Finance Lecture # 1
description
Transcript of Finance Lecture # 1
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Wind energy
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Dropbox URL:
https://www.dropbox.com/home#:::64295139
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Minor Wind Energy Project Management
Project
Finance
Law
Supply Chain Management
Construction
Mechanical Engineering
Energy
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Minor Wind Energy Project Management
Project
Finance
Law
Supply Chain Management
Construction
Mechanical Engineering
Energy
Commercial
Engineering
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Commercial
WEPM-C-LW Law 30% ≥ 5.5
WEPM-C-FC Finance 40% ≥ 5,5
WEPM-C-SC ISCM 30% ≥ 5,5
Educational unit: WEPM-C (7.5 ECTS)
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What is our ambition?
• Recognizing trends in the Wind Energy market• Analyzing an annual report of a wind energy
supplier;• Constructing an cash flow overview of wind
energy project;• Establish risk awareness (project- , exchange -,
interest rate- and political risks)• Decision criteria for an investment in a wind
energy project (PBP, ROI, NPV, IRR and BET).• Financially sourcing a wind energy project.
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Assessment
• WEPM-C-FC– Written exam of 120 minutes (PW8)
• WEPM-P-FR– Finance will also be assed in the final
report and presentation of the project of this minor
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Programme
Lecture Topic
1 Overview Energy Market
2 Annual Reports
3 Project Financials, Value Propositions & Business Model
4 Business plan I
5 Business plan II
6 Case study WEPM
7 Case study WEPM
8 Written Exam
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Energy Market• ElectricityOil• ElectricityGas• ElectricityCoal• ElectricityNuclear• ElectricityWind• ElectricityHydro• ElectricitySolar• ElectricityBiomass• ElectricityGeothermal
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Electricity market
• Complex market– See slide before
• The art of electricity– Not directly tangible– Storage problems– Capacity
• Transformation of Wind (free good) into Electricity (economic good)
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Overview Energy Market• Macro level
– Energy prices (P)– Energy demand (Q)
• Meso level / Industry level• Micro level / Firm level
– Value chain & supply chain– Annual Reports
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Macro level
• Energy prices (P)– Prices of substitutes / Trends
• http://www.bloomberg.com/energy/• http://www.energy.eu/
• Energy demand (Q)– Trends
• http://www.nwea.nl/• http://www.ewea.org/
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Renewable energy in final energy consumption (2020 target) Source: www.energy.eu
2006 2007 2008 2020 Target % To cover: United Kingdom 1.5 % 1.8 % 2.2 % 15 % 12.8 %
France 9.6 % 10.2 % 11 % 23 % 12 %Denmark 16.8 % 18.1 % 18.7 % 30 % 11.3 %
Netherlands 2.5 % 3 % 3.2 % 14 % 10.8 %Italy 5.3 % 5.2 % 6.6 % 17 % 10.4 %
Belgium 2.7 % 3 % 3.3 % 13 % 9.7 %
Spain 9.1 % 9.5 % 10.7 % 20 % 9.3 %
Germany 6.9 % 9 % 8.9 % 18 % 9.1 %
Austria 24.8 % 26.6 % 28.3 % 34 % 5.7 %
Sweden 42.7 % 44.2 % 44.4 % 49 % 4.6 %
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Renewable electric energy in the EU
Resource: 2005: 2006: 2007: 2008:
Hydro energy 60.60 % 64.40 % 60.60 % 60.00 %Wind energy 20.40 % 17.10 % 20.40 % 21.00 %Biomass 17.00 % 16.70 % 17.00 % 17.00 %Geothermal energy 1.20 % 1.20 % 1.20 % 1.00 %Solar energy 0.80 % 0.50 % 0.80 % 1.00 %
Resource: www.energy.eu
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Meso level / Industry level
Wind Energy Farm
DistributionSuppliers
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Micro level / Firm level
Wind Energy Farm
Input > Throughput > OutputProcurement > Production > Sales
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Annual reports• Market & Strategy• Corporate Governance• Corporate Social Responsibility (CSR)• Sustainability• Financial ratios
– Profitability– Liquidity– Solvency– Activity
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Structure of the balance sheet
• Fixed assets:– Property, Plant &
Equipment– Intangible assets– Financial noncurrent
assets• Current assets:
– Inventories – Debtors / AR– Cash & Cash
equivalents
• Equity:– Issued Capital – Retained earnings /
Reserves• Long Term Liabilities
– Provisions– Loans– Bonds
• Current liabilities:– Creditors / AP– Bank overdraft– Taxes– Dividend
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Structure of the income statement/ profit & loss account
• Costs– Costs of Sales:
• Cost of raw materials• Cost of (manufacturing)
labour• Costs of depreciation of
equipment– Overhead costs:
• Selling expenses• R&D expenses• General expenses• Administrative expenses• Other expenses• Incidentals• Financial charges
• Operating income
• Revenues / Sales
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• Gross Profit:– Revenues - Cost of Sales
• Operating Income / EBIT:– Gross Profit - Overhead costs
• EBITDA:– EBIT + Depreciation + Amortization
• EVA:– NOPAT - Capital Charges :
• NOPAT = EBIT - Taxes• Capital Charges = Invested Capital * Cost of
Capital
Profit definitions
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The ability of an asset to be converted into cash without a significant price concession
• Current ratio:– Current Assets / Current Liabilities
• Quick ratio:– { Current Assets -/- Inventories } / Current
Liabilities
Performance of the company: Liquidity
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Solvency shows how the extent to which the firm is financed by debt
• Debt Ratio:– Debt / Total Assets
• Debt-To-Equity Ratio:– Debt / Shareholder’s Equity
Performance of the company: Solvency
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Compares profit (output) with invested money(input) of the firm
• Gross Profit Margin:– Gross Profit / Sales
• ROI (ROA) = Return on Investment (Assets)– Net Profit after taxes / Total Assets
• ROE = Return on Equity– Net Profit after taxes / Shareholder’s Equity
Performance of the company: Profitability
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Provides performance information of the efficiency of some internal processes
• Asset turnover– Sales / Assets
• Inventory turnover– Cost of goods sold / Inventory
• Receivable turnover (collection period)– Sales / Receivables
Performance of the company: Economic activity
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Du Pont formuleROE = NPM * TAT * EM
– NPM = Net Profit Margin (Market profit)• NPM = Net Profit / Sales
– TAT = Total Assets Turnover (Utilisation)• TAT = Sales / Total Assets
– EM = Equity Multiplier (Financial structure)• EM = Total Assets / Total Equity
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Altman’s Z-score
• Working Capital / Total Assets * 1.2• Retained Earnings / Total Assets * 1.4• EBIT / Total Assets * 3.3• Market Value Equity / Book Value Liabilities * 0.6• Sales / Total Assets * 0.999
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Annual reports (2010) of Sustainable Energy Industry
• Van Oord (case for the lectures)• Teams
– Eneco– Vestas– ABB– RWE– GE– Siemens– Nordex– BP– Shell
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Organisation# Company URL Team members
0 Van Oord www.vanoord.com Mr Jan Jansen1 Eneco www.eneco.com2 Vestas www.vestas.com3 ABB www.abb.com4 RWE www.rwe.com5 GE www.ge.com6 Siemens www.siemens.com7 Nordex www.nordex-
online.com8 BP www.bp.com9 Shell www.shell.com