Southern Company Harvard Case Solution & Analysis

OPERATING MARGIN

Operating Margin SOUTHERN COMPANY CenterPoint Energy, Inc. NextEra Energy, Inc

2013

19.05%

46.57%

20.09%

2012

26.99%

54.4

26.10%

2011

23.96%

50.30%

15.28%

2010

21.78%

49.81%

30.50%

Operating margin ratio shows if the fixed costs are too much for the manufacturing or sales amount. High or escalating operating margin is preferred if the operating perimeter is increasing, the business is earning a lot more per dollar regarding sales. Operating margin can often compare a company having its competitors and having its past performance.

NET PROFIT MARGIN

Net Profit Margin SOUTHERN COMPANY CenterPoint Energy, Inc. NextEra Energy, Inc

2013

10%

5.17%

9.01%

2012

15%

6.27%

12.71%

2011

13%

5.45%

17.26%

2010

12%

4.57%

7.71%

A larger profit margin indicates an even more profitable company that features better control over its costs in comparison to its competitors. As the figures also suggest that Southern Company is more profitable as compared to their competitors. Nextra Energy Competes aggressively with Southern and that, Southern Company has been consistent to their profit margin during the past four years. In 2012, it is suggested that the profit margin was  15%.

RETURN ON SHAREHOLDER EQUITY

Return on Shareholder Equity SOUTHERN COMPANY CenterPoint Energy, Inc. NextEra Energy, Inc

2013

8.65%

7.25%

11.31%

2012

12.71%

9.74%

12.27%

2011

12.40%

37.27%

13.02%

2010

12.06%

15.00%

14.29%

The amount of net income returned as a percentage of shareholders equity. Return on collateral measures a firm's profitability by revealing just how much profit a company generates while using the money which the shareholders invested.

Southern Company return on equity decreased to 8.65% as compared to their past year performance, whereas, the competitors have good return on equity and in 2011 return on equity for CenterPoint was 37.25%.

DEBT TO TOTAL ASSETS

Debt to Total Assets SOUTHERN COMPANY CenterPoint Energy, Inc. NextEra Energy, Inc

2013

6.8000

1.93

                                             0.35

2012

6.9000

2.28

                                             1.10

2011

6.8000

2.18

                                             1.25

2010

7.7416

2.97

                                             2.60

This ratio indicates the percentage financing of total assets over debt. Southern’s debt to asset ratio is consistent and high as compared to their competitors. Southern Company trusts on investing more to their debts because they are generating efficient profit from their debts as compared to their investment on Equity shares.

DEBT TO COMMON EQUITY

Debt to Common Equity SOUTHERN COMPANY CenterPoint Energy, Inc. NextEra Energy, Inc

2013

                                                    2.25

1.93

1.576

2012

                                                    2.30

2.277

1.537

2011

                                                    2.22

2.176

1.457

2010

                                                    2.23

2.965

1.44

Lower values of debt-to-equity relation are favorable which indicate less risk. Higher debt-to-equity relation is unfavorable as it means that the business enterprise relies more about external lenders thus, it is facing a  great threat, especially at higher rates. A debt-to-equity ratio of just 1 means that 50 % of the assets of a business are financed by debts as well as half by the shareholders' equity. A value beyond 1.00 signifies that more assets are usually financed by debt and that those are financed by money regarding shareholders' investment and vice versa.

DU PONT ANALYSIS

Southern’s DuPont vertical analysis within the four year period of time indicates three points. Firstly, the improving profit margin signifies that Southern Company could generate much more income. Secondly, Southern’s asset turnover rate slightly increased within the five year period of time, indicating that Southern Company is improving its asset management. Lastly, Southern’s equity multiplier gradually decreased which indicates that Southern should lower its financial leverage, replying on equity as an alternative to debts to fund its assets.

Southern’s DuPont horizontal analysis within the four year time compares its DuPont along with CenterPoint Energy, Inc. and NextEra Energy Inc. DuPont needs to be considered in order to understand Southern’s effectiveness in the market. The benefit to Southern is that its growth-rate margin is actually faster than both CenterPoint Energy, Inc. and NextEra Energy, Inc. The end result indicates that Southern is much better at controlling cost when compared with CenterPoint Energy, Inc. and NextEra Energy, Inc. Secondly, Southern’s assets turnover is above CenterPoint Energy, Inc. and NextEra. Therefore, Southern is more effective with regard to using its assets to generate income. Lastly, Southern’s equity multiplier is larger than CenterPoint Energy, Inc. and more compact than NextEra. The outcome indicates that Southern has more leverage when compared with Google and less leverage when compared with Microsoft........................

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