Company Analysis Of Con Edison. Harvard Case Solution & Analysis

Company Analysis Of Con Edison Case Study Solution

Opportunities:

• One of the opportunity that is existing to all the providers of energy, gas and steam is that the company can focus on the increase in advancement of the technology which can help the company to manage its operations efficiently. The efficiently managed operation will also help the company to improve its profit margins by reducing their costs.
• The other opportunity available to the company is to enhance its research and development process through which the company can develop future innovation ideas and research. Therefore, the advancement in research and development department of the company will assist the company to become efficient in this competitive industry in which all the companies are striving to perform better than others with evolving cost cutting strategies.
• US coal which comprises of around $61 of exports is considered a high quality coal with less carbon emission. Almost 30% of the total energy provided to the nation is from coal fired power plants. Therefore, Con Edison should also add more coal fired power plants to produce electricity with the intent to decrease its cost with governmental approval of increase in producing electricity through coal fired power plant.

Threats:

• One of the main threats which is existed for all the providers of electricity, gas and steam is that all the energy providing companies are subject to regulatory and compliance risk. Regulations and compliance is imposed by the government regulatory authority on those energy producing companies to remain competitive and environmental friendly. These compliance and regulations could be changed by the government to which the Con Edison Company is also exposed.
• Increase in global warming and the climate change is also one of the threat to the providers of energy, gas and steam. The increase in global warming would further increase regulation and compliance risk for energy producing companies which could force the companies to shift its operating activities to environmental friendly operations. The change in operations increases the cost of the company due to extra cost of shifting to another form of environmental friendly operation.
• The increase in the price of electrical grids and commodity which is used to produce the electricity is also one of the threats which are prevailing over the energy producing company including Con Edison.
• The risk of cyber-attack is also present for all the energy producing companies. This cyber-attack involves malware, hacking and viruses which could adversely affect the energy providing companies. These cyber-attacks could impact the operation and financial system of the companies which could impair the operational efficiency of the companies.

Financial analysis:

The financial analysis of the Con Edison Company will enable us to analyze how efficiently the company is managing its operations which will be reflected from the financials of the company. The financial analysis of the company will be conducted by analyzing the key financial ratios of the company below.

Current Ratio:

The current ratio of the company is declining since 2014 which can be seen from the ratios ranging from 2014 to 2017. In 2014, the current ratio of the company is 99 percent which is declined gradually to 72 percent. This decline in the current ratio indicates that the company’s short term liability is increasing. This could also be an indication that the company’s current assets which include accounts receivable and inventory as well are decreasing which provides an indication that the company is managing its receivable and inventory efficiently.

Quick Ratio:

The quick ratio is calculated by eliminating the inventory from the current assets when calculating current ratio. The declining trend in the current ratio indicates that cash, short term investments, and accounts receivable of the company are declining which is a good sign for the accounts receivable as the days sale outstanding is minimizing but decline of cash must be the concern for the company of future obligation.

Cash Ratio:

The cash ratio is showing the roller coaster trend i.e. in the years through 2014 to 2017 the cash ratio first increases and then declined in the year 2017. The decline in the year 2017 indicates that the company is subject to payment obligations which arouse in the year 2017. Moreover, the decline in the cash ratio also provides an indication that the company is not managing its cash efficiently which could create problem for the company is meeting the future obligation which are arising in the near future.

Gross Margin:

The gross margin which are estimates as the percentage of sale from gross profit. The gross profit is obtained by subtracting the cost of goods sold from the revenue. The years through 2014 to 2017 the gross margin of the company is on inclining trend which provides clear indication that the cost of goods sold is efficiently managed by the company by adopting different cost cutting strategies. Hence, it is observed that the company’s cost is decreasing which is a positive sign as it will help the company to maximize its profitability by managing inventory cost and other costs related to the cost of goods sold.

Operating margin:

The operating margin of the company is also on the increasing trend. The increasing trend in the operating margin indicates that the company is also managing the costs of its operations efficiently. The operating expense of the company are decreasing which provides an indication that the company is incorporating innovation and technology advancement in operations of the business which helps the company to reduce the cost of its operations. Hence, the increase in the operating margin of the company is beneficial for the company because it will enable the company to increase its profit margins in comparison with the previous year.

Profit Margin:

The increasing trend in the gross margin and the operating margin provided a clear indication that the profit margin of the company will also increase. Hence, the profit margin of the company is also showing an increasing trend. This trend and increase in profitability of the company shows that the company is maintaining sustainable earning which is a positive sign of the company therefore the value of the company and the share price of the company will tend to increase if the company maintain this increasing trend in its profit margin.

Return on Equity (ROE):

Return on equity which is calculated by dividing the net income from the total shareholder equity which is one of the components located in the balance sheet of the company. Return on equity provide information that how much return the company is generating in comparison with the capital invested by the shareholder of the company. The increasing trend in the return on equity provides an indication that the company is using its invested capital efficiently which will help the company to increase the value of the share of the company which is one of the motives of the company to provide maximum benefit to the shareholders.

Supply and Distribution Chain:

The main business of the company is to supply electricity, gas and steam. This distribution of electricity, gas and steam is provided to the wholesale as well as the retail customers of the energy. The company strive to provide clean, reliable and safe energy to its customers because it is an essential need for the New York City because of the fast paced growing economy of the city. Con Edison provides electricity to 3.4 million customers in the New York City. It also provides an electricity to Westchester County where its serves more than 9 million customers. Con Edison also operates the large distribution system of supplying and distributing steam in the United States.

The electricity is provided to electric distribution system at the rate which include the cost of production, tax as well as the fees charged to the end user. This electric distribution system is then distributes to the end users of the electricity. The projects of the company which is distributing the electricity to the utilities distribution system are internal combustion engines, photo voltaic solar, gas turbines, micro turbines, fuel cells, steam turbines and landfill. The megawatt distributed by these projects has increases from 219 to 366 from the period of 2014 to 2017. Con Edison owns around 62 distribution substations and number of distribution facilities located in Westchester County and New York City. The distribution system of the company possessed the capacity of 31767 mega volt amp (MVA) with distribution lines and underground distribution lines. The underground distribution of the company is the largest single line distribution facility operated by the company in the United States. Con Edison transmission facilities are located in Westchester and New York, Orange, Rockland Putnam and Duchess Counties in the New York state. Hence, Con Edison possessed the integrated supply and distribution system through which it provides the electricity to its end users efficiently.

Strategic Analysis:

The strategic analysis of the company is conducted by analyzing the competitive strategy adopted by the company and the changes in the current strategy of the company. The strategic analysis helps to determine the company’s strategy which the company has adopted to manage its operations efficiently so that the profit of the company can be maximized which is the prime motive of the company in developing strategy. The strategy adopted and the change in strategy by the company is discussed below.

Competitive Strategy of Con Edison:

The competitive strategy adopted by Con Edison is that the major objective of the company is to provide clean and environmental energy to its end users. The main strategy of the company is to adopt technologically advanced facilities to manage its operations efficiently because managing operation efficiently enables the company to decrease the cost of operations which eventually increases the profit of the company. The company is also managing technologically advanced supply and distribution system in New York and Westchester County which helps the company to manage the supply and distribution system efficiently by providing electricity to its end user without any delay. Due to innovation, research and development the company has reached to new heights in gaining competitive advantage over its competitors by providing energy saving solution and services to the government and commercial customers of the company. Con Edison has also achieved competitive solicitation from United States department of energy United States department of defense for energy saving contracts. The other competitive advantage that the company gain over its competitors is that it also produce renewable energy which is cheap to produce and efficient way of using resources which decrease the cost of the company in providing energy resources to its end users. The other advantage that the company possess is that the company does not only focus on providing electricity but also managing to provide other energy resources such as natural gas and steam.

Strategic Change by Con Edison:

The strategic change adopted by the company in order to enhance and gain efficiency in managing and expanding the operations managed by the company. Safety, which is considered the most important factor in building the strategy and strategic decision making by the company therefore, the company recognized to provide safe supply of electricity, gas and steam to the end users by replacing the cast iron and unprotected steel gas mains. This strategy was adopted by the company because to gain the trust of their customers that they care about safety of their customers as well as to provide assurance to the customers that the company is providing environmental friendly electricity to their end users by adopting the strategy of providing electricity through solar panels as well. Safety is considered most important by the company therefore free methane detectors were also provided by the company to its end users to ensure safety in their homes.

The other strategic change adopted by the company is to provide the energy resources to its end users without any disturbance in supplying and distributing through different channels. The company has also adopted advanced technology to fix any issues arising or creating disturbance in providing energy resources to its end users. Sensors has been placed to detect carbon monoxide and heat so that the leakage that is found or determined by the company can be repaired without any delay which ensure that the company is providing energy resources smoothly to its end users. This strategy and use of technological advancement will enable the company to manage its operations efficiently which will assist the company in maximizing its profit through cost cutting strategy like operational efficiency. One of the strategic change adopted by the Con Edison Company is that besides providing energy resources to its end users the company is also providing energy efficient appliance...........

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