To complete this activity you will need access to the Vodafone Annual Report, which can be downloaded here.
Task 1: Produce a financial report that contains the following;
a) Describe both the internal and external sources of finance used in Vodafone and explain why they are appropriate for this type of business (size/age/ownership).
- Define internal and external sources of finance?
- Explain the different sources of finance that Vodafone could have used when they were founded? Are these internal or external? Why would they choose to use these sources? What are advantages / drawbacks of these sources?
- Explain the different sources of finance that Vodafone could use today? Are these internal or external? Why would they choose to use these sources? What are advantages / drawbacks of these sources?
- Try and apply your answer where possible.
b) Examine the Income Statement and Statement of Financial Position and produce an explanation of the purpose of each section and element of the documents. Why does the business draw them up and use them in the way they do?
c) Explain the financial ratios that Vodafone use to assess their financial performance (current ratio, acid test ratio, gross profit margin, net profit margin, inventory turnover, asset turnover,payable days and receivable days.
|Ratio||What it Shows?||Figure for Year 1||Figure for Year 2||How is the business performing?|
|Gross Profit Margin|
|Net Profit Margin|
|Acid Test Ratio|
d) Evaluate how useful the above ratios are to assess their performance, are they adequate or should other tools be used as well? What are the limitations of just using the ratios?
e) If the business has the following data for each store, what would be the break even point? Assess how useful it would be to know the break even point?
|Variable Cost||£4.20 per unit|
|Average Selling Price||£16.70 per unit|
f) Produce a break even chart for the figures above and label up the break even point, the area of profit and loss. Also mark on the margin of safety if the store is currently selling 50,000 units each year?
g)What is the purpose of setting budgets for the business? Analyse the reasons why costs need to be managed for the business? Use the data from the budgets below to evaluate the potential concequences of poorly controlled budgets.