Profitability Analysis

A Case Study of Vodafone Group Plc

Shivya Gupta 50159Shreya Banerjee 50160

Shreya Khanna 50161Shubhda Hirawat 50163Yakeen Agarwala 50192

BBS 2E SSCBS

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ACKNOWLEDEMENT

We wish to express our heartfelt gratitude to our Financial Management teacher,Mr.H.K. Porwal for his constant support and guidance during the course of this project and for giving us an opportunity to apply our classroom learnings in practical through this project.

We are extremely grateful to the analysts and experts whose works on the internet have enabled us to do this project.

Thank You

Shivya Gupta 50159

Shreya Banerjee 50160

Shreya Khanna 50161

Shubhda Hirawat 50163

Yakeen Agarwala 50192

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Profitability Analysis of Telecom Sector: A Case Study of Vodafone Group Plc JUSTIFICATION OF THE TOPIC

In the present globalised world, cellular phone services have become an essential part of everyday life. The telecom industry has experienced major changes in the recent years due to mergers and acquisitions, high profile scams and tax cases. Telecom industry in India has a big market potentiality and is a fast growing sector. Government of India is eager to reconstitute this telecom industry by enacting effective policies for more investments from foreign companies, which results in a very competitive and deregulated market in the world. The introduction of these advanced technologies makes the telecommunications industry a competitive one, where a number of multinational companies have shown their interest to invest in this industry and consequently the prices are reduced, the quality is also improved. During the period of 1990, the telecommunication industry showed a speedy growth in terms of investment and eventually increased the competition. The competition between the companies led to the decline of revenues.

Finance is the blood of every business so it is very essential to analyse the financial position of the telecom industry, against their background a study was conducted about the profit earning capacity of Vodafone.

REVIEW OF LITERATURE

The AlixPartners Global Telecommunications Outlook analyzed 155 telecommunications service providers, with revenues totalling $1.65 trillion, in all five regions of the world. Approximately 60% offer both wireless and wire-line services, with 40% offering only wireless services. Both mature and emerging markets were reviewed, with mature markets being those characterized by generally higher GDP per capita and emerging by generally lower GDP per capita. The AlixPartners Global Telecommunications Outlook analyzed 155 telecommunications service providers, with revenues totalling $1.65 trillion, in all five regions of the world. Approximately 60% offer both wireless and wire-line services, with 40% offering only wireless services. Both mature and emerging markets were reviewed, with mature markets being those characterized by generally higher GDP per capita and emerging by generally lower GDP per capita. The study finds that while telecom services companies have enjoyed strong revenue growth in recent years, their growth in EBITDA (earnings before income taxes and other deductions) – a measure of a company’s ability to generate operating cash – is falling behind an ever-growing need for higher outlays on capital investments, sometimes dangerously so.

OBJECTIVES OF THE STUDY

The study has the following objectives:

1. To study the significance of profitability by selecting a few important parameters such as Gross Profit, Net Profit, Operating Profit, Return on Investment, Return on Capital Employed, and Earnings per Share.

2. To examine the earning capacity of a sample company and testing significance of correlation by T-test.

3. To assess the critical factors which affect the profitability of Vodafone Group Plc.

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4. To give some suggestions for the betterment of the earnings on the basis of findings of this study.

COMPANY PROFILE

Vodafone Group Plc is a British multinational telecommunications company headquartered in London, United Kingdom. It is the world's largest mobile telecommunications company measured by revenues and the world's second-largest measured by subscribers (behind China Mobile), with over 391 million subscribers as of September 2011.

Vodafone owns and operates networks in over 30 countries and has partner networks in over 40 additional countries. It owns 45% of Verizon Wireless, the largest mobile telecommunications company in the United States measured by subscribers. The name Vodafone comes from voice data fone, chosen by the company to "reflect the provision of voice and data services over mobile phones".

Vodafone has a primary listing on the London Stock Exchange and is a constituent of the FTSE 100 Index. It had a market capitalisation of approximately £89.4 billion as of 23 December 2011, the second-largest of any company listed on the London Stock Exchange. It has a secondary listing on NASDAQ.

On 28 July 2000, the Company reverted to its former name, Vodafone Group Plc. In April 2001, the first 3G voice call was made on Vodafone United Kingdom's 3G network.

In 2001, the Company acquired Eircell, the largest wireless communications company in the Republic of Ireland, from Eircom. Eircell was subsequently rebranded as Vodafone Ireland. Vodafone then went on to acquire Japan's third-largest mobile operator J-Phone, which had introduced camera phones first in Japan.

On 17 December 2001, Vodafone introduced the concept of "Partner Networks", by signing TDC Mobil of Denmark. The new concept involved the introduction of Vodafone international services to the local market, without the need of investment by Vodafone. The concept would be used to extend the Vodafone brand and services into markets where it does not have stakes in local operators. Vodafone services would be marketed under the dual-brand scheme, where the Vodafone brand is added at the end of the local brand. (i.e., TDC Mobil-Vodafone etc.)

In 2007, Vodafone entered into a title sponsorship deal with the McLaren Formula One team, which has since traded as Vodafone McLaren Mercedes.

In May 2011, Vodafone Group Plc bought the rest of the shares of Vodafone Essar from Essar Group Ltd with value of $5 billion and became a solely owned of Vodafone Essar.

LIMITATIONS

1. The study covers only 10 years period from 2002-2012 for the profitability analysis of Vodafone Group Plc

2. The secondary data used in this study have been taken from published annual reports only.3. For making the analysis of profitability position of Vodafone, ratio analysis techniques of

Financial Management have been used.

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RESEARCH DESIGN AND METHODOLOGY

In this study the sample company named Vodafone Group Plc has been taken for the analysis of profitability. Present study is based on the secondary data, i.e. Published Annual Reports of the company. These financial data are classified, tabulated and edited as per the requirement of the profitability analysis of the company. The study covers 10 years data from 2002-2012.

The profitability position and earning capacity of Vodafone Group Plc have been analysed by financial techniques i.e. ratio analysis. The collected data have been analysed by the following ratios:

1. Gross Profit Ratio2. Operating Profit Ratio3. Net Profit Ratio4. Return on Investment (ROI)5. Productivity Ratio6. Return on Net Worth (RONW)7. Earnings per Share (EPS)8. Operating Cost Ratio (OCR)

For assessing the behaviour of above ratios statistical techniques have been used that is arithmetic mean, standard deviation, coefficient of correlation and T-test.

HYPOTHESIS OF THE STUDY

The study is based on the hypothesis that profitability position of Vodafone Group Plc is similar during the period

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GROSS PROFIT RATIO

Gross profit ratio expresses relationship between gross profit and net sales. It is obtained by dividing gross profit by net sales and expressing this relationship as a percentage. Gross profit is obtained by deducting cost of goods sold from net sales. Net sales are basically determined by deducting sales returns from sales.

Gross Profit Ratio= (Gross Profit/Net Sales) X 100

Gross profit ratio evaluates the effectiveness of business. It indicates the efficiency of firm in terms of its production and how much it has gained profit. Gross profit reflects the profit firm has made on cost of goods sold. If firm has higher gross profit margin then it is a sign of success because all operating expenses, interest charges and dividends would have to be taken off from GP.

Statement of Gross Profit to Net Sales (in Euros)

Year Gross Profit (€) Net Sales (€)Gross Profit Ratio

(%) Change in Gross Profit2002 9399 22845 41.1424819 -2003 12479 30375 41.0831276 -0.05942004 14098 33559 42.009595 0.926472005 10878 26678 40.7751706 -1.23442006 12280 29350 41.8398637 1.064692007 12379 31104 39.7987397 -2.04112008 13588 35478 38.2997914 -1.49892009 15175 41017 36.996855 -1.30292010 15033 44472 33.803292 -3.19362011 15070 45884 32.8436928 -0.9596

Mean 13037.9 34076.2 38.859261 -Growth Rate 60.336206 100.8492011 -20.170852

Annual Growth Rate 6.0336206 10.08492011 -2.0170852

Source: Annual Reports of Vodafone from 2002 to 2011

The above table gives the relationship between Gross Profit and Net Sales. During the period of the study highest ratio of 41.84 % was in the year 2006 and the least of 32.84 % was in the year 2011. Highest increase of 1.06% was in the year 2006. During the last three years it decreased to 36.99%, 33.80% and 32.84%, respectively. The Gross Profit ratio had an average of 38.86 % in the stated period of study.

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OPERATING PROFIT RATIO

Operating Profit Ratio shows the percentage of pure profit earned on every rupee of sales made. Operating Profit ratio is calculated before considering any financial charge, non operating income/loss and tax liability etc.

Operating Profit Ratio= (Earnings before interest and tax (EBIT)/Net Sales) X 100

Statement of Operating Profit to Net Sales (in Euros)Year EBIT (€) Net Sales (€) Operating Profit Ratio (%) Change in Operating Profit

2002 -10377 22845 -45.42350624 -2003 -5295 30375 -17.43209877 27.991407472004 -4776 33559 -14.23165172 3.2004470482005 7878 26678 29.52994977 43.761601492006 -14084 29350 -47.98637138 -77.516321152007 -1564 31104 -5.028292181 42.95807922008 10047 35478 28.31895823 33.347250412009 5857 41017 14.27944511 -14.039513122010 9480 44472 21.31678359 7.0373384862011 5596 45884 12.19597245 -9.120811142

Mean 276.2 34076.2 -2.446081113 -Growth Rate -153.927 100.8492011 -126.8494739 Annual Growth Rate -15.3927 10.08492011 -12.68494739

Source: Annual Reports of Vodafone from 2002 to 2011

The above table gives the relationship between Operating Profit and Net Sales. During the period of the study highest ratio of 29.52 % was in the year 2005 and the least of -47.98 % was in the year 2006. Highest increase of 43.76% was in the year 2005. In 2006 the operating profit ratio decreased by 77.51. Then it increased by 42.95% in 2007. It further increased to 28.31% in 008. During the last three years it decreased to 14.27%, 21.31% and 12.19%, respectively. The operating Profit ratio had an average of -2.44 % in the stated period of study.

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NET PROFIT RATIO

Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as percentage. The two basic components of the net profit ratio are the net profit and sales. The net profits are obtained after deducting income-tax and, generally, non-operating expenses and incomes are excluded from the net profits for calculating this ratio. Thus, incomes such as interest on investments outside the business, profit on sales of fixed assets and losses on sales of fixed assets, etc are excluded.

Net Profit Ratio=( Net Profit/Net Sales) x 100

NP ratio is used to measure the overall profitability and hence it is very useful to proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to achieve a satisfactory return on its investment.

This ratio also indicates the firm's capacity to face adverse economic conditions such as price competition, low demand, etc. Obviously, higher the ratio the better is the profitability. But while interpreting the ratio it should be kept in mind that the performance of profits also is seen in relation to investments or capital of the firm and not only in relation to sales.

Statement of Net Profit to Net Sales (in Euros)

YearNet Profit

(€)Net Sales

(€) Net Profit Ratio(%) Change in Net Profit2002 -16155 22845 -70.71569271 -2003 -9819 30375 -32.32592593 38.389766792004 -9015 33559 -26.86313657 5.462789362005 6518 26678 24.43211635 51.295252922006 -21821 29350 -74.34752981 -98.779646162007 -5222 31104 -16.78883745 57.558692362008 6756 35478 19.04278708 35.831624532009 3080 41017 7.5090816 -11.533705482010 8618 44472 19.37848534 11.869403742011 7870 45884 17.15194839 -2.226536947

Mean -2919 34076.2 -13.35267037Growth Rate 305.273189 50.211403 512.2895609

Annual Growth Rate 30.5273189 5.0211403 51.22895609Source: Annual Reports of Vodafone from 2002 to 2011

The above table shows the ratio of Net Profit as a percentage of Net Sales. The highest Net Profit Ratio of 24.43 % is in the year 2005 and the least was in the year 2002 with a Net Profit Ratio of

-70.72%. In certain years the ratio turned to negative value indicating loss for the company. The highest increase of 57.56% was observed in the year 2007. Vodafone showed a fluctuating Net Profit Ratio with an average Net Profit of -13.35%.

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RETURN ON INVESTMENT

It indicated the percentage of return in the business. A high return on investment shows the company is having a higher profit as a percentage of their capital employed.

Return on Investment = (Operating Profit/Capital Employed) X 100

Statement of Operating Profit to Capital Employed (in Euros)Year Net

Operating Profit (€)

TotalAssets(€)

CurrentLiabilities (€)

Total CapitalEmployed (€)

Return on Investment (%)

2002 -10377 167453 10045 157408 -6.592422242003 -5295 163139 11437 151702 -3.4903956442004 -4776 147129 12295 134834 -3.542133292005 7878 147197 14617 132580 5.9420727112006 -14084 126738 15512 111226 -12.662506972007 -1564 109617 18946 90671 -1.7249175592008 10047 127270 21973 105297 9.5415823812009 5857 152699 22496 130203 4.4983602532010 9480 156985 28616 128369 7.3849605432011 5596 151220 27075 124145 4.507632204

Mean 276.2 144944.7 183012 1266435 0.3862232Growth rate -153.92 -9.69 169.54 -21.13 -168.37

Annual growth rate

-15.392 -0.969 16.954 -2.113 -16.837

Source: Annual Reports of Vodafone from 2002 to 2011

The above table gives the relationship between Net Operating Profit before Interest and Tax as a percentage of total capital employed. The company shows a fluctuating Return on Investment ratio throughout the years. During the period of the study highest ratio of 9.54 % was in the year 2008 and the least of -12.66 % was in the year 2006. Highest increase of 10.946% was in the year 2007. In 2006 the ROI ratio decreased by 17%. Then it increased by 10.95% in 2007. It further increased to 9.54% in 2008. During the last three years it remained stable at 4.507%. The ROI ratio had an average of 0.386 % in the stated period of study.

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PRODUCTIVITY RATIO

This ratio is ascertained to find out the profit earning capacity of the company. The ratio indicated that whether the profit earned is satisfactory or not looking at the total assets of the business.

Productivity Ratio= (Gross Profit/Total Assets) x 100

Statement of Gross profit to Total Assets (in Euros)Year Gross profit Total Assets Productivity Ratio (%) Change in Ratio

2002 9399 167453 5.612918252 -2003 12479 163139 7.649305194 2.0363869422004 14098 147129 9.582067437 1.9327622442005 10878 147197 7.390096266 -2.1919711722006 12280 126738 9.689280247 2.2991839822007 12379 109617 11.29295638 1.6036761372008 13588 127270 10.6765145 -0.6164418882009 15175 152699 9.93785159 -0.7386629062010 15033 156985 9.576074147 -0.3617774432011 15070 151220 9.965613014 0.389538867

Mean 13037.9 144944.7 9.137267703 -Growth Rate 60.33620598 -9.69406341 77.54780254

Annual Growth Rate 6.033620598 -0.96940634 7.754780254

Source: Annual Reports of Vodafone from 2002 to 2011

The above table indicates the relationship between Gross Profit as a percentage of Total Assets (fixed assets and current assets) of the company. The highest Productivity Ratio of 11.29% was in the year 2007 and the least of 5.61% was in the year 2002. The company showed a production ratio of 7% to 11.2% during the period of the study, except 5.61% in the year 2002. It shows a better utilisation of the assets of the company for the production of units. The ratio showed a decreasing trend towards the last 3 years. The ratio had an average of 9.13% during the given period of study.

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RETURN ON SHAREHOLDER’S INVESTMENT OR NET WORTH

It is the ratio of net profit to share holder's investment. This ratio establishes the profitability from the share holders' point of view. The ratio is generally calculated in percentage.

The two basic components of this ratio are net profits and shareholder's funds. Shareholder's funds include equity share capital, (preference share capital) and all reserves and surplus belonging to shareholders. Net profit means net income after payment of interest and income tax because those will be the only profits available for share holders.

Return on Net Worth = (Net profit (after interest and tax) / Share holder's fund) X 100

This ratio is one of the most important ratios used for measuring the overall efficiency of a firm. As the primary objective of business is to maximize its earnings, this ratio indicates the extent to which this primary objective of businesses being achieved. This ratio is of great importance to the present and prospective shareholders as well as the management of the company. As the ratio reveals how well the resources of the firm are being used, higher the ratio, better are the results. The inter firm comparison of this ratio determines whether the investments in the firm are attractive or not as the investors would like to invest only where the return is higher.

Statement of Net Profit to Net Worth (in Euros)

Year Net Profit (EAT) Total Assets Net Worth= Total Assets-Outside Liabilities

RONW (%)

2002 -16155 167453 60691 -26.622003 -9819 163139 65598 -14.972004 -9015 147129 66907 -13.482005 6518 147197 71194 9.162006 -21821 126738 85312 -25.582007 -5222 109617 67293 -7.772008 6756 127270 76471 8.832009 3080 152699 84777 3.632010 8618 156985 90810 9.492011 7870 151220 87561 8.99

Mean -2919 144944.7 75661.4 -3.86Growth

Rate-148.71 -9.69 44.27 -133.77

Annual Growth

Rate

-14.871 -0.969 4.427 -13.377

Source: Annual Reports of Vodafone from 2002 to 2011

The above table indicates the relationship between Net Profit as a percentage of Total Net Worth (Total Assets – Outside Liabilities) of the company. The highest positive RONW Ratio of 9.49% was observed in the year 2010 and the least of -26.62% was observed in the year 2002. The company showed fluctuations in the ratio from -26.62% to 9.49% during the period of the study. Thus, it shows a very large number of fluctuations in the return on net worth. The recent years are quite

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satisfactory because of positive returns on the net worth. The ratio had an average of-3.86% during the given period of study.

EARNINGS PER SHARE RATIO

Earnings per Share ratio (EPS Ratio) is a small variation of return on equity capital ratio and is calculated by dividing the net profit after taxes and preference dividend by the total number of equity shares. The formula of earnings per share is:

Earnings per Share Ratio = (Net profit after tax − Preference dividend) / No. of equity shares

The earnings per share is a good measure of profitability and when compared with EPS of similar companies, it gives a view of the comparative earnings or earnings power of the firm. EPS ratio calculated for a number of years indicates whether or not the earning power of the company has increased.

Statement of Earnings Per Share (in Euros)

YearNet profit after

tax (€)No. Of Equity

Shares (millions) EPS (€) Change in EPS2002 -16155 67961 -24.56 -2003 -9819 68155 -13.29 11.272004 -9015 68096 -11.93 1.362005 6518 66196 8.12 20.052006 -21821 62607 -27.66 -35.782007 -5222 55144 13.98 41.642008 6756 53019 8.12 -5.862009 3080 52737 5.84 -2.282010 8618 52595 16.44 10.62011 7870 52408 15.2 -1.24

Mean -2919 59891.8 4.314 -Growth Rate -148.716 -22.88518415 -161.89

Annual Growth Rate -14.8716 -2.288518415 -16.189

Source: Annual Reports of Vodafone from 2002 to 2011

The above table indicates the earning per share (EPS) of the company. The highest EPS of 16.44 was in the year 2010. Except for the years 2007, 2010 and 2011, the EPS has been quite low. The EPS had an average of 4.34 during the given period of study, confirming the same.

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OPERATING RATIO

Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales. It is generally expressed in percentage.

Operating ratio measures the cost of operations per dollar of sales. This is closely related to the ratio of operating profit to net sales.

The two basic components for the calculation of operating ratio are operating cost (cost of goods sold plus operating expenses) and net sales. Operating expenses normally include (a) administrative and office expenses and (b) selling and distribution expenses. Financial charges such as interest, provision for taxation etc. are generally excluded from operating expenses.

Operating Ratio = [(Cost of goods sold + Operating expenses) / Net sales] × 100

Operating ratio shows the operational efficiency of the business. Lower operating ratio shows higher operating profit and vice versa. An operating ratio ranging between 75% and 80% is generally considered as standard for manufacturing concerns. This ratio is considered to be a yardstick of operating efficiency but it should be used cautiously because it may be affected by a number of uncontrollable factors beyond the control of the firm. Moreover, in some firms, non-operating expenses from a substantial part of the total expenses and in such cases operating ratio may give misleading results.

Statement of Operating Cost to Net Sales (in Euros)

Year Operating Costs OCR(%) Change in Operating Cost2002 13446 58.85752 -2003 17896 58.91687 0.0593543722004 19461 57.9904 -0.926467472005 15800 59.22483 1.2344244892006 17070 58.16014 -1.0646931612007 18725 60.20126 2.0411240022008 21890 61.70021 1.4989482922009 25842 63.00315 1.3029364572010 29439 66.19671 3.1935630042011 30814 67.15631 0.959599168

Mean 21038.3 61.14074Growth Rate 56.36399039 12.35742

Annual Growth Rate 5.636399039 1.235742Source: Annual Reports of Vodafone from 2002 to 2011

The above table indicates the relationship between Operating Costs as a percentage of net sales. A higher ratio indicates lower efficiency in production and lower rate indicates higher efficiency of production. Vodafone had a highest OCR ratio of 67.16 % in the year 2011 and lowest of 57.99% in the year 2004. OCR wasn’t above 100% indicating that the production cost was never higher than the amount of sales for the years under study.

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STANDARD DEVIATION, CO-VARIANCE AND ARITHMETIC MEAN

Arithmetic Mean (AM) is one of the most popular and widely used measures of representing the entire data by one value i.e. average.

Standard Deviation (SD) is a popular measure of dispersion. The standard deviation measures the absolute dispersion or variability of distribution. A small standard deviation means higher uniformity among the observations.

Coefficient of Variation (CV)is the relative measure of dispersion. CV is used when the variability of two or more series has to be compared. A higher CV indicates high variability and vice versa.

GPR NPR OPR ROCE RONWProductivity

Ratio EPSSD 3.317497 37.23174 3.31496 7.082482 14.68784 1.723245 10.136CV 10.10086 -278.834 5.421851 1833.78 -380.514 18.85952 130.4018

AM 32.84369 -13.3527 61.14074 0.386223 -3.86 9.137268 7.7729

The table indicates the AM, SD and CV of the observations. The highest mean of 61.14 was observed in the OPR and the least of -13.35 in NPR. Highest variability of 37.231 was observed in NPR which means a higher degree of variability and the lowest variability of 3.314 in OPR. The CV of ROCE was the highest with 1833.78, and the lowest variability of -380.514 in RONW.

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CORRELATION AND T-TEST

Coefficient of Correlation (r) is a mathematical method of measuring correlation. It gives the degree of relationship between two variables. The values of r lie between +1 and -1 when r=1, means perfect positive correlation, r=-1 means perfect negative correlation, r=0 means no relationship between variables.

t-Distribution is a test used for testing of hypothesis of sample size less than 30. If the calculated value of t is less than the table value, the null hypothesis will be accepted and viceversa; for a given significant level. It can be calculated as:

t= r

√1−r 2×√n−2

r= Coefficient of Correlation

n= No. of Observations

Significance of Coefficient of Correlation and T-testParticulars N.P.TO N.S. O.P. TO C.E. N.P. TO N.W.

Correlation 0.669859645 -0.22922 0.310212Calculated Value of t 2.551758188 -0.66608 0.922942

Table Value of t 3.35 3.35 3.35Significant Yes Yes Yes

Level 1% 1% 1%

The table indicates the correlation and t-test value. Highest positive correlation of 0.66 is between Net Profit and Net Sales and negative correlation of 0.22 is observed between Operating Profit and Capital Employed while Net Profit and Net Worth showed only an average positive correlation of 0.31. When t-test was applied at 1% of significant level, the calculated value was less than table value that is null hypothesis was accepted i.e. no relation between N.P and N.S.

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FINDINGS AND CONCLUSION:

1. The annual growth rate of Gross Profit Ratio is in negative, which is not a good sign. It indicates of poor management as it means that the efficiency of producing each unit is low and that the cost of production is relatively higher as compared to income.

2. Operating Profit Ratio is not at all satisfactory as the average ratio is in negative. Increase in indirect expense and fluctuating sales is responsible for lower Operating Profit Ratio. The fluctuations in the operating expenses exceeded the fluctuations in net sales which is not a good sign of operational efficiency.

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3. Vodafone’s Net Profit Ratio is not at all satisfactory for the business, because its average of -13.35%, which indicates loss, is not worthwhile for the organisation. There have been fluctuations in the NPR. Through their efforts the organisation tried to bring up the Net Profit Ratio which over 61.15%the years proved to be fruitful bringing up the NPR to 17.15% in 2011 from -70.72% in 2002. The rate of increase of NPR to Turnover was less during the last 4 years, which indicates lesser return on investment inside and outside the business. The increase in service tax had a major impact on the Net Profit of the company. Though the Net Profit became positive they were not found good due to certain uncontrolled indirect expenses.

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4. Return on Investment Ratio is not at all satisfactory till the year 2007 as the ratio is in negative. Low net operating profit because of an increase in direct and operating expenses is responsible for lower ROI Ratio.

5. Productivity Ratio was positive throughout the study period. It had a range of 7% to 12% and the highest of 11.29% was recorded in 2007. The ratio had a good average of 9.13% during the study period. However, better utilisation of assets of the company for the production of units could be made in order to increase earning capacity.

6. RONW Ratio became positive from the year 2008. The company incurred net loss during the years 2002, 2003, 2004, and 2006. Rest of the years the company therefore had positive RONW ratio. Even then the returns are not up to the mark and higher net profits are required to keep the position of the firm stable and credit worthy. The company is, however, progressing year on year with its returns increasing from 2008 continuously.

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7. The mean EPS over the years is quite low and the annual growth rate of it is in negative, which again is not a good sign. It reflects upon the fact that the equity share capital is not being effectively used and that the company’s capacity to pay the dividend to its equity shareholders is weak.

8. Operating Cost Ratio of Vodafone was high with an average of throughout the period of study. In the last year 2011 the production cost was highest with 67.16 %. High Operating Ratio is very dangerous for the survival of the company. Vodafone had a continuously increasing production ratio, due to uncontrolled cost and expenses like Selling and

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Distribution Expense, Administrative Expense, Cost of Production etc. Operating Cost Ratio had a great impact on decrease in value of other ratios. Production cost should be decreased to increase the profitability.

9. SD showed highest variability in NPR and the least in OPR. It shows a good sign to equity shareholders. Among all profitability ratios highest variability was shown by ROCE which had the highest covariance.

10. Highest positive correlation of 0.66 is between Net Profit and Net Sales and negative correlation of 0.22 is observed between Operating Profit and Capital Employed while Net Profit and Net Worth showed only an average positive correlation of 0.31. When t-test was applied at 1% of significant level, the calculated value was less than table value that is null hypothesis was accepted.

By the observations of the study, it is found that Gross Profit and Net Profit were not satisfactory which shows inefficiency on the part of the management. This may be due to uncontrolled indirect expenses like power and fuel, repair and maintenance. The company should imprive its overall performance by reducing expenses, increasing sales and adopting advanced new technology. In global market, it is very difficult to compete with similar companies. It can compete by reducing cost of production. After the analysis of various data, it is clear that the profitability more or less depends on the better utilisation of resources and manpower.

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