Finance and Accounting at Leading Company of Clean Energy - Example

Finance and Accounting Topic: NEE CFA Report

• Business Description

The company in question is a leading company of clean energy which has consolidated revenue to the tune of $17.5 billion. The company has an electricity generating capacity of 46,400 MW. This related to the generating capacity that is associated non controlling interest in the NextEra Energy partners LP. As of the year 2015, the company operated in 27 states and employed approximately 14,300 employees. The company is also on the list of fortune 200 companies. The company has its operations across Canada and USA and includes an independent business of producing power (Nextera, 2016). However, it is seen that most of the revenues of the company are generated from utility that is named as Florida Power and Light. There are 4.7 million customers to whom electricity is distributed by the company. Non utility business is owned by FPL group which is the subsidiary of the company. This includes NextEra energy resources which is an independent producer of power and marketer of energy. The company NextEra Energy has a generating capacity of more than 46,400 MW. As compared to NextEra energy the subsidiary of the company named as FPL FiberNet is found to lease wholesale fiber optic capacity to providers of internet, telephone and cable. It is thus found to operate a network of 9,050 miles of cable. It is thus found that NextEra energy is a large company and controls a good share of the market. The company is known as a leader in the production of renewable energy that is produced from clean and efficient sources (Hoovers, 2016). The company is one of the most disciplined power generators in the country who is competitive. 95% of power that is produced by the company is generated from energy sources that are clean and renewable.

• Management & Governance

The management and governance of the company is quite good and results in the fact that the company is a market leader in the industry wherein it operates. The company is listed in the list of Fortune 200 companies. The electricity is generated by the company through the use of renewable and clean energy. The company has a huge generating capacity and the operations of the company are spread over a wide geographical area. There are 27 states across which the operations of the company are spread and the company employs about 15,000 employees. The governance of the company is good enough and the management of the company is quite capable to deal with the risks and turbulences that are faced by the company (Nextera, 2016).

• Industry Overview & Competitive Positioning

The company NextEra is a market leader in the production of electricity from clean and renewable sources. It is rated as one of the most disciplined captive power generators in America. 95% of the electricity generated by the company comes from fuels that are clean and renewable. The degree of competition faced by the company in wholesale and in retail markets is found to be different. In this regards it is seen that 90% of the revenue generated by the company comes from wholesale market.

Power generation in the wholesale market is a capital intensive business that is driven by community and there are numerous industries who participate in the market. In this market it is seen that the company competes with the competitors on the basis of price. However, as per the company its competitive advantage lies in green attributes of the assets that are used for generating power, ability of the company to manage and offer customized risk solutions that are catered to wholesale customers and its credit worthiness as the points of competitive advantage. As compared to many other competitive industries, the industry of generating power is highly fragmented and regional in nature. It is seen that there is a wide variation amongst the competitors of the company in terms of identity, resource nature and capability. There are varieties of means including bilateral contracts that are aimed satisfying the needs of customers in wholesale markets. There are three classes of products in the electricity markets of the US. These are related to Capacity, ancillary and energy services.

The revenue of the company witnessed strong growth in terms of 27.62% and this resulted in the fact that 11.43% of the market share as compared to the competition which held a market share 88.57%.

Upon comparison of the stock performance of the company in comparison to its competitors in the energy sector, the share price of the company witnessed a growth of 13.33%. As compared to the company the share price of the competitors witnessed a fall of 2.84%.

• Investment Summary

There are number of shareholders of the company. The shares of the company are held by funds as well as institutional investors. Amongst the funds which have largest share in the company are Vanguard Total Stock market index which has a share of 1.91% and has 8,803,086 shares. The next in line is the Vanguard wellington investment which has 1.71% of the shares of the company and contains a total of 7,879,850 shares of the company. The Utilities select sector and Vanguard 500 index are the next largest share holders of the company and contains 1.33 and 1.25% shares of the company. Amongst the institutional shareholders it is seen that Vanguard Group Inc is the largest shareholders and holds 6.62% shares of the company. The state steel corporation is found to hold 4.49% share in the company. Wellington Management Company LLP and BlackRock Fund Advisors are next in line and hold 3.69% and 2.72% of the total shares of the company (Morningstar, 2016). It is seen that there are retail investors as well who are found to hold a certain percentage of the total shares of the company. It is thus seen that amongst the investors who have a controlling share of the company, there are funds, institutional investors and retail investors. The company communicates with the investors through annual report and other financial statements that display the financial position of the company to the investors.

• Financial Analysis

As compared to the competitors of the company, it was seen that the company in the quarter 4 there was a net decrease of revenue on year on basis. The decrease of total revenue was by 98.97%. However, the competitors recorded a revenue growth of 3.25% in the same quarter as compared to competitors of the company.

In the same course of time the net income of the company witnessed a decline of 42.13% year on the basis of year on year. As compared to this, the competitors of the company witnessed a 0% growth in the net income on the basis of year on year (CSI market. 2016). Thus it is seen that the net income of the company declined at a faster rate as compared to decline in the net income as witnessed by the competitors of the company.

As compared to year on year basis, there was a 220% of growth in the revenue of the company on a quarter to quarter to basis. As compared to the company, the competitors witnessed a net decline in revenue by a factor of 5.43% over the course of quarter.

It is however seen that the net margin of the company is at 1064.58%.

It is thus seen that the overall financial performance of the company has declined over the years. It is seen that the performance of the company has fallen with respect to competitors of the company (Bushee & Miller, 2012).

• Macroeconomic Factors and Risks

It is seen that the nature of electricity market in US is regional and diverse. It is seen that all of the markets are extremely regulated and it is seen that regulations in this market shapes and constraints the competition. The nature of products that are offered by the company varies according to specific regulation found to shape a particular region. In addition to the natural constraints related to freedom of pricing that is imposed upon by the competition, specific constraints related to capping of prices or maximum allowable price in case of certain products is also faced by the company (Chang, D'Anna, Watson & Wee, 2008). The available capacity of transmission may also act as a constraint in the company’s ability to sell output of the generation facilities. There are number of regions within which NEER operates and it is seen that RTOs and ISOs exist in these regions. The RTOS and ISOs are found to coordinate generate and transmission across a number of geographical area and are found to run markets. The operations of the company are also found to fall under jurisdiction of an ISO or an established RTO. There are differing objectives of RTOs and ISOs. Some of the benefits that are offered by these are related to management of transmission, maintenance if reliability etc. There are number of RTOs and ISOs under which the operations of NEER are found to fall.

• Summary

The company is one of the leading companies in energy sector. The company is involved in the production or generation of clean energy from renewable energy sources. It is seen that it is one of the companies to be listed as fortune 200. The company has a major share of the market due to strong growth in revenue. The company competes with its competitors on the basis of price. It is seen that the company management is quiet good and efficient in managing the risks and challenges that are faced by the company and provides a good impetus from growth in the market. It is noted at the same time that 95% of the energy produced by the company is from clean and renewable sources. The electricity market in the US is regional and diverse. The market is extremely regulated and the operations of the company in the market are extremely constrained by regulations that exist in the market. There are several constraints that are faced by the company and these constraints are related capping of prices, maximum prices that is allowed, etc. RTOS and ISOs exist in the market and many of the operations of the company fall under RTOs and ISOs. It is seen that RTOs and ISOs exert control on the market and there are number of benefits that are offered by RTOs and ISOs in the market.