ACCG 224 Intermediate Financial Accounting
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Executive Summary
This assignment requires me to study the financial statement and balance sheet of a limited company. I decided to choose one of Thailand’s largest companies in a sector that has rapidly grown over the last few years. Through this report and assignment, I have tried to analyze the financial environment in which Glow Energy Group is operating. Through a thorough financial analysis, my aim was to understand the financial factors that are influencing the company and its decision making. Therefore, to summarize this, the Glow Energy Group was making progress and profit yearly. Later, I try and evaluate the various ratios to appreciate their impact on company’s performance over the last three years. The financial statements of last three years was identified, studied and interpreted in light of company’s performance. Hence, the Return on Assets (ROA), Return of Equity (ROE) and Earnings per share (EPS) raised from 2.34 baht per share in 2009, 2.36 baht per share in 2010 and followed by 3.39 baht per share in 2011. This is a very important point for the investors to look at, whether to invent in Glow Energy or not. Finally, I study ratio analysis, fund flow analysis and cash flow analysis of the company to analyzing the financial position of the company in last three years. Thus, I would strongly recommend that Glow Energy is worth for investment, as it shows better liquidity, healthier working capitals and performing well year after year, which also shows the tread of the company is going up.
Introduction of the Company
Glow Group is a group of energy companies, with core business in generating and supplying electricity, steam, clarified, dematerialized and chilled water to its customers. Glow business is divided in Independent Power Producer and Cogeneration business lines. They have total generating capacity of 3,187.55 MW of electricity, 1,206 tons per hour of steam, 5,482 cubic meters per hour of processed water and 3,400 refrigerated tons per hour of chilled water. Glow Energy Public Company Limited or GLOW is publicly listed on The Stock Exchange of Thailand and 69.11% (as of December 2012) owned by GDF SUEZ Energy Asia, a group owning and operating 10.4 GW of installed production capacity in region. The IPP Business sells electricity mainly to the Electricity Generating Authority of Thailand or EGAT under Thailand’s Independent Power Producer (IPP) program as well as electricity to Electricite du Laos or EDL. The IPP Business is based on a 713 MW combined cycle gas-fired power plant, located in Hemaraj Chonburi Industrial Estate, Chonburi, GHECO-One - a 660 MW highly efficient power plant using bituminous coal - located in Map Ta Phut Industrial Estate and Glow’s first business expansion outside of Thailand, a 152 MW Houay Ho hydro-electric power plant located in Lao People’s Democratic Republic. The Cogeneration Business has more than 20 highly reliable generating units. These units produce electricity that is sold to EGAT under the Small Power Producer (SPP) program, as well as electricity, steam, and clarified, dematerialized and chilled water sold to industrial customers in the Map Ta Phut Industrial Estate and nearby, and after acquisition of Glow SPP 11. Glow Group’s operating and maintenance procedures, the choice of robust technology, design configuration, redundancies and interconnection of the facilities are all oriented to achieve the paramount goal of reliability. Superior efficiency is obtained through operational excellence and cogeneration production processes.
The Glow Group consists of
1. Glow Energy Public Co., Ltd.
2. Glow Co., Ltd.
3. Glow SPP 1 Co., Ltd.
4. Glow SPP 2 Co., Ltd.
5. Glow SPP 3 Co., Ltd.
6. Glow IPP Co., Ltd.*
7. Glow IPP 2 Holding Co., Ltd.
8. Glow IPP 3 Co., Ltd.
9. GHECO – One Co., Ltd.*
10. Houay Ho Thai Co., Ltd.
11. Houay Ho Power Co., Ltd.
12. Glow SPP 11 Co., Ltd.
13. Glow Hemaraj Wind Co., Ltd.*
Note : * A Joint Venture company
The Glow Group consists of
LIQUITIDY RATIOS
CURRENT RATIO
Current ratio = Current Assets /
Current Liability
QUICK RATIO
Quick ratio = Current Assets – Inventory / Current Liability
WORKING CAPITAL
Net Working Capital = Current Assets – Current Liability
INVENTORY TURNOVER RATIO
Inventory turnover ratio = Sales / Inventory
ACCOUNT RECEIVABLE TURNOVER RATIO
Account Receivable Turnover Ratio = Credit Sales / Account Receivable
OPERATION CYCLE RATIO
Operating Cycle = Inventory turnover ratio + Account Receivable Turnover Ratio
LONG-TERM CREDIT RISK RATIOS
DEBT RATIO
Debt ratio = Long-term Debt + Short-term Debt / Total Assets
Times Interest Earned (Interest Coverage Ratio)
Times Interest Earned = EBIT / Interest Charged
PROFITABILITY RATIOS
QUICK RATIO
Quick ratio = Current Assets – Inventory / Current Liability
WORKING CAPITAL
Net Working Capital = Current Assets – Current Liability
INVENTORY TURNOVER RATIO
Inventory turnover ratio = Sales / Inventory
ACCOUNT RECEIVABLE TURNOVER RATIO
Account Receivable Turnover Ratio = Credit Sales / Account Receivable
OPERATION CYCLE RATIO
Operating Cycle = Inventory turnover ratio + Account Receivable Turnover Ratio
LONG-TERM CREDIT RISK RATIOS
DEBT RATIO
Debt ratio = Long-term Debt + Short-term Debt / Total Assets
Times Interest Earned (Interest Coverage Ratio)
Times Interest Earned = EBIT / Interest Charged
PROFITABILITY RATIOS
ROA (Return on total asset) RATIO
ROA = Net Income / Total Asset
ROE (Return on Equity) RATIO
ROE = Net Income / Common stock, Preferred Stock, Retained Earning
EPS (Price Earnings) RATIO
EPS = Stock Price / (Net Income / Number of Shares Issued)
Analysis of Ratios
ROA = Net Income / Total Asset
ROE (Return on Equity) RATIO
ROE = Net Income / Common stock, Preferred Stock, Retained Earning
EPS (Price Earnings) RATIO
EPS = Stock Price / (Net Income / Number of Shares Issued)
Analysis of Ratios
Current Ratio
The current ratio of Glow Group changes every year. The current ratio changed from 0.95 to 0.7 and then to 0.90 since year 2009 until 2011. This company has a comfortable current ratio based on this rule. This means that at any point in time, the company has the ability to meet it short-term obligations the creditors of the company. Quick Ratio
The quick ratio of Glow Group also changed every year. Since year 2009 till year 2011, the quick ratio of the Glow Group changed from 0.9 to 0.62 and then to 0.82. The changes in current ratio and quick ratio of Glow Group Company were the result of instability from year to year. Even though, this company’s current ratio and quick ratio were low but it manage to sustain in business all these years. Working Capital Ratio
The working capital for the Glow Group Company decreased every year, especially in year 2011. From year 2009 to 2010, the working capital decreased from $103 million to -$105 million and it dropped drastically to -$603 million in year 2011. This shows in year 2011, its current liability is more than its current assets. Hence, the sources of income were not sufficient to cover its expenses. Inventory turnover rate Ratio
The inventory turnover rate for Glow Group Company increases every year. This company increased its inventory turnover rate from 49 days to 55 days since 2009 to 2010. In year 2011, the inventory turnover increased from 2010 to 2011. The accounts receivable turnover rate in 2010 was lowest amount the three consecutive years because in that year, the credit sales of the company was lower at 22 days compare to 38 days and 51 days in year 2009 and 2011 respectively. This is also could be in conjunction with low economy in Thailand in year 2010.
Operating Cycle Ratio
The current ratio of Glow Group changes every year. The current ratio changed from 0.95 to 0.7 and then to 0.90 since year 2009 until 2011. This company has a comfortable current ratio based on this rule. This means that at any point in time, the company has the ability to meet it short-term obligations the creditors of the company. Quick Ratio
The quick ratio of Glow Group also changed every year. Since year 2009 till year 2011, the quick ratio of the Glow Group changed from 0.9 to 0.62 and then to 0.82. The changes in current ratio and quick ratio of Glow Group Company were the result of instability from year to year. Even though, this company’s current ratio and quick ratio were low but it manage to sustain in business all these years. Working Capital Ratio
The working capital for the Glow Group Company decreased every year, especially in year 2011. From year 2009 to 2010, the working capital decreased from $103 million to -$105 million and it dropped drastically to -$603 million in year 2011. This shows in year 2011, its current liability is more than its current assets. Hence, the sources of income were not sufficient to cover its expenses. Inventory turnover rate Ratio
The inventory turnover rate for Glow Group Company increases every year. This company increased its inventory turnover rate from 49 days to 55 days since 2009 to 2010. In year 2011, the inventory turnover increased from 2010 to 2011. The accounts receivable turnover rate in 2010 was lowest amount the three consecutive years because in that year, the credit sales of the company was lower at 22 days compare to 38 days and 51 days in year 2009 and 2011 respectively. This is also could be in conjunction with low economy in Thailand in year 2010.
Operating Cycle Ratio
The operating cycle of the Glow Group
Company increased in year 2009 to 2011. The inventory turnover in days and
account receivable turnover in days are lower in year 2009, thus, the
opportunity cycle of this company in year 2011 was 130 days, higher compare to
year 2009 and 2010 which was 98 and 102 days. Debt Ratio
The debt ratio of the Glow Group Company was extremely high in year 2010. In year 2009, it was only 2 percent, however, in year 2010 the debt ratio increased tremendously to 65% and decreased in 2011 at 33%. This is due to the total asset has a smaller raise from year 2009, while the volume of liabilities increased drastically in year 2010. The reason of this company’s debt ration increase over the year is that the total liabilities increased in larger scale compared to the increase in the total assets. Interest coverage Ratio
The interest coverage of the Glow Group Company decreased from the year 2009 to 2010 and increased from year 2010 to 2011. The reason that can explain this phenomenon is that the annual interest expenses in the year 2010 were higher compared to year 2009 and 2011. Therefore, due to higher annual interest expenses in 2010, Glow Group’s interest coverage ratio was lower matching up to other 2 years. Nevertheless, this company’s interest coverage ratio were actually high and it showed that the company had earned sufficient income to cover their annual interest expenses. Return on Assets (ROA) Ratio
The return on assets of the Glow Group Company changed over the years. In year 2009, the return on assets was 6 percent, followed by year 2010 it increased to 8.1 percent and decreased slightly 8 percent in 2011. Even though the operating income only increase in small scale compared to larger scale in average total assets.
Return on Equity Ratio
The return on Equity of the Glow Group Company changed over the last 3 years. In year 2009, the return on Equity was 14%, subsequently decreased to 13% in year 2010 and increase tremendously to 18% in year 2011. The net income of year 2011 increased so much is because of the other incomes increased drastically. This might be reason of the market was quite stable in that year, hence, the Glow Group invested more cash to generate a higher other income. Although both the ROA and ROE of Glow Group Company changed for the 3 years, however, this company’s ROE is still higher than the ROA each year. This shows that this company able to achieve the stockholders’ expectation to get higher return for the company than for the creditors, this is because they are taking higher risk that the creditors and so they expect a higher return. Earnings per share Ratio
The Earnings per share of the Glow Group Company from year 2009 to 2011 increased from $2.37 to $3.47. The EPS of the company increased in 2011 because of the higher net income in that year, as described earlier, while the average number of shares outstanding remains the same for the 1st 2 years. So for year 2009 and 2010, its EPS are about the same at $2.37 per share.
Reference
1) http://www.glow.co.th/Business-Overview.
2) http://www.iprplc-gdfsuez.com/investors/investor-data/summary-financial-statements/balance-sheet.aspx 3) http://www.en.wikipedia.org/wiki/glow
4) http://www.thaiglow.my
5) http://www.theglowgroup.com/index.html
6) Guide to financial management / Bany Ariffin bin Amin Nordin / Thomson Learning 7) Financial Management / Ng Kean Kok / Oxford University Press
The debt ratio of the Glow Group Company was extremely high in year 2010. In year 2009, it was only 2 percent, however, in year 2010 the debt ratio increased tremendously to 65% and decreased in 2011 at 33%. This is due to the total asset has a smaller raise from year 2009, while the volume of liabilities increased drastically in year 2010. The reason of this company’s debt ration increase over the year is that the total liabilities increased in larger scale compared to the increase in the total assets. Interest coverage Ratio
The interest coverage of the Glow Group Company decreased from the year 2009 to 2010 and increased from year 2010 to 2011. The reason that can explain this phenomenon is that the annual interest expenses in the year 2010 were higher compared to year 2009 and 2011. Therefore, due to higher annual interest expenses in 2010, Glow Group’s interest coverage ratio was lower matching up to other 2 years. Nevertheless, this company’s interest coverage ratio were actually high and it showed that the company had earned sufficient income to cover their annual interest expenses. Return on Assets (ROA) Ratio
The return on assets of the Glow Group Company changed over the years. In year 2009, the return on assets was 6 percent, followed by year 2010 it increased to 8.1 percent and decreased slightly 8 percent in 2011. Even though the operating income only increase in small scale compared to larger scale in average total assets.
Return on Equity Ratio
The return on Equity of the Glow Group Company changed over the last 3 years. In year 2009, the return on Equity was 14%, subsequently decreased to 13% in year 2010 and increase tremendously to 18% in year 2011. The net income of year 2011 increased so much is because of the other incomes increased drastically. This might be reason of the market was quite stable in that year, hence, the Glow Group invested more cash to generate a higher other income. Although both the ROA and ROE of Glow Group Company changed for the 3 years, however, this company’s ROE is still higher than the ROA each year. This shows that this company able to achieve the stockholders’ expectation to get higher return for the company than for the creditors, this is because they are taking higher risk that the creditors and so they expect a higher return. Earnings per share Ratio
The Earnings per share of the Glow Group Company from year 2009 to 2011 increased from $2.37 to $3.47. The EPS of the company increased in 2011 because of the higher net income in that year, as described earlier, while the average number of shares outstanding remains the same for the 1st 2 years. So for year 2009 and 2010, its EPS are about the same at $2.37 per share.
Reference
1) http://www.glow.co.th/Business-Overview.
2) http://www.iprplc-gdfsuez.com/investors/investor-data/summary-financial-statements/balance-sheet.aspx 3) http://www.en.wikipedia.org/wiki/glow
4) http://www.thaiglow.my
5) http://www.theglowgroup.com/index.html
6) Guide to financial management / Bany Ariffin bin Amin Nordin / Thomson Learning 7) Financial Management / Ng Kean Kok / Oxford University Press
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