Energy Companies, Capstone Project Example

Total assets for TransAlta dropped by 8% in the year 2020 (TransAlta, 2020). However, before a thorough analysis of the companies’ financial positions can be done, it is crucial to understand COVID-19 as a Public Health phenomenon will play a part in the results realized in 2020. In addition to the drop-in assets since 2017, TransAlta realized a 2% drop in the company’s liabilities from about $1.3 billion to $1.2 billion (TransAlta, 2017). In this way, the company has realized a significant drop in liabilities as well as a proportional drop in assets. On the other hand, the oil company Suncor reports assets of about $89 billion, from about $88 billion in 2018 (Sunor, 2019). The liabilities stand at about $9 billion, making the company’s assets about 90 % more than the liabilities, while TransAlta has about 65% more assets than liabilities.

Additionally, Innergex Renewable Energy Inc., the most similar company to TransAlta reports assets of $6.3 billion and liabilities of $5.7 billion (Innergex, 2019), meaning that Innergex has only 10% more assets than liabilities, thus the oil company shows significantly more assets than the renewable energy companies.

Normalized Financial Analysis Revenue and Expenses

An analysis of the revenue and unusual expenses by the renewable company TransAlta shows significant investment in the year 2017, where the costs stood at 27% of the income (TransAlta, 2017). In turn, the dropping percentages in the years 2018 and 2019 show that most of the investment on assets for wind and hydro was conducted in 2017. On the other hand, Innergex shows a reverse of the same between the years 2017 to 2019. Innergex has less than 1% in 2017 and 2018 but spikes up to 10% in 2019 (Innergex, 2019). They were showing significant investment in the operating expenses employed in renewable energy efforts. Suncor, the oil company, confirms regular maintenance of revenue and unusual expenses. Less than 1% of unusual expenses are reported at Suncor (Suncor, 2018). Normalized financial review shows that Suncor’s business of setting up oil fields is only an initial investment (Normalized financial analysis). The operating cost of maintaining the company is lower when the fields are set up. Compared to the renewable company Innergex, TransAlta shows initial expenses that keep the percentage high. It is probable to project that the revenue and expenses will reduce to less than 3% (Normalized financial analysis).

TransAlta reports about $49 million in net earnings; the earnings dropped significantly from $79 million the previous year. On the other hand, Suncor says that the assets employed have 26 years of longevity compared to the renewable energy business (Suncor, 2019). In this way, the TransAlta report shows that the hydro and wind assets employed for renewable energy efforts have longevity of 7-12 years (TransAlta, 2020). However, the revenues show that Suncor’s assets are much more expensive than those of TransAlta, (about 200 times more expensive). Additionally, the assets and normalized data sections show the importance of initial investment in the energy sector. The TransAlta reports indicate that it is essential to have more expenses than reducing as the revenues for the assets contribute to the total revenues. The normalized data on the excel sheet shows a brief comparison between the companies.

At this time in history, renewable energy companies are facing a challenge due to their limited resources compared to the investment required for the companies (Innegex, 2019). The case is quite different for oil companies that have existed for a while now. This factor makes it easy and economical to set oil mines in the fields because most of the human and technological resources are available. The expensiveness of assets used in the production of energy is based on the calculation of their longevity and their recurrent expenses. The technology and infrastructure required to set up and grow renewable energy companies are expensive compared to extracting carbon fuels, which reflects in the budget of customers (innergex, 2019, pg. 8). This reduces the turnover rate of the business though people are appreciating a need for a safer world.

The rapid turnover of Suncor can be attributed to the increased demand of oil throughout the world both for speculative purposes and the increased need to grow economies. Revenue has grown from $ 32,8885,000,000 to $ 39,866,00,000 from 2017 to 2019, unfortunately the company continues in increment in their unusual expenses from 0.11%, 0.23 % to 0.9 % from 2017 to 2019 respectively (Formalized Financial analysis, 2020). Though the numbers are quite small because they are less than one, they might continue increasing in the future, posing a high threat to the total revenue, which is increasing steadily at a rate of 3%.

Suncor strives to be the best company in the production of greenhouse gases. The company aims to reduce greenhouse emissions by 30 % of its current output by 2030 (Suncor, n.d.), which will see the company compete better with its competitors. By 2017 the company had invested $ 200 to $ 350 in the acquisition of new technology, which will make its products safer (Suncor, 2017). The industry faces a dull future because of climatic change. A company may only adapt if they invest heavily during this time when most economies rely on oil to increase due to its cost.

Companies offering renewable energy are on the rise and may have a brighter future evaluating their financial statement and the increment in the number of people they are currently serving. Compared to the growth of Suncor of 3 %, Innergex income increased by 16% from a total of $ 557 million by the end of December 31^st, 2019 (Innergex, 2019). The figure indicates the appreciation and renewable companies they are encountering in their work. The company alone supplied a total of 850, 359 households with clean and renewable energy (Innergex, 2019, Pg. 6). In 30 years Innergex had met its goal of producing 2000 MW (Innergex, 2019, pg. 8). In the new decade, they are expected to perform exemplary each better with continued expansion in the world and partnership with other businesses in their area of specialization.

There is a need to check on the unusual expense against revenue, which has risen from a figure of 0.3548% to 10.24 %, (Formalized Financial analysis, 2020) ten percent is a high figure a company spends on unusual expenses without keeping in mind of growth (Formalized Financial analysis, 2020). Innergex should invest this fund in the expansion of its operations because it is continuing to understand the need to shift to renewable resources. Failure to do so may lead to overlapping by their competitors, reducing their overall growth rate.

Trans Alta drops in revenue by 8 % might mean less in the evaluation of their financial statement than the reduction in unusual expenses by 21. 88 % (Normalized financial, Tran Alta) . This amount was high, taking much of the company’s total revenue (Formalized Financial analysis, 2020). Comparing the two figures indicate the company is growing because there are available funds to continue investing. Unusual expenses end up eating away annual dividends even though investors get fewer dividends.

The Northland company’s success can be attributed to the diversification in the energy they drive and their operation region. The two factors place them in a better position to tap the power and supply it to its customers nearly. In 2019, the company moved to the offshores of Europe and started producing a total of 1200 MW (Northland power, 2019 (pg. 8). In Latin America, the company aims at launching a 130 MW solar system in La Lucho (Northland power, 2019). The system will provide renewable energy for 48000 customers (Northland power, 2019(Pg. 7). The continued investment in production assets increases the production capacity of the company, increasing its revenue. A company should always evaluate the feasibility, return factor, and the period before making any of its investment decisions. This is a strong point evident in the diverse investment in Asia, Europe, and America.

In conclusion, the growth between renewable and oil companies may indicate a disparity in their annual revenues, unusual expenses, and high liability assets. The oil industry has fuel economies for centuries due to its low cost and availability. The need to save our environment will change the future of the oil industry, bearing the most significant contributor of carbon gases in the world. An increase in technology will make renewable resources cheaper, increasing their use among clients, and increasing the companies’ turnover.

Reference

Innergex Renewable Energy Inc. (2019). Innergex Annual Report. Innergex Renewable Energy Inc., Longueuil, Québec, 2017, pp. 1-156, http://www.annualreports.com/HostedData/AnnualReportArchive/i/TSX_INE_2017.pdf. Accessed 29 May 2020.

Meeting The Global Demand For Intelligent Energy. Northland Power Inc., Toronto, Ontario, Canada, 2019, pp. 1-94, http://2018%20Northland%20Power%20Annual%20Report.pdf. Accessed 29 May 2020.

Suncor Energy Inc. (2019). 2018 Suncor Annual REport (pp. 1-158). Calgary, Alberta Canada T2P 3E3. Retrieved from http://2018-suncor-energy-annual-report-en.pdf