It is commonly known that Vodafone Group plc is a British multinational telecommunications company headquartered in London and with its registered office in Newbury, Berkshire. In order to make a decision whether or not should we buy or sale the shares, we need to look at the ratios about profitability, liquidity, gearing and shareholder interest.
Firstly, let’s begin to analyze the profitability. We can see that there have been dramatically rising profits over last five years despite the negative growth between 2010 and 2013.Profits have risen more than revenues, suggesting that there have been some cost of efficiencies. However, the ROCE for Vodafone Group plc is quite low, which shows the company has not used the funds invested more efficiently.
Secondly, liquidity ratios measure a company’s ability to meet its maturing short-term obligations. In other words, can a company quickly convert its assets to cash without a loss in value if necessary to meet its short-term obligations? Favorable liquidity ratios are critical to a company and its creditors within a business or industry that does not provide a steady and predictable cash flow. They are also a key predictor of a company’s ability to make timely payments to creditors and to continue to meet obligations to lenders when faced with an unforeseen event.
Let’s look at the current ratio for Vodafone in 2014 is much higher at 0.99 compared to that in 2010, which was 0.5. It indicates the company's ability to service short-term obligations is satisfactory. However the value of the quick ratio will provide a clearer indication of the company's success in this area. The quick ratio for Vodafone in 2014 is 0.97, which compared to the 2010 of 0.48 discloses that the company has a strong ability to service short-term obligations.
As far as the gearing concerned, it is a key indicator of risk. The calculated data shows the gearing ratios of Vodafone is lower than 50 per cent, which reveals the company can generate enough profit to service that debt without adversely affecting the returns to shareholders. To measure the ability of the company to meet interest payment, the interest cover is calculated in the table.
The lower of the interest cover can be a problem for Vodafone, it is a clear indication that they cannot service that level of debt without making profit. Another ratio of assessing the ability ofcompany’s debt obligation is cash flow ratio. It can be seen in the table, the highest rate of ratio was 20.8%, and can be concluded that the company can generate enough cash to be able to meet those liabilities that need to be paid.
Finally, by analyzing shareholder interests, we can decide whether the company is worthy of investing. We can see from the table, in 2014, the dividend cover is quite high. This is because the company launched a voluntary public takeover offer for the entire share capital of KDG. Due to this action, the EPS rise dramatically.
Last but not the least, earnings yield gives us the total relative to the market price of the share. The 95.68% of earnings yield shows the company is performing very well in 2014. In conclusion, the Vodafone Group plc can be invested in the future, it have potential to grow and become much more bigger company. Regards, Zoey