Comparison of the Performance for Vodafone Group Plc. and BT Group Plc.
Comparison of the Performance for Vodafone Group Plc. and BT Group Plc.
Introduction
The objective/aim of the current paper is to evaluate the performance of two competing telecommunication companies in the United Kingdom. Vodafone Group Plc. and BT Group Plc. are the companies selected for the comparison. Both the companies are rivals to each other in the United Kingdom and are considered as two of the top enterprises in the technology sector. Ratio analysis and financial highlights from the annual report of 2015 are the basis of the comparison. The ratio analysis for three years is derived (i.e. from 2013-2015) and the core ratios for the paper include Profitability, Liquidity, Efficiency, and Gearing Ratios.
The basis for comparison for the paper includes the ratio analysis and other information (including financial highlight) from annual report. The assumptions for the evaluation and comparison are provided in detail to spread awareness about the basis for comparisons between the companies.
Ratios
Profitability Ratios
Profitability ratios are useful to evaluate the capability of a business to generate profits (Gibson, 2008). The analysts extract the value of profits after comparing and subtracting the expenses and other costs that are part of daily operations of the business. The company that has the higher value for individual profitability ratios is the firm that is able to beat the competitor.
Liquidity Ratios
Liquidity ratios explain the level of liquidity of a firm. In general terms, it is known as the ability and capability of a firm to pay off the short-term liabilities and obligations of the business (Brigham & Houston, 2012). The higher the value for different liquidity ratios higher is the liquidity of the firm. It means that the company with higher values has the better opportunity and capability to pay off the obligations.
Efficiency Ratios
Efficiency ratios explain the effectiveness in the allocation of assets and liabilities for a firm (Clauss, 2009). The companies that are the property of the firms mainly include the fixed assets such as plant, machinery, and others. On the other hand, Note payables and other payables for the businesses are the forms of liabilities that a firm can utilize to gain benefits in the short and long run. The firm that has a higher efficiency compared to a competitor is considered as a better company.
Gearing Ratios
The ratios that explain the company's equity and liabilities for a specific period are known as gearing ratios. The ratios determine and evaluate the level of equity and debt utilized by the corporation to finance the operations and assets (Abraham et al., 2008). The ratios explain the level of risk within a firm, higher the values for gearing ratios higher is the risk.
Financial Highlights
The financial highlights include the amount of profits including EBTIDA and Net Profit, Revenues, and Strategic Highlights. All these are part of the ratio analysis as the explanation of ratios includes the description about the financial highlights, and amount of dividends for the years. Higher number of financial highlights specifically demonstrates that the firm is more active and successful compared to the other competing firm.
Analysis/Comparison for Performance of the Two Companies
The overall analysis includes the ratio analysis for 2013, 2014, and 2015. The values for financial statements for both the companies are gathered from the official website of the Financial Times (Financial Times, 2016). The annual reports of the companies are also extracted from the official websites of both the companies. The analysis of ratios is subcategorized under the profitability, liquidity, efficiency, and gearing ratios. The general comparison of the company by their size show that Vodafone Group Plc. is a giant as compared to BT Group Plc. The values of revenues of Vodafone Group Plc. for all the three years are far higher than that of BT Group Plc.
Profitability Ratios
The results of the profitability ratios show that BT Group Plc. is more stable and fruitful in the market except for return on equity. The profit margin and gross profit margin ratios that represent the proportion of the benefits from the overall revenues show that BT Group Plc. can gain the advantage in the market and earns more efficiently compared to Vodafone. Return on assets that explain the amount of earnings from assets also shows that BT Group is consistent with the earnings whereas, Vodafone Group Plc. is not able to maintain its returns. Finally, the returns on equity for Vodafone are positive but inconsistent but on the other hand, the value of returns in 2015 by BT Group is far more attractive than Vodafone. BT Group Plc. is not able to maintain a positive equity in the past, and therefore, the expectations are present that the returns on equity would again show a negative trend in the upcoming years (BT Group Plc., 2015; Vodafone Group Plc., 2015).
Liquidity Ratios
The results of liquidity ratios for the year 2015 show that BT Group Plc. can improve the ability to pay off the liabilities. The core reason behind the improvement is the significant increase in cash and cash equivalents (BT Group Plc., 2015). The company is focusing on maintaining the level of capital within their current assets. In general perspectives, Vodafone Group Plc. was able to have a lead over its competitor as the value for 2013 and 2014 show that Vodafone has higher costs for every ratio. The decrease in cash and cash equivalents by the company are the major contributors to the low level of liquidity in 2015. The management of the company made significant investments in different resources, and therefore, the value of cash and cash equivalents is lower than previous years (Vodafone Group Plc., 2015).
Efficiency Ratios
Efficiency ratios show that BT Group Plc. lacked in maintaining the inventories of the business. The inventory turnover ratio for the industry shows low values compared to Vodafone. The lower values indicate that the allocation and utilization of stocks by BT Group Plc. is not efficient. On the other hand, all other ratios including total asset, account receivable, and fixed asset turnover show a high level of success. The results indicate that the business can earn more from its assets, account receivables, and fixed assets. All the results show high level of efficiency in operations of BT Group Plc., the management of the company expects improvements in the current operations, and therefore, it can be stated that the firm would be able to gain more efficiency in its operations in the coming years (BT Group Plc., 2015; Vodafone Group Plc., 2015).
Gearing Ratios
Gearing ratios that explain the level of risk in the functioning of a business indicate that BT Group Plc. has a higher level of risks as the degree of debt occupied by the company is more than the standard of equity. The company majorly obtains external debt to finance its assets and liabilities that allows the level of risk to increase. The company would not be able to justify and control such high level of external borrowing in times of financial crises. The use of debt would also result in an adverse impact on the minds of investors as the company does not favor the acceptance of equity. The results of the Gearing ratios also show that value of debt to equity ratio is 21.83 times greater than the value of investment that is not a good and attractive sign for the company. Times interest earned show that the values in 2014 and 2013 for Vodafone showed a negative value of EBIT that is the reason that showed a negative value for times interest earned. Equity ratio for both the companies shows that the proportion of Equity in the overall purchase of assets is higher for Vodafone. The value is too small for BT Group Plc. and the company requires a focus on the ratios.
The results of the overall ratio analysis explain that all the ratios except gearing ratios of BT Group Plc. are attractive, but the significant impact of gearing ratios demonstrate an adverse impact on the minds and decision-making the process of investors. The investors would continue to invest in Vodafone as long as BT Group Plc. takes exceptional steps to overcome the issues relating to the debt used for their operational activities.
Calculation of ratios
Financial Highlights
The financial highlights of Vodafone show that the company can earn a revenue of 42.2 billion pounds in the year 2015 that demonstrate the success of business activities throughout the United Kingdom and other parts of the world. The annual report for the company also specifies the amount of customer loyalty and trust is more than any other company operating in the United Kingdom. The company is successful to improve the coverage and has expanded its 4G connections to different regions of Europe in 2015 and also has improved the 3G services in various developing companies throughout the world. The strategic plan of Vodafone and its management is more attractive compared to the BT Group Plc. that still faces some inefficiencies (Vodafone Group Plc., 2015). On the other hand, the results of financial highlights of BT Group Plc. for the year 2015 show that the company can improve its operations in the United Kingdom. The results also indicate that the firm can earn more in the sales revenues, but the overall profit of the company has decreased as compared to 2014. The results of the business operations explain in strategic plans for the firm, and the company requires a high level of changes within the overall operational activities.
The financial highlights also signify that Vodafone is more successful to improve the overall outlook of the business in 2015 as compared to 2014 and 2013. The results also show that BT Group Plc. is unable to attract new investors to the firm and also does not have any strategic backup plan for its business operations.
Conclusion and Recommendation
Recommendations
The analysis of the ratio analysis and financial highlights allow the analyst to provide the following recommendations to BT Group Plc.
The company should focus on improving the revenues in the coming years to attract more investors to the business operations. The improvement in revenues would result in a possible increase in current ratios that would result in more investments by investors.
The company must develop a strategic plan to overcome the issue of high external borrowing. The company can decrease the value of debt in 2015, but the current value is still too high. The decline in lending would result to improve the level of risk associated with the business operations of BT Group Plc.
List of References
Abraham, A., Glynn, J.J. & Murphy, M., 2008. Accounting for Managers. Boston: Cengage Learning.
Brigham, E.F. & Houston, J.F., 2012. Fundamentals of Financial Management. Boston: Cengage Learning.
BT Group plc, 2015. Annual Report & Form 20-F 2015. Annual Report. London: BT Group plc BT Group.
Clauss, F., 2009. Corporate Financial Analysis with Microsoft Excel. New York City: McGraw Hill Professional.
Financial Times, 2016. World business, finance and political news from the Financial Times- FT.com Asia. [Online] Available at: http://www.ft.com/home/asia [Accessed 18 April 2016].
Gibson, C., 2008. Financial Reporting and Analysis: Using Financial Accounting Information. Boston: Cengage Learning.
Vodafone Group Plc, 2015. Annual Report 2015. Annual Report. London: Vodafone Group Plc Vodafone.
Appendix
Appendix 1 - Income Statement and Balance Sheet of Vodafone Group Plc.
Appendix 2 - Income Statement and Balance Sheet of BT Group Plc.
