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Running Head: FUNDAMENTAL ANALYSIS: VODAFONE COMPANY

FUNDAMENTAL ANALYSIS: VODAFONE COMPANY

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FUNDAMENTAL ANALYSIS: VODAFONE COMPANY
Executive Summary
This study seeks to explore fundamental analysis in the context of cellular companies
(telecommunication Industry). In general, the study examines various aspects that are considered
during fundamental analysis. In its completeness, the paper conducts a top-down economic
analysis of telecommunication industry, and a bottom-up analysis of Vodafone Company. Prior
to an investment decision, any potential investor must be keen to conduct a fundamental analysis.
In the procedure, one should look at the economic environment in totality and identify the trends
that are emerging in the market and which control market securities. The asset value remains the
most vital element to every investor (Pratt 2011). The study investigates results of prior
researchers as well as reports to come up with a fundamental analysis for telecommunication
sector particularly Vodafone. The study observed GDP, inflation, interest rates, budget and
balance of payment are essential environmental factors that any company should assess before
taking any venture. In the top-down analysis, the study found gross profit margin, markup,
margin, and net profit ratio as the most key ratios in the bottom-up analysis. It was found that
from the year 2008 to 2009, most of the financial ratios for Vod afone declined (Bugz 2010).
However, the figure for each ration despite registering a drop still remained good.
Introduction
While making any investment decision, each investor is interested with the intrinsic worth of an
asset (Pratt 2011).This intrinsic asset value is usually determined by the assets future earning
potential. In the context of the securities market, investors normally have a variety of securities
available for the venture. However, most investors would practically opt to invest in ones that
appear to have the best potential for future. For one to gain certainty of future profitability of any

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securities, he or she should consider a fundamental analysis of the firm. A company fundamental
analysis encompasses in-depth examination of every possible factor that reportedly has bearing
on the prospectus of the firm together with its prices of shares. In fundamental analysis, three
areas are usually of interest just as the study seeks to explore including the economic analysis,
company analysis, and industry analysis. This study seeks to survey fundamental analysis of
Cellular Service Provider firms in India by examining the industrial, economic and company
analysis. The research analyzes Vodafone Company, which is one of the firms that growing
deeper and wider in the telecommunication industry. The storm of Vodafone is not only felt in
U.K but is strong in nearly every continent (Bugz 2010).
1.

Economic Analysis

Reportedly, economic activities in any nation usually have an impact on the investment in
several ways. When the economy is in a good state and it is at practically in the growing phase,
investment is very high and the stock market undergoes a boom phase. When the economic
activity is dim, the reverse process comes to play; investment is low and the stock market is at
recession (Rathburn & Hitt 2009). Owing to thus view, it is very essential that firms consider
analyzing all microeconomic exhaustedly. In doing so, parameters such as gross domestic growth
rate, inflation, interest rates, and budget, the balance of payment, and monsoon and agriculture
are considered.
GDP growth rate
Gross domestic product depicts the aggregate worth of services and goods that are manufactured
or produced within the state. All major investors including the foreign financial institution, local
financial institutions, and their portfolio managers commence with estimation of the rate of
growth of GDP of the nation in that they are purposing to invest in. If the country demonstrates

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high GDP with and increasing trend, more investors come take the risk. On the contrast, should
the country show low GDP with a declining rate, the venture becomes unworthy course.
Inflation
Inflation generally defines a general yet increment of prices of services or goods in a country.
Inflation usually lowers the value of money hence the asset value in the affected nation. The
GDP growth rate assessment is usually conducted on the basis of the rate of inflation. In cases
where the inflation shows to grow in a direct proportion to the GDP, the real growth rate then
becomes insignificant. For such a scenario the consumer industry demand is direly affected. An
increase in the rate of inflation would translate to a decrease in the amount remaining. This, in
turn, affects the securities market investment. The rate of inflation for the two months this study
assesses grows beyond 11% (Bugz 2010).
Interest rates
Interest rates explain the rates at bank charges loans that they extend to either individuals or
groups or companies. When an individual or a company obtain a loan from any bank, they
usually return the initial amount borrowed plus an additional accrued money which is a fraction
of the total borrowed money usually charged per year. Most firms thus borrow money from
banks or other financial institutions to add on their capital or meet their expenses. An increase in
interest rates would lead to a corresponding increment their interest expenses. Consequently, the
company’s profitability declines. An augmentation in interest rates is usually depicted in a
negative way in the stock markets (Pratt 2011). However, interest rates must be maintained high
for the purpose of inflation control. The process entails depriving the market of excess money to
minimize money supply in the country’s economy, which would otherwise fuel inflation.
Budget

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Basically, budget means a statement that shows the proposed revenue and the estimated
expenditure of any government. A budget can be balanced, favorable or deficit. A balanced
budget is the one that the government’s income estimation equals the projected expenditure for
the same financial year. A favorable budget is the one, in which the estimated revenue collection
exceeds the planned expenditure. On the contrast, a deficit means that a government has more
expenditure in comparison with the income. A favorable (surplus) or balanced budget would be
welcoming for an investment ideation. However, a deficit budget escalates the inflation rate and
multiplies the production cost for the firms.
BOP (Balance of payment)
The balance of payment usually referred to as BOP is normally a statement that identifies
receipts as well as the payments of the nation for all the transactions that it engages in with other
countries. More receipts than payments result to a favorable BOP while more payments bear
unfavorable BOP. Should the receipts and payments level the Bop becomes balanced too.
Unfavorable BOP stimulates inflation while favorable promotes deflation (Rathburn & Hitt
2009).
Monsoon and agriculture
A good monsoon poses favorable effects to the security markets while adverse monsoon is
detrimental to market securities. Monsoon indirectly controls demand for a variety of industries
especially those are linked with agricultural materials in one way or the other since monsoon
affect agricultural production. Moreover, for agricultural-reliant countries, good monsoon
increases GDP (Klaver & Slaa,2012)
2.

Industry Analysis

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In the evaluation of the industry, the management should consider classifying the industries the
foundation of business cycles. The fundamental analysis I this case explores the industry analysis
in the context of a growth industry, defensive industry, cyclical industry, government policy,
labor, product industry and market share of the industry (Nicholas 2013).
Growth industry
These are the k...