FINANCIAL STATEMENT ANALYSIS AND VALUATION
M 17 EFA
INTERPRETATION OF PUBLISHED ACCOUNTS
After financial crisis in 2008, economic seems starting to recovery. Many companies have gone bankrupted, but energy companies seem doing very well in the down turn. One of most important part in the financial management is how to finance abusiness. It is also the reason why the financial statement analysis and valuation takes a vital part of a report for investors.
Centrica Energy Company and Scottish and Southern Energy (SSE) are two renounced companies in the UK energy industry. Their main products are such as: supplying energy to home and to business, providing home and energy services, generating electricity and producing gas,buying, storing and selling energy international. However, Centrica is bigger than Scottish and Southern Energy in term of size and capital investment. The main market of Scottish and Southern Energy is in United Kingdom, which account for 99% of its revenue. However, Centrica Energy’s market share is more diversified with its presence in United Kingdom, Norway, Nigeria and Trinidad, specially, NorthAmerica, assets and trading operations in Europe, where they knows as Direct Energy.
According to financial report in 2009, SSE concentrate more in renewable energy which could make companies facing the rise in cost of producing energy, while Centrica focus more about expansion, replacement of aging power stations and nuclear power. It would make Centrica more clear and easy-understandable inits strategic with really clear direction.
II. Horizontal analysis, Vertical analysis and Ratios analysis
Horizontal analysis shows the compare of two year data demonstrate the changes in performance of a business in form of percentage.
Look at the balance sheet and income statement of Centrica, the revenue in general grew from 2005 to 2009 with considerable growth rate in 2008 witharound 28% and 21% in 2006. The cost of sales increased in every year, especially it grew by 51% in 2007. Both current liabilities and non current liabilities grew significantly by around 60% in 2008. 2008 might be the turning-point of changes enable Centrica comply with environmental regulation.
Look at the balance sheet and income statement of SSE, it shows that revenue grew every year, and thelargest growth rate is in 2009 with 66.65%. However, in the same year 2009, the cost of sales grew by 81%. It leads to very low level of profit in 2009. Noticeably, current liabilities grew by 98.78% in 2008. It indicates the low level of liquidity in 2008 could affect the cash outflow in the business.
Thought vertical analysis, it shows investors an overview of a company‘s capital structureand the flow of cash in and out of a business.
As can be seen in the graphs above, total recievalbe contribute a large amount in current assets of both companies, especially for Centrica since 2006, the amount of cash inflow was being traped in total trade receivable increased significantly. Since then, it haven’t had a wide fluation in Centrica current asset.
2009 2008 2007 2006 20052009 2008 2007 2006 2005
For both companies, fixed assets account for large amount of value in non current asset. However, SSE has a higher percentage with arround 80%of its non current asset while Centrica fluctuated between 50% to 60% of its non-current asset. It indicates that SSE invested more heavily in term of non-current assets captial structure than Centrica.
Ratio analysisTo have an overview about the both firms, ratio analysis was chosen. It makes investor easy to compare with them together in the same ratio. Moreover, the previous performances are also allowed to compare. Profitability, efficiency, liquidity and solvency and investment ratios are four kinds of ratios which are given below..
* Profitability ratios are ratios which focus on how much an...
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