Corporate Financial Management - Essay Example

?   Corporate Financial Management Number:       Corporate Financial Management Introduction Vodafone Group is a British international telecommunications corporation with the headquarters situated in London. The corporation also has its enlisted administrative centre in Newbury, Berkshire. In addition, Vodafone is the second largest mobile telecommunications corporation in the world, calculated by both 2011 earnings and subscribers, and as at December 2011, it had 439 million users. Also, Vodafone operates and owns networks in more than thirty nations and contains partner networks in more than forty extra nations. Its Vodafone Global Enterprise offers Information Technology and telecommunications services to corporate consumers in more than sixty five countries. Moreover, Vodafone has a 45% stake at Verizon Wireless. Verizon Wireless is the leading mobile telecommunications corporation in the United States of America calculated by users. Vodafone is also listed in the London Stock Exchange and is a part of the FTSE 100 index. As of July 2012, Vodacom had a market capitalization of almost 89.1 billion pounds. This was the third leading of any organization listed on the London Stock Exchange. Vodafone also contains a secondary listing on NASDAQ. Additionally, the name Vodafone is derived from voice data fone, selected by the corporation to illustrate the offering of voice and data services using mobile phones. Vodafone has a vision of being the leading mobile communication company in the world and a significant element of this is to make sure that consumers admire and trust the company. The company attains this by adapting a responsible model to the way it carries out its business activities. This augments its standing and develops customer loyalty. The company’s business strategy and corporate responsibility strategy are also interconnected. Vodafone holds the view that long-term commercial benefits emerge from doing business in a sustainable manner. Vodafone adopts a two-fold approach in doing business. One is to offer product extension. This entails introducing new services, dimensions, and features in saturated areas. These are regions like Europe and USA which contain complicated consumers who expect and want novel functions from their mobile phones. Establishing new ways of delivering services and products helps to preserve existing users and appeal to new ones. For instance, 3G technology has enhanced the quality and capacity of transferring voice and data. The second is looking for openings in emerging sectors (Vodafone Group 2012, p. 54). These include a number of the globe’s more remote regions, including some regions in Africa, where a large number of individuals cannot have access to a mobile phone. This paper will analyse the sources of finances, gearing of Vodafone during the last five years. The paper will realize this by providing a critical evaluation of the gearing and policies of the company with regard to its corporate objectives, relevant theories, and industrial sector practices. The foremost objective of Vodafone as a business unit is the maximization of profit. The organization also has a mission statement which makes sure that this foremost objective is attained in the most suitable manner possible. The mission statement is to be the leading communication company in a progressively more connected globe. Correspondingly, the mission statement is passed on to all shareholders of the organization, particularly to the company’s workers, largely because it is the workers who make the most significant contribution in accomplishing the objectives of the company. Vodafone is also dedicated to offering markets with less developed infrastructure the necessary technology to establish communication which will be of significance both socially and economically. Finally, it is committed to accomplishing its goals by providing superior and innovative services. Vodafone provides both basic telecommunication services, for example, text messaging and mobile phone calls, and other highly developed services, for example, Vodafone 3G which provide 3G services that permit subscribers to download and transfer data in a number of formats, and Vodafone Office and Vodafone at Home which illustrates mixed mobile and communication services to satisfy both business and household needs. Industrial sector practices are governed by the Communications Act put forward in 2003. The Act provides a solid foundation for a budding sector in the United Kingdom, and focuses on enabling a cohesive United Kingdom communications sector. The focus of industrial sector practices has been transformed to making the most of the growth capacity on the international arena. The driver has shifted from internal structures to enabling external reach, on turning into the universal investor in the communications arena. This is the foremost legislation which established Ofcom as the controller for the larger communications sector. The Act controls communication providers by ways of general authorizations which are needed to be adapted as a requirement of taking part in the sector. Some of the industrial sector practices include, one, the communications provider should take all the logically practical steps to sustain to the most significant extent probable; the suitable and adequate operation of the public telephone network offered by it at permanent areas at all periods; in the occasion of disastrous network failure the accessibility of the public telephone network and publicly available telephone services offered by it at set areas; and continuous access to emergency companies as part of any publicly available telephone services provided at set areas. Two, the communications provider should guarantee that any barriers put by it on access to and use of publicly available telephone services provided at set areas are found on objective criteria identified in advance, non-discriminatory, and proportionate. Three, communications providers should act with integrity and honesty, including justly dealing with apparent or actual conflict of interest between their commercial or financial interests and their responsibilities to the clients. Four, service providers should promote understandable, full, timely, accurate, and fair revelation in all documents and reports that they submit to or file with the London Stock Exchange or otherwise reveal it to the public. Five, they should make sure that their actions comply with the set code of ethics. Six, the service providers should report any suspected or known violations of the code of ethics to the relevant bodies. Finally, industrial sector practices require communications providers to comply with all regulations, laws, and rules applicable to them and to its relation with its stakeholders. The foremost sources of finance of Vodafone include liquidity and capital resources, commercial paper programs, bonds, and acquisitions and disposals. Liquidity and Capital Resources The foremost sources of liquidity of Vodafone for the last five financial years have been money obtained from operations, borrowings through long-term and short-term issuance in the capital markets, disposal of investments, and dividends from partners. Vodafone does not utilize nonconsolidated special purpose entities for other financing reasons or as a source of liquidity. The foremost sources of liquidity of Vodafone for the imminent future are probably finances obtained from the company’s operations and borrowings from committed banking institutions as well as through short-term and long-term issuances in the capital markets. Where it has been possible, excess finances in the group have been taken to the centralized treasury unit through dividends, repayment of borrowings, share purchases, investments, and deposits. These finances are then contributed as equity or loaned internally to finance the operations of the company, utilized to finance shareholder returns, invested externally, or employed to clear external debt. Vodafone has maintained a stout liquidity position throughout the five years thereby enabling the company to service debt, expansion, and shareholder returns through capital investment. This situation has been attained through constant delivery of stout operating cash flows, issuances of long-term and short-term debt, cash receipts from investment disposals, and non-recourse borrowing assumed with regard to the rising market businesses. The company had 7,138 million pounds of cash and cash equivalents which are retained in agreement with the treasury policy of the company (Vodafone Group 2012, p. 55). Commercial Paper Programs Vodafone has a euro and US commercial paper programs of approximately 5 billion and $15 billion correspondingly which are at disposal to be utilized to meet short-term liquidity needs. Some of these finances are provided by counterparties external to the company. The commercial paper facilities were financed by some finances of syndicated committed bank facilities (Vodafone Group 2012, p. 57). Bonds The company has a 30 billion euro medium-term note program and a United States shelf program which are utilized to meet both medium-term and long-term financial needs. The sum total under the euro medium-term note program and a United States shelf program divided by currency were 0.2 billion pounds, $13.3 billion, 8.9 billion Euros, and 2.5 billion pounds equal to other currencies as at March 2012. Also, during the end of this period bonds with a nominal worth equal to 0.7 billion pounds at the appropriate foreign exchange rates were given under the euro medium-term note program and a United States shelf program (Vodafone Group 2012, p. 57). Acquisition and Disposals In 2011, the company got a net 4,872 million pounds, net of cash equivalents and cash acquired and disposed, from disposal and acquisition activities all through the year. Vodafone sold the whole 44% interest in SFR to Vivendi for cash amounting to 6.8 billion pounds prior to transaction costs and taxation and got a final dividend of 200 million Euros from SFR. Also, Vodafone and SFR got into a partner market contract which will help in the maintenance of commercial cooperation. The company also acquired an extra 22% investment in Vodafone India Limited from the Essar Group for cash, worth 2.6 billion pounds counting withholding tax, in July 2011. In addition, during the same year Vodafone sold the whole 24.4% interest in Polkomtel for cash consideration of almost 918 million Euros prior to transaction costs and tax (Vodafone Group 2012, p. 56). There are two theories that may be relevant to the financial components of Vodafone. They include the external environment theory and the PPO financing theory. The external environment theory asserts that the actions of competitors affect the capacity of the business to be profitable, the economy determines the degree of profitability, the social system determines the nature of leisure and work, and the target population, the monetary system causes business exchange, and the legal system establishes the frameworks and rules for a business to operate. The external environment theory explains how Vodafone is financed through liquidity and capital resources. It realizes this from operations, borrowings through long-term and short-term issuance in the capital markets, disposal of investments, and dividends from partners. The PPO financing theory explains that finances which are generated internally are the most ideal then debts follow if there is a need for external financing. According to this theory new equity is the final source of financing the activities of the company. In Vodafone’s case, the company generates most of its operational funds through internal sources. Vodafone has a 30 billion euro medium-term note program and a United States shelf program which are utilized to meet both medium-term and long-term financial needs (Vodafone Group 2012, p. 57). It also has a euro and US commercial paper programs of approximately 5 billion and $15 billion correspondingly which are at disposal to be utilized to meet short-term liquidity needs, among other internal sources of funding. Conclusion Vodafone has several set objectives which make it one of the leading companies in the world, they include maximization of profit, offering markets with less developed infrastructure the necessary technology to establish communication which will be of significance both socially and economically, and providing superior and innovative services. Vodafone has a number of ways of financing its activities. The most outstanding sources of finance of Vodafone include liquidity and capital resources where money is got from operations, borrowings through long-term and short-term issuance in the capital markets, disposal of investments, and dividends from partners; commercial paper programs where there is a euro and US commercial paper programs of approximately 5 billion and $15 billion correspondingly which are at disposal to be utilized to meet short-term liquidity needs; bonds in form of 30 billion euro medium-term note program and a United States shelf program which are utilized to meet both medium-term and long-term financial needs; and acquisitions and disposals (Vodafone Group 2012, p. 56). There are also a number of industrial sector practices which have a bearing on the operations of Vodafone and theories, for example, the external environment theory and the PPO financing theory which are relevant to the financial components of Vodafone. Reference Vodafone Group 2012, Annual report 2012, Vodafone Group, pp. 54-59. Read More