Task 1: Finding financial information and calculating financial ratios (33 marks) Find appropriate financial information from Telefonica Group’s consolidated financial statements and calculate the following ratios for each of the financial years ending 31 December, 2015 and 2016, and where possible for 2014: return on capital employed (ROCE) return on sales (ROS) asset utilisation ratio (AUR) gross profit margin current and quick ratios gearing interest cover inventory days trade and other receivables days trade and other payables days return on equity (ROE). Show clearly all steps needed to calculate your results, including ratio definition and input values. (3 marks for each correctly defined and calculated set of ratios.) Task 2: Financial analysis (67 marks) [no more than 2000 words] Conduct a financial analysis of Telefonica Group using the financial ratios you have calculated in Task 1. Describe what you observe about Telefonica Group’s financial performance over the last financial years ending 31 December 2015 and 2016. Compare and contrast Telefonica Group’s financial performance against that of the Deutsche Telekom AG and its subsidiaries (which together comprise the DT Group) and the telecoms industry. Explain possible causes for the differences and similarities in performance, and discuss possible implications for Telefonica Group. (57 marks) Your analysis should specifically discuss whether, according to its financial performance, Telefonica Group should be concerned about DT Group and its other telecom industry competitors. (10 marks) Remember that your task is to analyse and comment on the financial performance of Telefonica Group, DT Group and the telecoms industry. You are not asked to describe, comment or speculate on any of the organisations’ grand marketing strategies – you will have plenty of opportunity to consider marketing and strategy later in your MBA studies. To help you in your task, you are provided with supplementary financial information as an Excel spreadsheet in TMA 03 and additional financial information on the B716 website. The supplementary information provides financial ratio analysis of the consolidated financial accounts of DT Group and the telecoms industry for the years ending 31 December 2014, 2015 and 2016. On 24 March 2015 Telefonica Group reached an agreement with Hutchison Whampoa Group to acquire Telefonica’s operations in the United Kingdom. In accordance with IFRS 5, companies under the sale agreement were classified as a disposal group, held for sale at that date, and their operations qualified as discontinued operations in the consolidated financial statements, first published for the year ended 31 December 2015. On 11 May 2016 the European Commission made public its decision to prohibit the transaction. Following this decision, the Board of Directors of Telefonica agreed that they would continue to explore different strategic alternatives for O2 UK, to be implemented when market conditions are deemed appropriate. Given that the execution of a sale transaction is less certain, Telefonica’s operations in United Kingdom were no longer presented as discontinued operations and their assets and liabilities ceased to be classified as held for sale. Thus, in the financial statements published for year ended 31 December 2016, comparative financial statements for year ended 31 December 2015 were amended. This will make identification of appropriate financial information, on a comparable basis, for the financial year ending 2014 more difficult. This is why you have been asked to concentrate on calculating financials ratios for Telefonica for 2015 and 2016. For more background see Notes 2 and 23 in Telefonica’s accounts. If you use information that is not included in Telefonica Group’s or DT Group’s financial statements but elsewhere in the annual report and accounts (management discussion and analysis, or notes to the accounts) please reference the exact location in the annual report and accounts. All other external sources must be referenced appropriately.