Financial Analysis Report - Assignment Example

The energy industry in Its entirety Involves the production and sale of energy, fuel extraction, manufacturing, refining and distribution. As our society consumes enormous amounts of fuel, the energy Industry becomes more of d necessity to the infrastructure and maintenance of civilization worldwide. Indeed energy use is considered to be one ot the most slgnltlcant tactors to the expansion ot the human society in almost all countries as it is the aid to the control and adaptation to the environment.

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Managing the use of energy is definitely unavoidable as development f Its resources Is crucial to various Industries such as agriculture, transportation, communication, and etc. The increasing demand for utility services, particularly for electrlclty, Is leading to the Installation of large generation units. The power generators, in the wake of more stringent environmental regulations and restrictions, are gradually shifting their focus to renewable sources and natural gas to produce power.

This Is d welcome sign for the Industry and a positive step towards reducing the emission of greenhouse gases. Despite the assured demand for services, the tllltles have to constantly meet the high expectations of Its wide customer base, adapt to a changing global economic scenario, and upgrade technologies to meet stringent environmental norms.

The majority of new electricity in the next two decades in the LIS will be generated from natural gas and renewable sources. esldes the abundance of natural gas, as many as 30 U. S. tates and the District of Columbia have enforceable renewable portfolio standards or other renewable generation policies. We expect this count to go up, compelling producers to generate more green power to meet the renewable standards fixed by the states. Since the utilities operate in a regulated environment, they charge a fixed rate for power supply as approved by the different commissions. e hardly tind utllltles posting eye-catching numbers, but these companies are generally stable due to the regulated nature of operations, and they are loyal to shareholders.

Investment in the utility sector Is more suited for Income-oriented, long-term Investors looking for d modest but stable return. Company Background American Electric Power (AEP) Is one of the largest power generators and distributors and also the top wholesale energy company In the US.

The maln energy market of where it has about 5. million customers in 11 states. (Hoovers Online Company Index, 2012) In addition, AEP owns the nation’s largest electricity transmission systems and has large coal-fired generating capacity. Since the power demand directly related with economic condition, global and national economic situations can both significantly impact AEPs business operations, the recovering industrial demand and wholesale power use will give a significant rise in AEPs net income.

Hoovers Online Company Index, 2012) After cutting short its unregulated operations and selling its independent power production operations and trading operations, AEP ow focuses on regulated businesses and wholesale energy transactions. At the same time, AEP plan to grow its retail business in the US to compensate for the potential output decrease of soon-to-be unregulated power generation in some states. At the same time, (AEP) initiated its international expansion plan and opened its subsidiary in England.

In the following years, the company further expands to Far East (Philippine), Europe (France, Germany), Latin America (Venezuela), Japan and China. An important change to the (AEP)’s corporate performance was made by its currentChief Executive Officer (CEO) who restated the company’s purpose and values and concentrated attention on the few main goals of the business ((AEP) A company history, 2006, p. 16). He focused on developing only the main brands of the company, top geographical markets and largest retail customers.

Presently, (AEP) Corporation has two Global Business Units which are Beauty and Grooming and Household Care ((AEP) 2012 Annual Report, 2012, p 15). The company’s strategic goal is “to provide branded consumer packaged goods of superior quality and value” with the purpose “to touch lives and improve life every day’. In the international market the company is recognized as a global leader in its industry with diversified product lines and markets and highly innovative approach to product development and customer relations.

However, there are several risks which are inherent for the (AEP)’s business and industry. The analysis of existing threats and financial position of the company is provided in the next section. Stock Price Analysis (AEP) stocks are traded on New York Stock Exchange (NYSE) and can be considered as one of the safest long-term investments which will constantly bring return.