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Part One – Introduction
This report aims to examine two actual companies and show the interpretation of their financial
figures
...
Ratios will be used to compare and
evaluate the financial position of one company, for a given accounting period, to the financial
position of another company for the same period
...
Some of those limitations are
different accounting policies, lack of standard definitions, inflation, etc
...
For instance, if we compare two companies
which use two different ways to evaluate their inventories and depreciation, the comparison
would not be accurate
...
(Peavler, 2014)
The second limitation stated above is absence of standard definitions
...
This makes it problematic to link ratios considered
by different accountants
...
It is crucial to ratio analysis because if the inflation rate has
changed during the period within the companies are compared the figures will not be
adequately comparable
...
It is
important that users of financial information should be aware of those problems when making
decisions upon the information gained from ratio analysis
...
(ratio-analysis
...
Two companies connecting people all over the world
...
The main source of data used is the published annual
reports of BT and Vodafone (see Appendix 2)
...
The company invest in expanding the fibre
broadband and its BT Sport channels
...
It has operations in over 170
countries
...
com, 2014)

Vodafone Group plc – brief profile
Vodafone Group plc is the second biggest telecommunication company measured by subscribers
...
It provides similar products and services as BT Group plc like mobile telephony,
internet service, digital television and IT service and products
...
com, 2014)

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2

Part Two - Analysis
List of used ratios
1
...

ii
...

iv
...
Financial Position ratios
i
...


Interest cover
Gearing ratio

3
...

ii
...
Use of resources (efficiency) ratios
i
...


Asset turnover (total assets)
Trade receivables collection period ratio

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3

Profitability ratios
i
...
The higher the ratio, the more favourable it is for the company
...
7 % and this can be seen clearly in the calculations
(see Appendix 1)
...
The change in the total equity is due to rise in the ‘other reserves’
and ‘own shares’
...
Reason for
decreasing operating costs is that BT has implemented a set of cost transformation programs
which has given pleasant results
...
The calculated ROCE ratio for
Vodafone (see Appendix 1) shows us deterioration
...
The operating loss is higher in 2014
than the previous year
...
There are no such losses in the BT income statement
...

Between the two companies, BT is undoubtedly performing better in term of ROCE
...
7% improvement for BT and 2
...

ii
...

BT has made an improvement by 0
...
It is caused by the slight difference in the revenue and
operating profit for each of the two years
...
4 % for
Vodafone, which is almost twice the figure in 2013
...


Return on total assets (ROA)

The main purpose of this ratio is to show the net income created by total assets
...

We can see that BT figure in 2014 is 18
...
This means that every pound invested in the assets
through the year has created £0
...
net income
...
2 % from
2013
...
com, 2014)
On the other hand, Vodafone has much lower and a negative figure compared to BT
...
This deterioration is caused by dramatically
escalating the Impairment losses and expenses through the two years
...


Earnings per share (EPS)

The earnings per share are taken from the two companies’ annual reports (see Appendix 2)
...
The EPS figure shows us that it
has positively changed by 0
...

Vodafone EPS has considerably increased to 42
...
If we go back to 2013, we can see a
negative EPS figure of (15
...
This is stated in the company’s annual
report as a consequence of the “recognition of the additional deferred tax assets” (Vodafone
Group Plc Annual Report 2014, p 45)
The ‘big picture’ shows that BT group plc is in a better profitability position
...
However, Vodafone moves with big steps towards its profitability
decline
...
Exception makes the EPS figure, where Vodafone has performed noticeably
better than BT
...

Interest cover
Interest cover ratio can be explained through the ability of the company to pay its interests
expenses on outstanding debts
...
If the ratio is under 1, this means that the business has difficulties with
covering its interest expenses
...

In the current case, BT has not changed its interest cover ratio figures (see Appendix 1) from
2013 to 2014
...
5, which is considered to be the minimum level of the
‘comfort zone’
...
5 falls in the ‘warning zone’
...
com, 2014)
Vodafone has made a negative progress from 2013 to 2014 by deteriorating its ability to pay its
interest expenses by 1
...
The cause of the weakening is the rise of operating loss in 2014
...

ii
...
What
does this means? Ratio higher than 100% means that the debts are greater than the company’s
equity
...
BT
has increased its gearing ratio from 2013 to 2014 by 4
...
It is caused by escalation in the noncurrent liabilities e
...
retirement benefit obligations and equity, which in this case is a negative
figure (deficit)
...
From 2013 to 2014, it has
drop down by 8
...
The calculations for the ratio (see Appendix 1) show us that Vodafone has
paid a significant amount of its liabilities
...
In contrast, Vodafone has reduced its debts by paying some of its tax liabilities

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5

Liquidity ratios
i
...
Same is for Vodafone
...

(Melville, 2014) The higher the ratio, the more favourable it is for the company
...
This is another sign of steady
management control
...
8:1 to 1
...
It means that in 2014, there is £1 pound
available on liquid assets to correct £1 pound of liability
...


Use of resources ratios
i
...
The figure for
BT in 2014 is 1
...
It has not nearly changed from 2013
...
1 of sales
...

Vodafone unfortunately, has lower level of asset turnover
...
However, this shows stability in terms of management control
...
3 p from every pound invested in assets
...


Trade receivables collection period

This ratio shows the period which it takes for the company to collect the money owed by its
customers
...

BT has not change significantly the ratio through the two years
...

Vodafone, on the other hand, is in worse situation than BT
...
6 days to collects its
money from customers
...
7 days, which is not
favourable for the company
...
It is possible to analyse the two companies by
using PEST analysis and identify some of the external factors which had influenced the
companies
...
In this aspect, the inflation rate has a part in the companies’ performances
as well as the great demand for some of the companies’ services
...

The holistic picture shows us that BT is keeping its financial position steadily through the years
thanks to good management control
...
However, if we go to the consolidated
income statement we can see a great improvement in the profit for the financial year
...

The macroeconomic pressure in Europe has affected Vodafone business
...
6 billion due to lower projected cash flows within the company business
plans in Germany, Spain, Portugal, Czech Republic and Romania
...
(Vodafone, 2014)
BT has steady management control
...
However some of BT
resources were spread across due to the widespread flooding in UK and the customer demand of
BT Sport
...


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7

Appendix 1
Ratio comparison
BT Group plc – Workings
Vodafone Group plc - Workings

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8

Ratio comparison

BT Group Plc

Vodafone Group

Plc

2014

2013

2014

2013

Return on capital employed

18
...
6%

(4
...
0) %

Operating profit percentage

17
...
3%

(10
...
8) %

Return on total asset

18
...
1%

(3
...
6) %

Earnings per share

25
...
8 p

42
...
7) p

Profitability

Financial Position
Interest cover

3
...
5) times

(1
...
4%

98
...
9%

34
...
7:1

0
...
0:1

0
...
7:1

0
...
0:1

0
...
1 times

1
...
3 times

0
...
0 days

59
...
6 days

76
...
8 times

Liquidity

Use of resources

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9

BT Group Plc Ratios - Workings 1

Profitability
𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 =

𝑃𝑟𝑜𝑓𝑖𝑡 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑠
× 100
𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦 + 𝑛𝑜𝑛 − 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

2014
=

3,145
× 100 = 𝟏𝟖
...
𝟔 %
262 + 17,537

𝑃𝑟𝑜𝑓𝑖𝑡 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑠
× 100
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑝𝑟𝑜𝑓𝑖𝑡 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 =

2014
=

3,145
× 100 = 𝟏𝟕, 𝟐 %
18,287

2013
=

2,948
× 100 = 𝟏𝟔
...
𝟑 %
17,211

2013
=

𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 = a 𝟐𝟓
...
8

p 

2,948
× 100 = 𝟏𝟕
...
𝟖 𝒕𝒊𝒎𝒆𝒔
826

=

2,948
= 𝟑
...


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11

𝐺𝑒𝑎𝑟𝑖𝑛𝑔 =

𝑁𝑜𝑛 − 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
× 100
𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡 + 𝑛𝑜𝑛 − 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

2014
=

17,803
× 100 = 𝟏𝟎𝟑
...
𝟓 %
262 + 17,537

Liquidity
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑟𝑎𝑡𝑖𝑜 =

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

2014
=

5,706
= 𝟎
...
𝟔 ∶ 𝟏
7,604

2013

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12

𝑇ℎ𝑒 𝑞𝑢𝑖𝑐𝑘 𝑟𝑎𝑡𝑖𝑜 =

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 − 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

2014
=

5,706 − 82
= 𝟎
...
𝟔 ∶ 𝟏
7,604

2013

Use of resources

𝐴𝑠𝑠𝑒𝑡 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟(𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠) =

𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠

2014
=

18,287
= 𝟏
...
𝟎 𝒕𝒊𝒎𝒆𝒔
17,275

2013

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13

𝑇𝑟𝑎𝑑𝑒 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 𝑐𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛 𝑝𝑒𝑟𝑖𝑜𝑑 =

𝑇𝑟𝑎𝑑𝑒 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
× 365
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

2014
=

2,907
× 365 = 𝟓𝟖
...
𝟏 𝒅𝒂𝒚𝒔
18,103

2013

Page | 13

14

Vodafone Group Plc Ratios - Workings 2

Profitability
𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑒𝑚𝑝𝑙𝑜𝑦𝑒 =

𝑃𝑟𝑜𝑓𝑖𝑡 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑠
× 100
𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦 + 𝑛𝑜𝑛 − 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

2014
=

(3,913)
× 100 = (𝟒
...
𝟎) %
72,488 + 37,467

2013

𝑃𝑟𝑜𝑓𝑖𝑡 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑠
× 100
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑝𝑟𝑜𝑓𝑖𝑡 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 =

2014
=

(3,913)
× 100 = (𝟏𝟎
...
𝟖) %
38,041

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15

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 =

𝑃𝑟𝑜𝑓𝑖𝑡 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑠
× 100
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠

2014
=

(3,913)
× 100 = (𝟑
...
𝟔) %
138,324

2013



2014

p 

2013

𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 = b 𝟒𝟐
...
7)

Financial Position

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑐𝑜𝑣𝑒𝑟 =

𝑃𝑟𝑜𝑓𝑖𝑡 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑠
𝐹𝑖𝑛𝑎𝑛𝑐𝑒 𝑐𝑜𝑠𝑡𝑠

2014
=

(3,913)
= (𝟐
...
𝟒) 𝒕𝒊𝒎𝒆𝒔
1,596

2013

b

Earnings per share are not calculated but given in the companies’ financial statements
...
𝟗 %
71,781 + 25,020

2013
=

37,467
× 100 = 𝟑𝟒
...
𝟎 ∶ 𝟏
25,039

=

21,649
= 𝟎
...
𝟎 ∶ 𝟏
25,039

=

21,649 − 353
= 𝟎
...
𝟑 𝒕𝒊𝒎𝒆𝒔
121,840

=

38,041
= 𝟎
...
𝟔 𝒅𝒂𝒚𝒔
38,346

=

8,018
× 365 = 𝟕𝟔

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Title: Financial analysis using ratios
Description: Financial analysis and comparison of BT plc and Vodafone plc financial position for 2013 and 2014 using financial ratios

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