Financial Management Argumentative Essay Example

low threat of competition due to its well-established internet operations which enable it to offer value added services. The telecommunications industry is capital intensive, requiring significant resources to set up voice networks, let alone integrating internet access. However, Vodafone's resources put it in a favorable position compared to its competitors to compete on the basis of value added services. The current reliance on voice products means that buyers have a lot of choices, thereby giving them high bargaining power.

Despite the unclear direction of the market push, companies such as Vodafone with first mover advantages are gradually transitioning towards value added services. Furthermore, the Western education system is highly developed, suggesting that value added services will continue to experience an increasing demand. The telecommunications industry denotes a unique case where both suppliers like Vodafone and consumers are actively working towards expanding its limits. Consumers seek an extensive array of mobile network services from Vodafone, aspiring to avoid constant internet cafe visits when seeking online information.

On the contrary, Vodafone aims to boost sales of value added services, which generate higher profits, ensuring their strong long-term profitability. The bargaining power of buyers is diminished by these services, while supplier bargaining power remains adequate. Therefore, Vodafone's long-term profit potential seems more dependable than Marks and Spencer's, based on Porter's five forces analysis. Furthermore, industries are susceptible to political, economic, sociological, and technological forces, according to PEST analysis.

Political turmoil can greatly harm all industries, but consumer goods are less affected compared to telecommunications. This is because the former provides essential products that customers prioritize even during challenging times. Due to this, consumers allocate a specific amount of their income to

purchasing consumer goods, which is not categorized as disposable income. The level of disposable income primarily affects the purchase of value-added services during economic hardships. Hence, assessing Vodafone's long-term potential requires considering economic projections of the UK and other countries where the company operates.

Despite challenging economic times, Vodafone's diversified portfolio of business operations puts the company in a favorable position. While other businesses may not be investing as much in telecommunications, Vodafone's investments in various areas of technology, such as online security, set it apart. This expertise will give the company resilience in the face of economic turbulence. Overall, Vodafone's broad focus ensures that even if one technological sector suffers during an economic downturn, the company can remain buoyant thanks to its other ventures.

Conducting a thorough analysis of a company's financial statements, in addition to customary PEST and Porter's five forces analyses, is crucial for making an informed investment decision. To conduct this analysis, it is necessary to review the financial statements from the past few years and take into account analyst reports such as those from Goldman Sachs and Lehmann Brothers. Projecting the balance sheet, income statement, and statement of cash flows for at least three years is also essential. It is important to consider how revenues and costs are likely to change based on existing percentages of change and data from analyst reports. Ultimately, gaining a comprehensive understanding of how revenues have been evolving over recent years is vital for investors.

By assuming a fixed percentage growth in revenues over the past five years, investors can predict future growth for three years. However, this prediction does not account for external and internal environmental

factors that influence profitability. To incorporate these factors into their analysis, investors can consult analyst reports that analyze past and projected performance of the company as well as changes in its internal structure. If the industry has experienced consistent growth but is expected to slow down, investors must adjust their optimistic projections accordingly.

Therefore, the investor must combine data from internal and external reports on Vodafone and MarksSpencer to predict their revenues for the next three years. Additionally, cost projections are necessary. It can be assumed that costs as a percentage of revenues will remain unchanged, unless analyst reports indicate downsizing at either company leading to expenses related to wages and salaries requiring adjustment.

It is necessary to include plant and equipment investments in the balance sheet projections, along with the projection of items like accounts receivable and inventory based on past performance indicated by common-sized statements. Analyst reports could also indicate possible changes in the company's credit policies, which may require adjusting the accounts receivable as a percentage of sales accordingly.

After creating three-year forecasts for the income statement and balance sheet, annual projections for the cash flow statement can be generated. This will determine if the company has sufficient funds to cover short-term obligations. It is important to factor in any reported downsizing by analysts, as this will necessitate downward adjustments to future projections. Such downsizing could have a detrimental effect on employee morale, leading to decreased productivity.

The following step after finishing projections for the three financial statements is to perform ratio analysis, which involves projecting liquidity ratios, efficiency ratios, and profitability ratios. These ratios must then be compared with industry benchmarks to assess whether the

company is performing better or worse than average. The primary aim is to determine if shares are underperforming or over-performing since this vital information facilitates sound investment decisions. Often, selecting underperforming shares proves advantageous.

In order to decide which stock, Vodafone or MarksSpencer, is underperforming more, the investor must conduct thorough analyses and examine the findings. The prior analysis suggests that Vodafone shares are significantly underperforming due to their successful global expansions, as evidenced by their decreasing price-earnings ratios. Consequently, investing in Vodafone would be the optimal choice for the investor.

BIBLIOGRAPHY Brigham, Eugene F., and Michael C.

Ehrhardt's "Financial Management: Theory & Practice" was published by South Western College Pub in 2007.