OxBowBusiness

Vodafone and a Profit and Loss Account

VODAFONE

If you read the materials on ratio analysis I wrote for biz/ed a few years ago (and they are excellent, by the way) you will know that I used the Carphone Warehouse and Vodafone as a basis for the ratio calculations. You will have seen there that Vodafone was in trouble.

Vodafone is still in serious trouble and now we know it's in deep trouble because the Chief Executive is using optimistic sounding phrases in his reports to shareholders in spite of the fact that the company is losing billions and billions of Pounds a year now.

We also know that Vodafone is in deep trouble because it's stressing its use of something called EBITDA: earnings before interest, tax, depreciation and amortisation.

On an EBITDA basis Vodafone has made a PROFIT of several billion. On the proper GAAP basis, Vodafone has made a LOSS of a few billion. From their latest six monthly report:

2005 EBITDA £14,761 million
Operating profit 7,878 million

2006 EBITDA £16,380 million
Operating LOSS £14,084 million

All these things have been reported widely but they seem to be getting away with it. Really strange that. Really strange.

PROFIT AND LOSS ACCOUNT

I have just been sent to a pretty good web site for business studies teachers and students. However, why do business studies people feel the need to change the names and definitions of the things that maybe they don't understand? For example, the profit it and loss account.

What is a profit and loss account?

sales - cost of sales - expenses = net profit? NO ... NO ... NO!

A trading account comprises

sales - cost of sales = gross profit

A profit and loss account comprises

gross profit - expenses = net profit

As Miranda Preistly says in The Devil Wears Prada, 'That's all'!


Duncan Williamson

posted by Duncan Williamson @ 7:56 AM