FINANCIAL ANALYSIS

Essar Energy PLC

Essar Energy PLC

Introduction

This study intends to make a financial analysis of a chosen company “Essar Energy Plc”. Main focus of this financial study is to compare the latest year results with the previous ones in terms of ratio analysis. Essar energy Plc is Indian oil and Gas Company that is listed in UK and it is an owner of huge refinery in UK. In addition to this, it provides low cost energy to its home country India along with other countries like Vietnam, Indonesia and Nigeria.

Discussion

Ratio's Comparison of Latest Year's Results with the previous year results

Ratio analysis

Solvency Ratios

The solvency ratios tell if the company has sufficient cash to meet its obligations in the given year. The two core aspects of solvency ratio are the current ratio and quick ratio. The current ratio of Essar Energy PLC was well above 1 in the year 2010 but in the recent year 2011 it fell to 0.86. While the industry average of current ratio remain above 2.However, the current ratio above 1 is considered ideal. It means that the company can meet its financial obligations at least once in a year. Similarly the same trend is seen in the quick ratio as well, but in previous year the quick ratio was not even 1, thus in the subsequent year it fell to 0.46 from 0.60. At present the company's current and quick ratio, both are not 1, which reflects that company cannot meet its financial obligations even once a year.

Essar Energy PLC

Industry

Financial Ratios

Financial Ratios

FY10 (000)

FY11 (000)

FY11

(000)

Solvency Ratio:

Current ratio

1.21

0.86

2.10

Quick ratio

0.60

0.46

1.85

Liquidity Ratios

The operating cycle that shows the time period that is utilized in purchasing of an asset and then selling it. The operating cycle of the company has exceeded in the year 2011 as compared to last year that is not a good sign as lesser operating cycle will result in generating of cash more quickly which will help in paying off debts more quickly. But when compared to the industry average, both the year were exceeding from the industry average of operating cycle which might affect the company's reputation.

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Essar Energy PLC

Industry

Financial Ratios

Financial Ratios

FY10 (000)

FY11 (000)

FY11

(000)

Leverage ratios

Debt ratio

3%

5%

48%

Debt to equity

8%

2%

29.54%

Working Capital Management

The working capital management or also known as net working capital of the Essar Energy PLC in the year shows a negative figure meaning that the amount of current assets that the company must have in order to cover their short term obligations that may be expected or not is much less than their current liabilities. While the company managed to improve their position of current assets and increased it greatly in the next year that resulted in a positive negative net working capital showing that the company is now in better position to pay their short term liabilities.

Essar Energy PLC

Industry

Financial Ratios

Financial Ratios

FY10 (000)

FY11 (000)

FY11

(000)

Working Capital

-1071

591.6

603.4

Asset Efficiency Ratios

Asset efficiency ratio (also known as activity ratio) tells that how efficiently a company is able to utilize its main ...