Strategic financial decisions
Senior managers make strategic financial decisions. They are accountable to the owners of the business for those decisions.
The shareholders of a business are its owners. They need information to assess how well managers and the business itself are performing. We can find this information in the financial and business announcements issued by businesses.
Activity 1: Vodafone plc
Read the following Vodafone plc press release. This accompanied the release of the preliminary results for the quarter ended 31 December 2010.
Look at the type of information presented. What type of information is presented?
Interim Management Statement for the Quarter Ended 31 December 2010 ( 3 February 2011 )
Further improvements in revenue growth
- Group service revenue +2.5%(*), fifth sequential quarter of improvement – both regions delivered faster growth rates.
- Strong service revenue growth in India +16.7%(*), Turkey +31.7%(*), the UK +7.0%(*) and Vodacom +5.6%(*). Excluding termination rate cuts, growth was solid in Germany at +2.3%(*) (headline +1.1%(*)). Performance was stable in Italy with revenue growth of -1.4%(*). Conditions remain challenging in Spain at -7.4% (*).
- Verizon Wireless service revenue +7.0%(*); strong customer and data growth. iPhone from February 2011.
- Underlying free cash flow generation remains strong.
- Outlook confirmed, with adjusted operating profit now expected to be towards the upper end of the £11.8–12.2 billion range before the impact of the Verizon Wireless iPhone launch.
|Quarter ended 31 December 2010||Change year on year||Change compared to Q2|
|Group service revenue||10,960||+2.1||+2.5||+0.2|
|Africa, Middle East and Asia Pacific||3,210||+18.1||+9.3||+0.3|
|Free cash flow||1,086||(39.9)|
(*) All amounts in this document marked ‘(*)’ represent organic growth which presents performance on a comparable basis, both in terms of merger and acquisition activity and foreign exchange rates.
The press release tells us how Vodafone performed in financial terms. Many of the numbers in the press release are in the form of percentages, which measure one thing in terms of another, so they are relative calculations. There are few absolute values, such as profit for the year.
This serves to highlight a key feature of finance. We use relative calculations to measure the performance of a business.