Vodafone Performance Evaluation - Assignment Example

PERFORMANCE EVALUATION By Name Course Instructor Institution City/State Date Introduction The evaluation of performance of a company involves assessing the aspects of the company that are linked directly to the financial performance. The evaluation consists in assessing the financial and economic decisions that are made by a company. These decisions are applied to the investment, financial and operations of the company. Evaluation of the company helps in finding the critical aspects that are crucial in achieving the financial goal of the company. The key determinant parameters in the evaluation of the company are the internal and external influences on the financial profitability of the company (Philips, 2012, p. 125). The structure of the management of the company its employees and stakeholders determine the performance of the company. Therefore, in evaluation the performance of a company, such factors should be addressed. The reason in evaluating the management of then company is that the management if directly involved in decision-making. The decisions of the company affect its relationship with both stakeholders and its employees. In addition, the management of the company is responsible for the adoption of new technologies that will enhance performance of the company. This report will evaluate the performance of Vodafone using the internal and external influence on the financial decisions of the company. Vodafone is one of the leading multinational in the telecommunication industry that has employed the aspect of corporate governance in enhancing good performance (Vander, 2009, p. 498). In evaluating the performance of Vodafone group, various performance indicators will be used which include financial indicators, operational indicators, and strategic indicators. In this report, the cash flow, adjustable operating profit, capital expenditure, and customer delight index, and EBIDTA. These parameters are used since they affect the management as well as the financial position of the company in the market. The influence of investors and community in evaluating the performance of Vodafone is not included since it does not directly affect it financial position in relation to market completion and potential growth (www.vodafone.com, 2013). Governance of Vodafone Vodafone has embraced the principle of corporate governance practices in enhancing its performance. The company is aimed at enhancing a transparent governing board, which complies with the standard code of ethics and governance. This is crucial in gaining investors support and other stakeholders support in decision-making (Malin, 2007, p. 145). In addition, customers are able to gain confidence in the company products. This enables the company to record an increased rate of turnover. Vodafone has a strong board of directors that is focused on the success of the company (Goedhart, 2007, p. 36). The performance of the company is dependent on the ability of the board of directors to implement sound management decisions. The operations of the board are strong band employee transparent ways. In this way, the board of directors is able to develop strategies that enhance performance of the company. Since the board is the overall financial controller, there is a continuous assessment and evaluation of the board. This is critical in maintaining the performance of the company. The functions of the board include setting the objectives of the company. In addition, the board has ensured a transparent reporting system that is able to attract the confidence of the investors (Vander, 2009, p. 500). Business strategies: The board of directors is responsible to discuss all strategies such as adoption of new technologies, strategic commercial issues and location of various branches all over the world. The business strategies are reviewed on a daily basis. This ensures that the company is up to date with the current strategies that are applicable in the changing economies. The adoption of viable strategies is crucial in attaining good performance. The strategies are reviewed concerning the financial budget in order to balance the revenues of the company and the expenditure. Business performance: The performance of the board is evaluated by an evaluation committee. The evaluation committee also evaluates the commercial performance of the company in the local and international market. This is important in that it enables the board to identify the areas of weakness and strategise the ways on improving. The board of directors is also responsible to report to shareholders on the performance of the company and matters related to decisions and strategies adopted by the company (Malin, 2007, p. 123). In addition, the board focus on the role of shareholder involvement in the business and evaluates shareholder returns. In measuring and evaluating the performance of Vodafone, various indicators are used which include financial metrics and non-financial metrics. Free Cash Flow The performance of Vodafone can be evaluated using the free cash flow of the company. The cash flow defined as he the flow of cash used in operations of the company minus the expenditure of the company (Fletcher, 2013). This is a determinant factor in the evaluation of Vodafone performance. EBIT (1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure. Vodafone group has maintained an excellent cash flow, which is a good indicator of the company growth. For example in 2010, the company recorded a free cash flow of £7.2bn, which indicates a 26% growth from the previous year (www.vodafone.com, 2013). The free cash flow is crucial in that it helps in evaluating the performance of the company. It provides the total revenue that was generated by the company. This is crucial in that it indicates the consumption of services by customers in the market it also implies that the services of the company are appreciated by the consumers. The free cash flow enables the company to make acquisitions, pay dividends and reduce the number of creditors. The free cash flow is also a crucial factor in that the remunerations of the employees are dependent on the free cash flow. The Vodafone group has designed competitive remuneration policies, which are governed by the free cash flow (Fletcher, 2013). The behaviours of the employees are influenced by their remuneration packages. The employees earn a better pay package that makes them committed to the success of the company. The implication of the positive free cash flow posted by Vodafone suggests that the company has more income compared to its expenditure (Bearbull, 2012). Although the company has a positive free cash flow value, the value may not always reflect that the company is doing well. Companies that struggle to do better may show negative cash flow. In addition, the positive cash flow may indicate that the company is not investing much of its revenues. Companies that spend more money on investment may have negative values of free cash flow. A negative value also implies that the company is struggling tom finance its operations. However, Vodafone is more that five years old in the industry hence its cash flow is not should not be affected by the expansion. Despite this, the company has managed to expand into more countries and still maintains a positive free cash flow. Finally, the free cash flow attracts more people to buy shares from the company, which increases its revenues and capital (McKinsey & Company Inc et al., 2005, p. 698). Adjusted Operating Profit This is the amount of money a company generates from its operations which does include expenses such as employee’s salaries and wages, cost of good sold and depreciation. In fact, the adjustable operating profit is a synonym of earnings before interest and taxes. They do not take into account any investment the company has made to other external firms, taxes and interest (Bearbull, 2012). Operating Income = Gross Income - Operating Expenses - Depreciation. The adjusted profit for Vodafone in the year 2010 was at £11.5bn, which is indicative of its performance in the market (www.vodafone.com, 2013). This value is crucial in evaluating the performance of the company since it is used in evaluating the operating performance of the company. This is also used in determining the management remuneration of the company. Vodafone disclose the value of the adjustable operating profit to shareholders in order to ensure transparency in its operations. Investors are keen to establish the adjustable profit in order to determine their share payment. An increase in operating profit is an indicator of good performance in the market. Total Communication Revenue This is the revenue generated by a company in a financial year. In evaluating the performance of a company, this parameter is crucial in determining the possibility of the company for growth in the future. Revenue growth is used to measure how fast Vodafone is expanding and at what rate. This is attributed to the operations of the business. Vodafone record an increase in total communication revenue. For example, in 2010, the Vodafone group posted total communication revenue £44.5bn, which was a growth of 8.4 % (www.vodafone.com, 2013). This was an improvement from the previous years thus indicating that the company was expanding very fast. In addition, the increase in revenue growth was due to improving Vodafone market in different countries. This value is essential since it determines the ability of the company tom pay its shareholders larger amounts of dividends. The increased revenue growth is also due to sound management decision of the board of directors. Implementing the current trends of market research and technology, the board of directors has adopted the best ways and strategies that increase the sales of the company products and services. The total communication revenue also determines the ability of the company to pay its workers and debts. Therefore, Vodafone is in the position to expand in the future since it records high revenue growth. Despite this growth, the company has also recorded poor revenue growth in any market. This does not imply that the company is not in a position to expand. The failure to post high revenue in these markets may be attributed to other factors such as low investments in those areas (McKinsey & Company Inc et al., 2005, 158). Customer Delight Index This focuses on the ability to satisfy customer in the market. This is used to evaluate the likelihood of making more sales on a certain product. Vodafone has designed a range of products that are in line with the current technological trends in the communication industry. This increases the revenue of the company. This index enables the Vodafone group to establish the preferences of the customer while gauging the success of the company. A high customer index means that the company is making progress in the industry. This implies that shareholders are able to earn more divide. This index is also used to determine the remunerations of the employees in the company (Vodafone Annual Report, 2010). Conclusion The evaluation of a company's performance involves measuring all the parameters that affect the financial position of the company. The evaluation of the financial economics helps decision-making and strategic management. Evaluation of the company helps in finding the critical aspects that are crucial in achieving the financial goal of the company. The key determinant parameters in the evaluation of the company are the internal and external influences on the financial profitability of the company. The parameter used in the evaluation of company performance includes the free cash flow of the company, adjustable operational profit and customer index. The free cash flow of a company is the amount of cash a company is able to generate from the various operations minus the expenditure of the company. This helps in understanding the financial position of the company. In calculating the financial position, the value should indicate a growth. However, negative values are posted when the company is new to the industry. Vodafone group is one of the leading companies in telecommunication, which records a positive value. This means that the company has the ability to finance its operations and expand in the future. The company has employed a board of directors who have strong management skills that implement strategies that are evaluated to ensure the success of the company. In addition, the total communication revenue of Vodafone helps in evaluating the ability of the company to grow and pay its creditors. The company has recorded a positive increase in revenue from its operations and investments. This means that the share index of the company increase. The shareholders are able to earn more dividends. The company also records an icr4ase profit before tax. This is crucial in winning investor confidence. Therefore, evaluation of a company's performance is attributed to good corporate governance, which ensures the success of the company. References Bearbull, M., 2012. Vodafone and the wonder of free cash. Investors Chronicle. [Online]. http://www.investorschronicle.co.uk/2012/01/25/comment/mr-bearbull/vodafone-and-the-wonder-of-free-cash-MumTrF87EqMsnL336Zyw2N/article.html. Accessed on 08-04-2013 Clarke, T 2007. International Corporate Governance: A Comparative Perspective. London: Routledge. Fletcher, N., 2013. Vodafone jumps 2% despite disappointing European performance. The Guardian, [Online]. Available at: Accessed on 08-04-2013. McKinsey & Company Inc., Koller, T., Goedhart, M., & Wessels, D., 2005. Valuation: Measuring and Managing the Value of Companies. New York: John Wiley & Son Goedhartt, C., 2007. Corporate Governance. Oxford: Oxford University Press. Vander, H., 2009. On the Relation between Corporate Governance Compliance and Operating Performance. Accounting and Business Research, 39, pp. 497-513. Philips, J., 2012. Handbook of Training Evaluation and Measurement Methods. London: Routledge Vodafone, 2013. [online] Available at . Vodafone Annual Report, 2010. [Online]. Available at: Accessed on 08-04-2013. Vodafone Annual Report, 2012. [Online]. Available at: Accessed on 08-04-2013. Read More