RATIO ANALYSIS

Centrica PLC: Financial Analysis

Centrica PLC: Financial Analysis

Introduction

Centrica PLC is a utility provider, supplying electricity and gas to business and residential customers, as well as, providing other products and services including procurement and trading activities, gas storage, trading of energy contracts, nuclear and wind sources, generation of power from gas, processing and production of oil and gas, and the development of new fields to improve reserves, insurance contracts, maintenance of air conditioning and ventilation equipment, kitchen and gas appliances, drains, plumbing, maintenance, repairing of central heating, as well as free installation services. By the end of year 2010, Centrica has an estimated reserve gas of 2,722 billion cubic feet and 74 million liquid barrels.

Income Statement, Balance Sheet and Cash Flows

Income Statement

(In Thousands)

Total Revenue

22,423,000

EBITDA

3,295,000

Operating Income

3,081,000

Net Income

1,935,000

Revenue per Share

4.36

EPS - Net Income - Diluted

0.37

Share Outstanding

5,154,006

Weighted Average Shares Outstanding - Diluted

5,146,000

Weighted Average Shares Outstanding - Basic

5,191,000

Earnings per Share - Basic

0.38

Balance Sheet

(In Thousands)

Total Assets

19,275,000

Current Assets

5,551,000

Total Liabilities

13,456,000

Long Term Debt

3,959,000

Stockholders' Equity

5,819,000

Total Assets per Share

3.74

Current Liabilities

5,268,000

Net Assets per Share

1.13

Cash Flow Statement

(In Thousands)

Cash from Operations

2,683,000

Cash from Investing

(1,839,000)

Cash from Financing

(1,677,000)

Cash Flow per Share

0.52

Cash & Cash Equivalents, Beginning of Year

1,285,000

Cash & Cash Equivalents, End of Year

451,000

Stock Price and Valuation (Data as of 02/09/2012)

Market Cap(mil)

16,765

Share Outstanding(000's)

904,725

Dividend Per Share(TTM)

0.9242

Last Closing Price

18.53

Previous Trading Day Range

18.31 - 18.71

52 Week Range

17.25 - 22.40

7 Day Average Closing Price

18.88

30 Day Average Closing Price

18.16

200 Day Average Closing Price

18.72

High Price Last 3 Mos.

19.4

Low Price Last 3 Mos.

17.25

Avg Daily Volume Last 3 Mos.

42,723.79

Ratios

Profitability Ratios

12/31/2010

12/31/2009

ROA % (Net)

10

4.47

Liquidity Ratios

12/31/2010

12/31/2009

Current Ratio

1.05

1.05

Debt Management

12/31/2010

12/31/2009

Interest Coverage

11.63

6.56

Ratio Analysis

In order to evaluate the financial strength of the company, I have chosen three ratios from three different categories. In order to assess company's profitability, let's evaluate the Return of Asset ratio. The company's ROA is positive and much higher than 1. ROA in 2009 is 4.47, which have improved to 10 in 2010. ROA = 10, means that the company is earning £10 on asset worth £1. It also shows that company's management is making very effective use of assets.

The second ratio is liquidity ratio, known as current ratio. The current ratio shows the ability of a firm to pay its short term debt. A ratio greater than 1 is considered good. Company has achieved a current ratio of above 1 in 2009 and 2010. It shows that company can pay off its short term liabilities through liquid assets.

Finally, I will evaluate the effectiveness of debt management through interest coverage ratio. An interest coverage ratio shows the ability of a firm to pay its interest expense through EBIT. The company is in great position to pay interest through EBIT. The ratio of 11.63 means that company's EBIT is 11 times greater than its interest expense.

Conclusion

Centrica is in strong financial position and management is very effective, as shown by ROA ratio, and liquidity and debt ratios.

References

Investopedia.com (2012), “Interest Coverage Ratio” Investopedia ULC. Data retrieved from http://www.investopedia.com/terms/i/interestcoverageratio.asp#axzz1m3Jq8W3p on Feb 11, 2012

Mergent (2012), “Company Financials: Centrica PLC” Mergent online. Data retrieved from http://www.mergentonline.com.ezproxy.apollolibrary.com/companyreports.php?compnumber=96161 on Feb 11, 2012

Appendix

Income Statement

Report Date

12/31/2010

12/31/2009

Currency

GBP

GBP

Audit Status

Not Qualified

Not Qualified

Consolidated

Yes

Yes

Scale

Millions

Millions

Group revenue

22,423

21,963

Cost of sales

(16,520)

(18,118)

Gross profit

5,903

3,845

Operating costs before exceptional items

(2,641)

(2,496)

Exceptional ...