Consolidated Edison
Consolidated Edison Inc.
Time-trend and peer group ratio analysis
The first step in analyzing Edison Consolidated INC. was to conduct a time trend analysis, in which we compared the different ratios of the firm from the years 2009 to 2011. The results show a decrease of 4.59% in Profit margin, which could be attributed to the expansion of the firm and the acquisition of new assets. At the same time the ROE shows an increment of only 0.64%. Equity- multiplier for the firm decreased by 0.09. Based on this information we can assume that the consolidated firm is actually reducing their debt and at the same time acquiring more assets; this shows us why the small increment in ROE. One of the reasons these results don’t show better figures and a clear picture is because of the fact that we are only using three years as a reference of comparison.
We also conducted a peer group analysis in which we compare our firm to other two firms in the industry: Florida Power and Light Co (FPL) and Exelon corp. Both of these firms show a higher profit margin and ROE compared to our firm. In terms of capital structure our firm could achieve a better ROE by increasing its leverage on assets which will also increase its equity multiplier. Asset management shows efficiency when compared to the other two companies, especially accrued interest turnover ratio and inventory turnover. When doing the ratio analysis we need to take into consideration the difference in regions and size of the companies that we are using as benchmark. Graphical Location, especially, in the utilities industry play a big role when comparing firms.
Intrinsic value
To calculate the intrinsic value of the firm, first we used the CAPM method to calculate the expected return:
The market return that we used was obtained from the industry in general at a rate of 13.66%, for the risk free rate we used the Treasury bill rate which is 0.36%. Once we have the expected return we can go ahead and calculate the price
Time-trend and peer group ratio analysis
The first step in analyzing Edison Consolidated INC. was to conduct a time trend analysis, in which we compared the different ratios of the firm from the years 2009 to 2011. The results show a decrease of 4.59% in Profit margin, which could be attributed to the expansion of the firm and the acquisition of new assets. At the same time the ROE shows an increment of only 0.64%. Equity- multiplier for the firm decreased by 0.09. Based on this information we can assume that the consolidated firm is actually reducing their debt and at the same time acquiring more assets; this shows us why the small increment in ROE. One of the reasons these results don’t show better figures and a clear picture is because of the fact that we are only using three years as a reference of comparison.
We also conducted a peer group analysis in which we compare our firm to other two firms in the industry: Florida Power and Light Co (FPL) and Exelon corp. Both of these firms show a higher profit margin and ROE compared to our firm. In terms of capital structure our firm could achieve a better ROE by increasing its leverage on assets which will also increase its equity multiplier. Asset management shows efficiency when compared to the other two companies, especially accrued interest turnover ratio and inventory turnover. When doing the ratio analysis we need to take into consideration the difference in regions and size of the companies that we are using as benchmark. Graphical Location, especially, in the utilities industry play a big role when comparing firms.
Intrinsic value
To calculate the intrinsic value of the firm, first we used the CAPM method to calculate the expected return:
The market return that we used was obtained from the industry in general at a rate of 13.66%, for the risk free rate we used the Treasury bill rate which is 0.36%. Once we have the expected return we can go ahead and calculate the price