Capital Structure of Vodafone and BT

Vodafone Plc and British Telecom Plc (BT Group Plc) are the most prominent telecom operators across the world. Both the companies are headquartered in United Kingdom and they serve worldwide markets. Given below is a comparative analysis of both the companies based on their financial structure, market conditions and industry scenario.

A debt-equity ratio analysis has shown that Vodafone Plc has a debt equity ratio of 0.32 for 2010 when compared to 0.37 of the previous year. (Appendix 3) In the case of BT Group Plc the ratio is -3.6 when compared to 73.17 for the previous year. The debt equity ratio of Vodafone Plc shows that its capital structure is less leveraged. Therefore the capital structure of the company is not in a risky position. The company has sufficient shareholders fund to finance its long term liabilities. Vodafone Plc is therefore in a healthy financial position in terms of capital structure. But the capital structure of BT Group Plc is a clear contrast to that of Vodafone. BT Group had a very high debt equity ratio in the year 2009. A considerable portion of the debt is reduced by the company in 2010. The negative retained earnings in 2010 made the debt-equity ratio suffer more. The retained losses of the company varied highly from that of the 2009 figure. BT Group has made a dividend payout during the year. This is one of the reasons for reduced shareholder fund in the balance sheet.

UK economy is at a recovery stage from the recession that hit the region very badly in 2008. The population is growing and a stable demand for goods and services are evident from the growth seen across various industrial sectors in the region. The UK telecom industry has already reached a maturity stage. The mobile phone penetration was 121% during the year 2008. Some of the industry experts say that the next level of mobile phone penetration should be in the area of connecting mobile phones to many other electronic devices. Mobile hand set makers are aiming at more than 40 billion handsets to be sold by 2020. This high expectation of handset makers is a big opportunity for mobile operators too. (Wray, 2010)

For mobile phone operators in the country, a very high market awaits outside UK, mainly in the developing countries like China and India. This is a big opportunity for the UK Telecom majors. Vodafone has already explored many of the international markets. Therefore Vodafone has more international presence than British Telecom. British Telecom should therefore expand the market outside UK. Within UK the telecom companies should introduce more services in the internet space. British Telecom should establish their presence in Asia Pacific region which accounts for more than 47% of the global mobile connections. (BBC, 2010) It should be noted that Vodafone is one of the leading players in most of the countries in Asia Pacific region. There are many countries that passed 100% penetration. Both Vodafone and British Telecom should be focusing on the market that is yet to be tapped or yet to break the 100% mark.

Works Cited

Richard, Wray, 2010. In just 25 years, the mobile phone has transformed the way we communicate. [Online] Available at: http://www.guardian.co.uk/business/2010/jan/01/25-years-phones-transform-communication [Accessed December 14, 2010]

BBC, 2010. Over 5 billion mobile phone connections worldwide. [Online] Available at: http://www.bbc.co.uk/news/10569081 [Accessed December 14, 2010]

Vodafone Plc, 2010. Consolidated Statement of Financial Position. [Online] Available at: http://www.vodafone.com/content/annualreport/annual_report10/performance/financial_position.html [Accessed December 14, 2010]

Appendix 1

Vodafone Plc – Financial Statement

	2010 £m	2009 £m
Non-current assets
Intangible assets	74,258	74,938
Property, plant and equipment	20,642	19,250
Investments in associates	36,377	34,715
Other non-current assets	11,489	10,767
	142,766	139,670
Current assets	14,219	13,029
Total assets	156,985	152,699
Total equity shareholders’ funds	90,381	86,162
Total non-controlling interests	429	(1,385)
Total equity	90,810	84,777
Liabilities
Borrowings
Long-term	28,632	31,749
Short-term	11,163	9,624
Taxation liabilities
Deferred tax liabilities	7,377	6,642
Current taxation liabilities	2,874	4,552
Other non-current liabilities	1,550	1,584
Other current liabilities	14,579	13,771
Total liabilities	66,175	67,922
Total equity and liabilities	156,985	152,699

British Telecom Plc

(Source: Vodafone 2010)

Appendix 2

BT Group Plc Balance Sheet

(Source: BTPLC, 2010)

Appendix 3

Worksheet

	Vodafone Plc		British Telecom Plc
	2010	2009	2010	2009
(A) Total Shareholders Fund	90,810	84,777	-2626	169
(B) Total Long term Liabilities	28,632	31,749	9522	12365
Debt-Equity Ratio (B)/(A)	0.315295672	0.374500159	-3.62604722	73.16568047