Ringing in the finances

Company finances are broken down into subsections

Vodafone makes its money from all the mobile phone calls we make - but has it been making money?

Have a look at the half year results and find out.

Just think...

In the results there's lots of mystifying language but have a look at the last line of the first group of figures.

Remember - brackets mean the company has made a loss.

How does the company's profit or loss compare with last year?

Why do you think people seemed pleased with the results?

What's happened to sales?

At the top of the list is turnover. It simply shows the amount the company has made from selling its services in the last sixth months.

Just think...

Have a look at the results and find out how much turnover has changed. Work it out as a percentage.

How does this affect your view of the results?

What can make turnover change like this?

Explain how a company can have a rising turnover but still make a loss.

Vodafone's turnover has grown for two reasons:

More people have connected with their network

It has bought up other businesses

So there has been a mix of organic and inorganic growth.

Growth is important to a business like Vodafone.

If each telephone mast serves more customers - who each pay their subscription - the company will usually make more money.

What's happened to costs?

The Vodafone accounts don't show gross profit - which look at all the fixed costs of running a business.

It shows EBITDA.

This stands for earnings before interest, tax, dividends and amortisation. It sounds complicated but don't worry - we'll sort it out.

EBITDA shows the costs of running the business as well as the costs of supplying a telephone service.

It includes all those telephone masts as well as the head office down in Newbury and the sales force, marketing, finance, administration and all the other parts of the business.

Just think...

Have a look at the results again and see what has happened to EBITDA.

How does this affect your view of the results?

Once you've got to this figure, there are all sorts of things which have to be taken away so we need to look at...

Earnings after:

Amortisation - an American term - we usually call it depreciation.

When a company spends money on things for the future, it appears in the accounts over a period of years.

Vodafone has:
-built more masts
-bought other businesses
-paid for the licence to run the latest phones

All these things contribute to the figure for amortisation.

Goodwill comes with a business bought by the company.

Often businesses are bought for their customers because it helps the business to grow - so goodwill is part of the value of the business.

It has to be written off over a period, just like the rest of the purchase price.

Exceptional items happen when there has been a change which would make the accounts look unrealistic.

In Vodafone's case, the business seems quite healthy but the accounts don't paint such a pretty picture.

Having bought all these businesses, the price of shares in all mobile phone companies plummeted - so the value of the companies fell and Vodafone's investment in them looked pretty sad!

This fall in value has been put into exceptional items to keep it separate from the real business of running the Vodafone network.

Interest payments on the company's borrowings have also been taken into account.

Tax is paid on the basis of a whole year's accounts. This is just for six months.

Just think...

Go back to the accounts and work out how these things affected the company's profit.

The accounts are looking at the past. What do you think might happen in the future?

Draw up a spider diagram with blue legs for positive items and red legs for negative items.

Would you buy shares in the company?