Introduction
The Xcel Energy Inc. with stock exchange symbol of XEL belongs to electric utilities industry. Its main operation is to generate, purchase, administrate, distribute and sales electricity through its owned subsidiaries. It has around 11028 full time employees. The financial position of the company has been analyzed using horizontal, vertical and ratios analysis techniques. The income statement and balance sheet for the years 2010, 2011 and 2012 have been used for this purpose.
Income Statement Analysis
The net income in the year 2012 increased by around $64 million as compared to 2011, which is around 8% higher than previous year, despite decline in revenues by around 5%, but the main reason for increase in net income was saving in taxes by around $18 million which was around 4% lower than previous year.
The net income in 2011 as compared to 2011 also increased by around $85million which around higher by around 11% as compared to 2010 was mainly due to of increase in sales by around 3%. It would have gone further up if selling and administrative expenses would have not increased by around 15% and other income would have not declined by 19%.
The vertical analysis shows the increasing trend in net profit margin from around 7% in 2010 to around 9% in 2012. It shows that company has earned higher by 2% in 2012 as compared to 2010. The main reason for higher net profit margin was control over cost of goods sold by the company it was around 70% of sales in 2010 and went down to 66% of sales in 2012, despite of increase in operating expenses from around 14% of sales in 2010 to 16% of sales in 2012.
Balance Sheet Analysis
The total assets of the company increased by around 6% in 2012 as compared to 2011 and by around 8% in 2011 as compared to 2010. The major reasons for increase in assets in 2012 was increase in long term investment, property plant ^ equipment and other fixed assets, by around 8%, 7% and 16%, despite of decline in current assets by around 12%. The reason for increase in 2011 was both current asses and fixed assets went up by around 9% and 155, respectively.
The liabilities in 2012 increased by around 6% and around 9% in 2011. In 2012 the increase in liabilities was due to increase in long term liabilities by around 29% and current liabilities declined by around 18%. In 2011, the current liabilities increased by around 41%, while the long term liabilities increased by around 28%. The increase in shareholders’ equity in 2012 and 2011 was around 5% and 4%, respectively. It was due to increase in retained earnings by around 19% in both years, due to increase in net income for the year 2012 and 2011.
The vertical analysis of balance sheet shows that around 90% or more of total assets in all three years comprises of fixed assets and remaining of current assets which is around 10%. The major fixed asset is the property, plant and equipment which are around 75% of total assets in all three years of analysis. More than 70% total assets have been financed from liabilities and remaining from shareholders’ equity. The long term debts are around 61% of total assets in 2010 and 2012, while it was around 58% in 2012. The shareholders’ equity is around 28.5% to 30% of total assets in all three years and the major portion of shareholders’ equity is capital surplus which is around 17% to 19% of total assets.
Ratios Analysis
The ratios selected have been used to determine the liquidity position, the assets utilization, the profitability and the solvency of the company. The Altman Z-score has also been used to know the creditworthiness of the business. Then the ratios have been compared with one of the competitor of the company to make the analysis more meaningful and comparable.
Both current ratio and quick ratio has declined from 2010 to 2012, the current ratios went down from 1.08 to 0.89 and quick ratio from 0.61 to 0.51, but in all three years, better than its competitor ratios of 0.67 and 0.37 respectively.
The assets utilization ratios are showing mixed trend, in 2011 it was slower as compared to 2010, but again in 2012, it improved as compared to 2011. The account receivable turnover, the inventory turnover and total assets turnover declined from 7.23 to 7.16, 12.94 to 12.52 and 0.38 to 0.33, respectively. Except for account receivable turnover ratio which is below than its competitor, the other two ratios are better than competitor figures.
All profitability ratios have shown improvement in all three years, the net profit margin increased from 7.33% 8.94%, the return on assets increased from 2.76% to 2.91% and return on equity increased from 9.23% to 10.2%, in the year 2012 from 2010. All ratios are better than its competitors.
The debt ratio has increased from 2010 to 2012, but not significantly. It went up to 0.72 from 0.70, but still at par with its competitor’s ratios of 0.72. The debt to equity ratio has increased from 2.34 to 2.51, but still better than its competitor’s ratio of 2.57. The times interest earned ratios is better than its competitors in all three years and it increase from 2.81 to 3.03 in 2012 from 2010.
Management Discussion
The management has stated in the strategic plan to earn fair return on utility investment which is evident from return on assets as it better than its competitor ratio and has been increasing since 2010.
The increase in total assets by around 8% in 2011 and by around 6% in 2012 supports the statement of management regarding investment in utility business.
The promise to provide attractive total return on investor is evident from the fact that the return on equity has increased since 2010 and it better than American Power Company.
The company promise to maintain increase in dividend growth from 5% to 7% can be achieved and well supported by the fact that the net income has increased by around 8% in 2012 and by around 11% in 2011.
Conclusion
Overall financial position of the company is healthy and growing, which is evident from the increase in almost all ratios and increase in net income and total assets. The company has also maintained a debt ratio equal to industrial standard which can be verified from the ratio so American Power Company which the same as of XEL in 2012. The management discussion portion and the analysis of financial statements supports each other, therefore the future of the company looks bright and sound.
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