The above ratios are divided into four sections mainly liquidity, solvency, profitability and coverage ratios. In the liquidity section, there is current ratio and quick ratio. These ratios should be above 1. However, for both the firms and the ratios are below. Hence both the firms need to increase their short term liquidity. Firms need to increase the short term assets so that their liquidity improves and they do not face any short term liquidity issues.
Next are the solvency ratios. Debt to equity, debt ratio and the financial leverage are the three main ratios under this section. Debt to equity for British Telecom is above 4 which are very high whereas for the Vodafone it is below 1.
Thus according to the debt ratios Vodafone is in a better position as compared to the British Telecom. This is due to the fact that the firm has invested a lot in the capex over the last few quarters and this has led to increase in the debt for the firm (Palepu & Healy, 2008).
The next set of ratios is the profitability ratios. British Telecom operating margin is high and it as well as net income margin, return on assets is also better and also return on capital is also high. Profitability ratios for British Telecom are better than the Vodafone. BT return on capital is huge and thus provides a good return for the shareholders. In the profitability ratios, British Telecom is better than the Vodafone. Lastly ratios are the coverage ratios. Interest rate coverage ratio informs whether the firm can pay interest payments with the help of the operating profit. Hence if the ratio is more than 1, then the firm is capable of paying the interest payments (Helfert, 2001).
As a result, looking at the ratios British Telecom seems more favourable for the investment. Ratios for the three sections are almost same; however, for the profitability the ratios for the British Telecom are better than the Vodafone (British Telecom, 2013).