financial analysis of acea group

Accounting for Managers

Coursework Assignment

Dimitrakopoulou PelagiaKotitsa Eleni

Lazaridou DimitraPapadopoulos Grigorios

ACEA Group:Located in Rome, Italy

Founded in 1907Stock market listed since 1997

ACEA Group operates in:

Electricity chain

Public lighting

Gas

Integrated water cycle

Financial Ratio AnalysisRatios were used to measure:

•Profitability

•Liquidity

•Cash Flow Indicators

•Activity

•Financial Structure

Profitability Ratios

2010-2011 2011-2012

ACEA A2A ACEA A2A

Gross Profit Margin

31% 16% 20% 16%

Net ProfitMargin

3.3% -6% 2.6% -6%

Return on Equity

7.4% -8.6% 7.2% -8.9%

Return on Assets

8.4% 3.5% 4.4% 3.5%

Liquidity Ratios

2010-2011 2011-2012

ACEA A2A ACEA A2A

Current Ratio 1.12 1.22 0.97 1.26

Quick Ratio 1.09 1.11 0.94 1.14

Cash Flow Indicators

2010-2011 2011-2012

ACEA A2A ACEA A2A

OperatingCash

Flow/Sales13% 10% 12% 11%

Short-term Debt

Coverage21% 25% 17% 27%

Activity Ratios

2010-2011 2011-2012

ACEA A2A ACEA A2A

DIO 11 days 18 days 7 days 21 days

DSO 171 days 125 days 162 days 115 days

DPO -204 days -63 days -175 days -92 days

Operating Cycle

-22 days 80 days -6 days 44 days

Fixed Asset Turnover

1.48 1.28 1.68 1.14

Financial Structure

2010-2011 2011-2012

ACEA A2A ACEA A2A

Debt Ratio 75% 63% 80% 68%

Debt toEquity

3.61 1.70 4.09 1.48

Capitalization Ratio

69% 53% 58% 59%

Debt/EBITDA 5.31 7.30 7.67 7.76

InterestCoverage

Ratio5.03 3.69 2.43 2.81

Threat of new entrants

-Capital intensive

-High entrance barriers

-Established in geographical

network and profitability areas

Threat of Substitute Products

-Many sectors and various

production methods

-Remarkable numbers of

substitutes

Bargaining power of buyers

-Large number of customers

-Necessity of product

Bargaining Power of Suppliers

- Distributors of energy are more affected

-Producers of energy are not manipulated by suppliers

Rivalry among existing firms

Government regulations and policies affect competition

Liberalization in the Italian

energy industry since 1969

HIGH

LOW

LOW

LOW to MEDIUM

MEDIUM to HIGH

Analysis of the Competitive EnvironmentPorter’s Five Forces

SWOT Analysis

s•Brand Name•Investment Plans •Domestic leadership in water segment •Use of technologies with a low environmental impact

w•Geographically limitation•Increase of electricity prices

T•Economic crisis •Government regulations

O•Photovoltaic development•Development of energy production from renewable sources

Conclusions

ACEA’s position

High Profitability

Excellent Cash Flow Management

Consistency of the firm

Key role in the Italian energy market

Conclusions

Alerts

Demand is affected by weather conditions

Gap between demand and supply was expanded after

economic crisis

Working capital trends need improvement

Overdue receivables related to public entities are observed

Macro-economic environment is negative (negative Italian

Government ratings)

Thank you for your attention