Coal, Nuclear, Natural Gas, Oil, or Plant Renewable Harvard Case Solution & Analysis

Financial Position of Power Co.

The Return on equity of the Power CO based over the five years is 9.3%, which is slightly lower than the industry average of 12.9%. There a son for the lower Return on Equity of Power Cois because its rates are lower than the level of its cost of investment. On the other hand, the net income of Power co has been increased to $42 million in the year of 2007, and its Earning per Share has been increased by 12 cents compared to the last year. The performance of Power CO can be evaluated with the help of following ratios.

Profitability Ratio

The profitability ratio determines how the Power CO’s business is performing over the period.

Sale Growth:

The sales growth of the Power Co has been increased by 8.62% in the year (2007-2006) from the prior year of (2005-2006). The sales growth in the year 2007 has been increased to 10.14%, whereas, the sales growth in the year 2006 has been increased by 1.52%. This increase may arise due to excess consumption of electricity by the consumers.

Operating Self-Efficiency:

The operating self-efficiency of the Power Co has been increased by 0.27% in the year (2007-2006) from the prior year of (2005-2006). The sales growth in the year 2007 has been increased to 264.19%, whereas, the sales growth in the year 2006 has been decreased from 264.10% in 2005 to 263.92% in 2006. However,Power Co total revenue has been improved from the prior year.

Gross Profit Margin

In gross profit margin, gross profit is divided by the total sale of Power Co. The gross profit of Power Co has been decreased by 1 % from 2006-2007, the reduction in the gross profit from 2007-2006 is due to the increase in the cost of goods sold which is increasing by 12%. Power Co should control its cost of goods sold by reducing the wastage of raw material or avoid using costly material.

Net Profit Margin

In net profit margin, net profit is divided by the total sale of PowerCO. The net profit of PowerCO has been decreased by 0.29% from 2007-2006. The net profit margin in the year 2006 was 8.86%, whereas, in 2007 it has reduced to 8.57%. The reason for such reduction is due to the increase in the total sales expenses of the Power CO which includes the operating cost under which indirect cost related to sales are covered.

Return on Asset

Return on asset measures the overall ability of the firm to convert its assets into the profit.  The return on asset of Power Co has been increased by 1% from 2006-2007. The return on asset in 2006 was 3.10%, which has been increased to 3.12% in 2007. The increase in return on assets determines the overall ability of the Power CO which is operating more effectively than its competitor.

Return on Equity

The return on equity is the rate of return required by the shareholders over their investment. The return on equity of the Power Co has been increased by 0.38% from the year 2006-2007. The return on equity in 2006 was 8.90%, where it has been increased to 9.28% in 2007. This increase in rate shows that the Power Co is generating enough of a profit to compensate the risk of being the business.

Operating Efficiency Ratio

The operational efficiency of the firm determines how efficiently the organization is utilizing its assets and managing its liabilities in order to remain in the business. The operation efficiency ratio is used to compare the Power CO performance over multiple periods.

Coal Nuclear Natural Gas Oil or Plant Renewable Case Solution

Operating Expense Ratio

The operating expense ratio compares the expenses to the revenue of the organization. The operating expense ratio of the Power Co has been decreased by 0.83% from the year 2006-2007. The operating expense ratio in the year 2006 was 37.91%, which has been reduced to 37.07% in the year 2007. This decrease shows the increase in the business operation of the Power Co which reduces the expense of the organization contributing towards profitability.

Account Receivable Turnover

The accountreceivable turnover represents the trend of the trade receivable turnover during the year. The accountreceivable turnover of the Power Co has been decreased by 38.86% from the year 2006-2007. The accountreceivable turnover in the year 2006 was 1.45%, which is reduced to 1.05% in the year 2007. This decrease in the turnover shows the greater the time between the sales and collection of cash...............

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