| Summary: | The purpose of this report is to analyse the financial condition of E.ON UK and compare it to its four biggest direct competitors (Centrica/British Gas, EDF, SSE, RWE) on the UK Utilities scene.
We analysed the financial statements for the last five-year period (2004-2008). Methods of analysis include trend, horizontal and vertical analyses as well as profitability, liquidity, financial and investment ratios.
Results of data analysed show that E.ON financial position is exactly in the middle, between the best and worst performers. E.ON can be considered as a leader when looking at the financial strength ratios (reasonable gearing and high interest cover) however its performance could be improved in profitability and liquidity.
The major areas of weakness require further investigation and remedial action by management. Recommendations discussed include:
- Improving working capital management (current assets and liabilities management),
- Improving/increasing assets turnover and return on assets,
- improving management of the group’s resources to enhance investor confidence(improvement of ROCE and ROE)
- review of dividend policy.
- Improving/increasing the profit margins by reviewing and improving the cost structure, operating expenses, practices of working with customers and suppliers.
The report also investigates the limitations of the conducted analysis.
In addition we used the Financial Reports in order to explore some of the corporate finance concept applied to E.ON. We introduced the sustainable growth rate that indicates the dynamic of E.ON future growth that would not require additional external funding. We assessed next year revenue growth using two different methods and produced pro forma statements. We looked at the company value from the market perspective (market capitalization) and based on the five-year period pro forma statement we valuated the enterprise applying DCF method and the Gordon model.
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