Financial Statement Analysis 4
Standard Cost 10
Analyzing Future Projects 12
Works Cited 22
Section I: Introduction
Peabody Energy Corporation is a coal energy company and the world’s largest private-sector coal producer in the world. (Hoovers, 2011) Peabody was founded in 1883 as a coal supplier and later began coal mining in 1926. (Hoovers, 2011) Currently, Peabody operates roughly 28 mines and processing facilities and, additionally, markets, brokers and trades coal. (New York Times) Peabody Energy Corporation’s principal goods and services include coal trading and brokering, coalbed methane production, ...view middle of the document...
Creditors use these techniques in order to assess the credit worthiness for potential customers and maintain control over outstanding loans. (Mowen, Hansen, & Heitger, 2012) Investors use financial analysis to assess the company for potential investments. (Mowen, Hansen, & Heitger, 2012) Managers need to use the assessments to analyze their own level of production and profitability as well as the financial soundness of the entire company. Areas that managers typically concern themselves with are “profitability, liquidity, debt position, and progress towards organizational objectives.” (Mowen, Hansen, & Heitger, 2012) For a multi-billion dollar company like Peabody, in an industry as large as coal mining, processing and exportation, this assessment can be quite complex
A simple initial comparison is called common-size analysis, comparing two financial statements. Horizontal analysis, for example, can be used to compare income statements for Peabody Energy to compare percent growth in income over time. Appendix C shows the ‘Results of Operations Data’ for 2006 through 2010. Taking 2006 as the base year, the respective percent increase in each financial category from 2006 to 2010 is found in Appendix D. Referencing the total revenue, besides a slight decrease in revenue for 2009, Peabody is generally expanding their total cash intake. Though their revenue is generally expanding, their net income fluctuates from year to year this comes from rising costs and expenses coupled with the fluctuating ‘Income Tax Provision’ and ‘Income from Discontinued Operations.’ The firm may benefit from lobbying from more lenient income tax provisions and better analysis from their discontinued operations. The growth in their revenue and growth in their expenses is mostly linear. It is the fluctuating expenses that are having more of an impact on a steady net income.
Like horizontal analysis, vertical analysis compares income statements to find trends. Vertical analysis, however, helps to find relationships among items within a particular time period. (Mowen, Hansen, & Heitger, 2012) Using the same data as the horizontal analysis, our vertical analysis will compare the percentages of net sales to the final net income. The chart in Appendix E shows this breakdown. For this income statement, Revenue is used as the base for computing the percentages for where the money is spent; showing how much of the initial revenue is delivered as net income. For the years 2006 to 2010, the percent of total revenue documented as net income is 14.9%, 5.8%, 14.6%, 7.7%, and 11.7% respectively. This shows a similar outcome from the horizontal analysis that there is an obvious fluctuation in net income compared to revenue. While the revenue consistently increases, costs and expenses prove net income to be far less consistent.
Ratio analysis is a helpful tool for financial management because it offers a measure based on the...