In the context, the gross profit margin of Vodafone Group PLC is respectively 27.41% and 29.63% for the period of 2017 and 2018. According to this ratio, the company is showing positive trends in gross profit margin, and it can be stated that the management of mobile network company has adopted different strategies for lowering cost of other business operation that has created a positive impact on net profit ratio of 2018. Current ratio: It is identified as a great tool for examining the liquidity position of an organisation that determines the availability of current assets to meet short-term liabilities of business (Kim, Kim and Qian, 2018). The current ratio of Vodafone Group PLC is reduced to 0.97 in 2018 as compared to 1.01 of 2017. In both years, the company has failed to meet the ideal current ratio which is 2:1. Furthermore, the company has addressed downward trends in liquidity position in 2018. In the context, Vodafone Group PLC is facing some issues for the accomplishment of short-term requirements of funds to cover current liabilities of the firm. Quick ratio: This ratio determines relationship quick assets such as cash and cash equivalent with reference to total current liabilities of the company. The calculation of quick ratio for the period of 2017 and 2018 has determined that Vodafone Group PLC has identified negative trends in the quick ratio which is reduced to 0.96 in 2018 with reference to 0.99 of the previous year. Therefore, there is some slight reduction addressed in the availability of cash or cash equivalent assets for the accomplishment of requirement of current liability. The business entity has recorded an appropriate quick ratio which is similar to ideal 1:1 quick ratio. Therefore, it can be stated that Vodafone Group PLC has managed reliable liquid funds to meet requirement working capital for managing the day to day business operations (Wang, 2014). Assets Turnover ratio: This financial ratio has been considered as a great tool for examining the relationship between total sales with total assets created by the company. The calculation of assets turnover ratio of Vodafone Group PLC is determined that the assets turnover ratio is reached to 0.32 in 2018 as compared to 0.31 of 2016. There is little improvement addressed in assets turnover ratio as a result of the increase in total sales of the company. This information indicates that assets of Vodafone Group PLC are utilised in the better manner in comparison to last year as improvement has been seen in its sales or revenue (Vodafone Group Plc Annual Report 2018, 2018).

Debt-equity ratio: It is a great tool for external investors for examining the total volume of the company’s debt or long-term loan with reference to total share holder’s capital. The calculation of debt-equity ratio has found that Vodafone Group PLC has recorded the debt-equity ratio for a period of 2017 and 2017 respectively 0.31 and 0.49. These results indicate the volume of total long-term loans is increased in 2018 along with the reduction in share capital. The increment in value debt increase expenditures of business entity related to interest (Wang, Dou and Jia, 2016). This thing also leads to negative impact profitability and risk-taking capabilities of the organisation. It also reduces business capabilities for taking future loans. Return on capital employed: This ratio has found very effective for examining the income generation capabilities of a firm with reference to the total capital of the firm. The evaluation of the return on capital employed has found that Vodafone Group PLC has kept little improvement because this ratio is increased 0.04 in 2018 with a comparison of previous year ratio which was 0.03. By considering this information, Vodafone Group PLC has maintained positive trends in income generation capabilities in 2018 as compared to previous (Finkler, Smith, Calabrese and Purtell, 2016). This information will present a good image of the company and influences the investment decisions of different shareholders in a positive way.

THE APPLICATION OF BALANCE SCORECARD (BSC) FOR ASSESSING ORGANISATIONAL PERFORMANCE AND IDENTIFICATION KEY PERFORMANCE INDICATORS

Balance scorecard has been addressed as a great tool for examining the financial and non-financial business performance. This system covers 4 basic prospective that plays an important role in the evaluation of key performance indicators of an organisation (Cornwall, Vang and Hartman, 2016). The evaluation of balance scorecard of Vodafone Group PLC is carried out below:

Financial perspective: This section of balance scorecard evaluates the financial performance of the company. In this section, the net profit percentage, gross profit percentage and current ratio have been addressed as important KPI to examine financial performance:

Net profit percentage of Vodafone Group PLC is reached to 5.24% in 2018 as compared to a loss of 13.22% in 2017. Therefore, it can be stated that the business entity has maintained positive trends in new profit (Calabrese & Purtell, 2016). The evaluation of gross profit percentage is identified positive growth. This is because the gross profit percentage of Vodafone Group PLC is increased to 29.63% in 2018 with reference to 27.41% of 2016. The current ratio has been addressed as an important indicator of the liquidity position of the company. The evaluation of the current ratio of Vodafone Group PLC has determined that the current ratio is reduced to 0.97 in 2018 as compared to 1.01 of 2017.

Customer perspective: This performance indicator helps to determine the change in a number of customers and experience of people about the quality of services of Vodafone Group PLC.

As per the annual report, the business entity is focused on managing rapid growth in fixed broadband customer for increasing the market share gains. During the year, Vodafone has added 1.3 million broadband customers and has maintained the fastest growing broadband provider in Europe which is reached to 19.7 million (Vodafone Group Plc Annual Report 2018, 2018) Vodafone PLC has addressed negative trends in consumer mobile net promoter score as per customer experience.

Internal business process perspective: This section is focused on examining the efficiency of internal business operations as per the change in the interest of customers

In this context, change in consumption of mobile has been considered as an important indicator. The demand of mobile data is reached to 2.6GB/month in European so as Vodafone Group PLC is providing additional benefits to customers in the form of small incremental fee and “worry-free” offers through which company encourages customers to use more data

Learning and growth perspective: This section of balance scorecard is focused on determining the performance of the organisation with reference to learning growth aspects (Penman, 2015).

Vodafone Group PLC is identified as a market leader in the context of the rapidly growing Internet of Things (‘IOT’) segment. Therefore, business entity offers a diverse range of services to various business customers for handling IOT connectivity, advancement in automotive and insurance services and development of smart health solutions. In this regards, IOT service revenue has been grown by 14%* which is reached to 68 million. The management of Vodafone Group PLC formulates different strategies for meeting the growing demand for NGN fixed along with converged services. Vodafone Group PLC is identified as the largest NGN footprint in Europe which is covering 107 million marketable households (Vodafone Group Plc Annual Report 2018, 2018). It comprises of 36 million homes which are passed by Vodafone Group PLC’s fibre network and an additional 7 million customers by using strategic partnership agreements.

BSC STRATEGY MAP

As per the evaluation BSC of Vodafone Group PLC, A BSC strategy map is identified as a powerful management tool that assists the manager in describing the key business objectives (Vang and Hartman, 2016). These objectives are playing an important role in establishing communication between business goals and organisational strategies. In the context of Vodafone Group PLC, a BSC strategy map is formulated in the below mentioned table:

DISCUSSION OF THE ADVANTAGES AND LIMITATIONS OF THE ANALYSIS TECHNIQUES

In the present study, two different approaches ratio analysis and balance scorecard are considered for examining the overall business performance of Vodafone Group PLC (McKinney, 2015). Therefore, evaluation of the advantages and limitations of two approaches is carried out below:

CONCLUSION AND RECOMMENDATION

On the basis of the above assessment, it can be concluded that ratio analysis provides significant support for performing detail assessment of the financial performance of a business entity. As per the financial ratio of Vodafone Group PLC, the company has addressed little improvement in profitability in 2018 as compared to a loss in 2017. Further evaluation of the financial and non-financial performance of Vodafone Group PLC through BSC suggests that directors should develop appropriate business strategies and business plans such as improvement in market share of Internet of Things, quality of mobile network and increase in consumption of mobile data. In addition to that increase in customer base through creative services like data sharing or family plan would results in increase in revenue of Vodafone Group PLC. This report has concluded that the liquidity position of Vodafone Group PLC is not appropriate and management should reduce the cost of operations for increasing operating profit.

REFERENCE

Cornwall, J. R., Vang, D. O. and Hartman, J. M., (2016). Entrepreneurial financial management: An applied approach. London: Routledge.

Crowther, D., (2018). A Social Critique of Corporate Reporting: A Semiotic Analysis of Corporate Financial and Environmental Reporting: A Semiotic Analysis of Corporate Financial and Environmental Reporting. London: Routledge.

Kim, K. H., Kim, M. and Qian, C., (2018). Effects of corporate social responsibility on corporate financial performance: A competitive-action perspective. Journal of Management, 44(3), 1097-1118.

Wang, Q., Dou, J. and Jia, S., (2016). A meta-analytic review of corporate social responsibility and corporate financial performance: The moderating effect of contextual factors. Business & Society, 55(8), 1083-1121.

Wang, X. S., (2014). Financial management in the public sector: tools, applications and cases. London: Routledge.