Running head: PPL CORPORATION FINANCIAL ANALYSIS 1

PPL Corporation Financial Analysis

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PPL COPORATION (PPL) FINANCIAL ANALYSIS 2

Company profile and industry

PPL Corporation or Pennsylvania Power and Lighting is listed in NASDAQ stock

exchange under the ticker symbol (PPL); the company specializes in delivering electricity and

lighting to the United States and the United Kingdom. The company was incorporated in the

1880s by the consolidation of small electric lighting companies in Eastern Pennsylvania. As of

2019, the company had approximately over 418,000 electric and over 329,000 natural gas

customers in North America and the United Kingdom (“PPL corporation (PPL),” 2020).

In 2019, the company reported $1.75 in earnings or $2.37 per share compared to $1.83

billion in earnings in 2018. According to the company press release, PPL hopes to generate $2.4

to $2.6 per share in 2020. However, the projection may not be possible due to the current Covid-

19 crisis, which was not a factor when the projection was released. Besides, the earning may not

be realistic in the current financial year due to increased competition from the main competitors

such as Duke Energy, CMS Energy, Ameren, and WEC energy group (“PPL corporation (PPL),”

2020).

In this paper, we are going to carry out financial analysis for PPL corporation for the last

year and compares the performance with peers which will help us to determine whether it is

viable to invest in the company stocks. This paper discusses the company’s financials in-depth; it

goes through financial ratios, past performance, and future performance using the most recent

financial statement. The ratios will be compared to industrial average of three companies; Duke

Energy DUK, WEC Energy (WEC) and WEC energy

Financial Analysis
PPL COPORATION (PPL) FINANCIAL ANALYSIS 3

Before investing in any company stocks, it is prudent to carry out the financial analysis

that helps to understand the financial health of the company. The financial analysis helps to

determine financial performance and the stability of the company. Besides, the financial analysis

helps to determine the current financial position and the upcoming financial requirement to

enable the company to operate smoothly (Ravichandran, 2009). In this paper, we are going to

carry out the financial analysis of PPL Corporation and determine whether it is viable for

investment.

Ratio Analysis

Ratio analysis is used by the manager and analyst to assess the company’s ability and

financial health. The shareholders, investors, and analysts use the ratio analysis to evaluate the

financial performance of companies by scrutinizing the past and the current performance using

the quantitative data retrieved from the financial statement. The ratios analysis can be divided

into four categories the liquidity ratios, the solvency ratios, activity ratios, and profitability

ratios.

Liquidity Ratios

The liquidity ratios measure the degree of protection of short-term liability; the ratios

measure the ability of the company to pay the short-term liability using the current assets that can

be converted into cash within the shortest period (Lerner & Helfert, 2013). In other words, the

liquidity ratios measure how quickly the current assets can be converted into cash to pay the

current liability or the number of times the current liability can be used to cover the current

liability.

Liquidity Ratios Dec. 31, 2019 Dec. 31, Dec. 31, 2017 Industrial Average
PPL COPORATION (PPL) FINANCIAL ANALYSIS 4

2018
Current Ratio 0.565 0.533 0.570 0.714
Quick Ratio 0.497 0.467 0.491 0.508
Cash Ratio 16.63% 13.61% 12.06% 28.82%

The calculation is shown in the appendix

In the last three-year PPL Corporation has performed poorly in terms of liquidity since

the current and quick ratio for the three years was below one. The current ratio and quick ratio

below one mean that the company’s current liabilities are more than the current assets, and the

company may be forced to use the fixed assets or incur more debt to repay the current liabilities

in case of liquidation. However, the company has managed to maintain the variation of the liquid

ratio since there is no significant change in the ratios for the last three years. The current and

quick ratios have remained steady for the last three years, which means that the management has

an effective strategy to manage the current assets and the current liability.

PPL Corporation is under performing in term of liquidity compared to its pears; for

instance, the current ratio is lower than Duke Energy which was 0.621 in 2019, CMS energy

which was 0.862 in 2019 and WEC Energy which was 0.658. The average current ratio for the

industry was 0.714. However, the company has higher quick ratio than Duke Energy which was

0.402 in 2019 but the quick ratio for CMS Energy and WEC Energy are higher than PPL

Corporation. Lastly, the cash ratio for PPL Corporation is higher than its competitor in 2019 the

cash ratio for PPL Corporation stood at 16.63% while the cash ratio for Duke Energy, CMS

Energy and WEC Energy was 5.18%, 1.18% and 2.82% respectively.

(The calculation for liquidity ratios is included in the appendix)

PPL COPORATION (PPL) FINANCIAL ANALYSIS 5

The Profitability Ratio

The profitability ratio indicates whether the company is making loss or profit; the ratios

assess a company’s ability to generate revenue relative to operating cost, balance sheet, and

shareholder equity. The profitability ratios indicate the effectiveness of the management in using

the existing assets and capital to generate earnings to the shareholders (Lerner & Helfert, 2013).

The most common profitability ratios include; gross profit margin, operating profit margin, the

net profit margin, the return of assets, and return of capital employed. The table below shows the

profitability ratios for PPL Corporation for the last three years. The ratios are compared with the

industrial average to determine the position of the company in the market.

Profitability Ratios Dec. 31, 2019 Dec. 31, Dec. 31, 2017 Industrial
2018 Average
Gross Profit Margin 81.57% 80.17% 80.61% 76.29%
Operating Profit 36.56% 36.63% 38.96% 20.41%
Margin
Net Profit Margin 22.47% 23.47% 15.15% 13.10%
Return on Equity 0.21 0.22 0.14 18.85%
(ROE)
Return on Assets 4.01% 4.20% 2.59% 3.07%
(ROA)
Return on Total 6.22% 6.57% 6.99% 4.20%
Capital

The PPL Corporation profitability for the last three years has improved as evident in the

increase in Gross Profit Margin from 80.61% in 2017 to 81.57% in 2019; the net income margin

improved from 15.15% in 2017 to 22.47% in 2019. The improvement of the profitability ratios

was as a result of an increase in revenue from $7.4 billion in 2017 to $7.769 billion in 2019.
PPL COPORATION (PPL) FINANCIAL ANALYSIS 6

Moreover, PPL Corporation is more profitable compared to its peers since the

profitability ratios are higher than its competitors. In 2019, the net profit margin for PPL

Corporation was higher compared to its competitors; the net profit margin for PPL stood at

224.47% while its competitor, such Duke Energy, CMS Energy, and WEC Energy, stood at

14.27%, 9.96%, and 15.08% respectively. Additionally, the operating profit margin for PPL

Corporation was higher compared to its peers in the last three years. The average operating profit

for the three companies was 20.41%, while PPL Corporation's average operating profit margin

was 37.40%.

Moreover, the return ratios for PPL Corporation are higher than its competitor; for

example, the average Return on Assets (ROA) and Return on Equity (ROE) for the last three

years is higher than the average ROA and ROE for Duke Energy, CMS Energy and WEC Energy

for 2019. The average ROA and ROE for PPL Corporation were 2.7% and 6.6%, respectively,

while the average ROA and ROE for its competitors was 2.07% and 4.2%, respectively.

(The calculation for profitability ratios is included in the appendix)

Solvency Ratios

Solvency ratios are also carried the leverage ratios since they measure the ability of the

company to pay the long-term liability. The solvency ratios show the capital structure of the

company by indicated how the debt-equity and assets are distributed in the capital of the capital.

Moreover, the leverage ratios are used to indicate the company default risk since higher solvency

ratios mean that the company has higher debt compared to assets and equity. The most common

solvency ratio includes; the Debt to Assets Ratio, the Debt to Equity Ratios and equity
PPL COPORATION (PPL) FINANCIAL ANALYSIS 7

multiplier, and the interest coverage ratios. The table below shows the solvency ratios for PPL

Corporation for the last three years compared with the industrial average.

  Dec. 31, 2019 Dec. 31, Dec. 31, 2017 Industrial

2018 Average
Debt to Asset Ratio 0.1612 0.1664 0.9057 1.030
Debt to Capital Ratio 0.49 0.52 1.23 1.235
Debt to Equity Ratio 0.57 0.62 3.49 1.225
Financial Leverage Ratio 5.29 5.29 5.29 6.143
Interest Coverage Ratio 2.86 2.96 3.22 3.372

PPL Corporation is performing well in term of leverage since the ratio have greatly

improved in the last three years. The highest improvement was recorded in debt to assets ratio

which decreased from 0.9057 in 2017 to as low as 0.1612 in 2019, the debt to the capital ratio in

the same period decreased from 1.23 in 2017 to 0.49 in 2019, and lastly, the debt to equity ratio

decreased from 3.49 in 2017 to 0.57 in 2019. The improvement of the solvency ratios for the last

three years was as a result of a decrease of debt from $37,566 million in 2017 to $7,365 million

in 2019. In the same period, the total company equity increased from $10,761 million in 2017 to

$12,991 million in 2019.

PPL Corporation has shifted from debt finance to equity finance, as evident from the

decrease of long-term debt and an increase in total equity. Besides. The company is performing

better compared to its rivals since the solvency ratios for the company is lower than the industrial

average. For instance, the Debt assets ratio, debt to capital ratio, and debt to equity ratio for PPL

Corporation were higher than its competitors for the last three years.
PPL COPORATION (PPL) FINANCIAL ANALYSIS 8

For instance, in 2018 and 2019, the debt assets ratio and debt capital ratios for PPL

Corporation were lower than 50%, which is the recommended level while its competitor debt to

assets ratio and debt to capital ratio was higher than 50%. PPL Corporation is better positioned

since competitor solvency ratios are higher than 90%; for instance, the debt assets ratio for Duke

Energy, CMS Energy, and WEC Energy in 2019 was 0.96, 0.81, and 1.32, respectively. The

lower industrial average means that the company is less risky for shareholders compared to other

companies in the industry.

(The calculation for solvency ratios is included in the appendix)

The Activity Ratio

The activity ratios indicate the effectiveness of the management to use the available

assets to generate revenue for the company. In other words, the activity ratios show how efficient

a company performs day-day tasks such as the collection of receivables and the management of

the inventory. The activity analysis aims to determine the effectiveness of the utilization of the

assets by the company. The most common activity ratios include; Inventory turnover and day of

inventory, the receivable turnover and days of receivable, and total assets turnover. The table

below shows the activity ratios for PPL Corporation for the last three years.

Activity Ratio Dec. 31, Dec. 31, 2018 Dec. 31, 2017 Industrial
2019 Average
Inventory Turnover 4.498 4.850 3.009 3.771
Day of Inventory (DOH) 81.139 75.254 80.465 247.009
Receivable Turnover 9.948 9.968 9.535 14.419
Day of Receivable (DS0) 36.693 36.617 38.279 35.381
Working Capital Turnover 4.063 4.071 3.894 11.885
Fixed Assets Turnover 0.189 0.190 0.182 0.239
Total Assets Turnover 0.179 0.179 0.171 0.225
PPL COPORATION (PPL) FINANCIAL ANALYSIS 9

PPL Corporation has managed to maintain the same level of activity for the last three

years, the activity ratios did not have a significant change in the last three years since it means

that the company enjoys customer loyalty or the company has very predictable performance. The

steady inventory turnover of 4.5 means that the company only converts its inventory 4 – 5 times

a year. Moreover, the company takes approximately 80 days to convert the inventory into

revenue.

Furthermore, the receivable turnover and the days of receivable have remained constant

for the last three years, which means the company has not altered its credit policy for the period

under consideration. The persistent credit policy has enabled the company to manage 9-10 times

of receivable turnover with at least 36 days of receivable days. The consistency activity ratios

make the company performance predictable and therefore reduce volatility due to certainty.

The activity ratios are lower compared to its competitors, such as Duke Energy, CMS

Energy, and WEC Energy. For instance, the average inventory turnover for Duke Energy, CMS

Energy, and WEC Energy were 3.771 in 2019 while the inventory turnover for PPL Corporation

was 1.608 in 2019. In addition, the average receivable turnover for Duke Energy, CMS Energy,

and WEC Energy were 14.419 higher than average receivable turnover for PPL Corporation for

the last three years was 8.408. The days of average receivable for the last three years for PPL

Corporation were 43.43 days lower than 2019, the average days of receivable for Duke Energy,

CMS Energy, and WEC Energy, which was 35.385 days.

(The calculation for activity ratios is included in the appendix)

PPL COPORATION (PPL) FINANCIAL ANALYSIS 10

Adjustment of Operating Lease to Capital Lease.

t=0 2020 2021 2022 2023

Operating Lease 122 26 42 27 27
Cost of Debt 2.55%
Operating Income 2,840.00
Debt Reported 7,365.00
Interest Expenses 994.00
0 1 2 3 4
Calculating the present Value of the operating lease
commitments
Cost of Debt 2.55%
t=0 2020 2021 2022 2023
Operating Lease 122 26 42 27 27
PV of the Cash Flow 122 25.3534 39.9372 25.0355 24.413
9 3 3

Present Value 114.739

2
Net Operating lease 114.7392
PPL COPORATION (PPL) FINANCIAL ANALYSIS 11

Depreciation Expense of Leased assets

Debt Value Lease 114.7392
Number of Periods 4
Depreciation Expense (Straight Line method) 28.68481

Imputed Interest Expense on Operating lease

Current year Operating lease 122
-Depreciation Expenses of leased Assets 28.68481
Imputed Interest Expense on Operating lease 93.31519

Adjusted Interest Expenses

Interest Expenses 994
+Imputed Interest Expenses on Operating lease 93.31519
Adjusted Interest Expenses 1087.315

Adjusted Operating and Net Income

Adjusted Operating Income 2019

Operating Income 2840
+Current Year Operating Lease Expense 122
- Depreciation Expense on Leased Assets 28.68481
Adjusted Operating Income 2933.315

Adjusted Net Income

Net Income 1,746.00
+Current Year Operating Lease Expense 122
- Depreciation Expense on Leased Assets 28.68481
-imputed Interest Expense on Operating lease 93.31519
Adjusted Net Income 1,746.00

Net Operating Assets

Non-Operating Assets
Cash and cash equivalents Non-Operating 815 621 485
Pension benefit asset Non-Operating 464 535 284
Price risk management Non-Operating 149 228 215
assets
Total Non- Operating 1428 1384 984
Assets
Total Assets 45680 43396 41479
PPL COPORATION (PPL) FINANCIAL ANALYSIS 12

Net Operating Assets 44252 42012 40495

NOPAT

NOPAT = Net Operating Profit Before Taxes - Tax on Operating Profit

NOPAT = Net Operating Profit Before Taxes - [(pretax net operating expense *
Statutory Rate)
+ Tax Expense]
Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017
Net Operating Profit Before Taxes 606 566 575
Other Income (Expense) - net 309 396 (88)
Financial Interest Expense 994 963 901
1,909 1,925 1,388
Pre-Tax Operating Expenses 1,303 1,359 813

Statutory Rate 21% and 35% 273.63 285.39 284.55

1,577 1,644 1,098
NOPAT 332 281 290

Conclusion

After carrying financial analysis PPL Corporation, we conclude that the company is

viable for investment since the past performance has shown that the company are a predictable

performance. The performance of the company does not fluctuate much, and therefore the

investors are certain to get returns every year. Besides, the company enjoys consumer loyalty as

currently serving more than 1.4 million customers in North America and the United Kingdom.

The highest number of customers enables the company to predict its performance with certainty

since it operates the inelastic market. However, the company needs to improve its profitability

since it is below the recommended levels and the industrial average.

PPL COPORATION (PPL) FINANCIAL ANALYSIS 13

References

Financial analysis reports. (2015). Financial Analysis: A Controller’s Guide, 289-

323. https://doi.org/10.1002/9781119197737.ch18

Lerner, E. M., & Helfert, E. A. (2013). Techniques of financial analysis. The Journal of

Finance, 18(4), 701. https://doi.org/10.2307/2977204

PPL Corporation (PPL). (2020, April). Yahoo Finance - Stock Market Live, Quotes, Business

& Finance News. https://finance.yahoo.com/quote/PPL/profile?p=PPL

Ravichandran, D. K. (2009). Financial statement analysis was of Sundaram Clayton

limited. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1361754

PPL COPORATION (PPL) FINANCIAL ANALYSIS 14

Appendix
Item Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017 DUK 2019 CMS 2019
$ $ $
Current Asset $ 2,767.00 2,432.00 2,294.00 9,163.00 $ 2,331.00
$ $ $
Current Liability $ 4,900.00 4,563.00 4,023.00 14,752.00 $ 2,704.00
     
Current Ratio 0.56 0.53 0.57 0.62 0.86

Item Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017 DUK 2019 CMS 2019
$ $ $
Current Asset $ 2,767.00 2,432.00 2,294.00 9,163.00 $ 2,331.00
$ $ $
Current Liability $ 4,900.00 4,563.00 4,023.00 14,752.00 $ 2,704.00
$ $ $
Inventory $ 332.00 303.00 320.00 3,232.00 $ 605.00
       
Quick Ratio 0.496938776 0.466579005 0.490678598 0.40204718 0.638313609

Item Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017 DUK 2019 CMS 2019
Cash and Cash $ $ $
Equivalent $ 815.00 621.00 485.00 311.00 $ 140.00
Current $ $ $ $
Liability 4,900.00 4,563.00 4,023.00 14,752.00 $ 2,704.00
     
Cash Ratio 16.63% 13.61% 12.06% 2.11% 5.18%

Item Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017 DUK 2019 CMS 2019
Current Asset 2,767.00 2,432.00 2,294.00 9,163.00 2,331.00
Current Liability 4900 4563 4023 14752 2704
Net Working
Capital -2133 -2131 -1729 -5589 -373
Sales 7769 7785 7447 25079 6845
Working Capital -
Turnover -3.642287857 -3.653214453 -4.307113939 4.487207014 -18.3512064
PPL COPORATION (PPL) FINANCIAL ANALYSIS 15

Dec. 31, Dec. 31, Dec. 31,

Item 2019 2018 2017 DUK 2019 CMS 2019 WEC 2019
158,838.0
Total Assets 45,680.00 43,396.00 41,479.00 0 26,837.00 34,951.80
Sales/Revenue 7769 7785 7447 25079 6845 7523.1
Total Assets 0.170074 0.179394 0.179536 0.157890 0.255058 0.215242
Turnover 431 414 633 429 315 133

Dec. 31, Dec. 31, Dec. 31, WEC

Item 2019 2018 2017 DUK 2019 CMS 2019 2019
Gross margin 6337 6241 6003 18253 6277 4844.3
Sales/Revenue 7769 7785 7447 25079 6845 7523.1
Gross Profit
Margin 81.57% 80.17% 80.61% 72.78% 91.70% 64.39%

Dec. 31, Dec. 31, Dec. 31,

Item 2019 2018 2017 DUK 2019 CMS 2019 WEC 2019
Sales/Revenue 7769 7785 7447 25079 6845 7523.1
Operating
Income 2840.00 2852.00 2901.00 5709.00 1239.00 1531.40
Operating Profit
Margin 36.56% 36.63% 38.96% 22.76% 18.10% 20.36%

Dec. 31, Dec. 31, Dec. 31,

Item 2019 2018 2017 DUK 2019 CMS 2019 WEC 2019
Sales/Revenue 7,769 7,785 7,447 25,079 6,845 7,523
Net Income 1746.000 1827.000 1128.000 3571.000 682.000 1134.700
Net Profit
Margin 22.474% 23.468% 15.147% 14.239% 9.963% 15.083%

Dec. 31, Dec. 31, Dec. 31,

Item 2019 2018 2017 DUK 2019 CMS 2019 WEC 2019
Net Income 1746 1827 1128 3571 682 1134.7
158,838.0
Total Assets 45,680.00 43,396.00 41,479.00 0 26,837.00 34,951.80
Total
Shareholder's -
Equity 12,991.00 11,657.00 10,761.00 47,951.00 5,055.00 11,259.90
Return on Equity
(ROE) 18.33% 19.18% 11.84% 37.48% 7.16% 11.91%
Return on Assets 2.98% 3.12% 1.93% 6.10% 1.17% 1.94%
PPL COPORATION (PPL) FINANCIAL ANALYSIS 16

(ROA)
Return on Total
Capital 6.22% 6.57% 6.99% 3.59% 4.62% 4.38%

Dec. 31, Dec. 31, Dec. 31,

Item 2019 2018 2017 DUK 2019 CMS 2019 WEC 2019
Inventory 332.000 303.000 320.000 3232.000 605.000 549.800
Cost of Goods
Sold 1,432 1,544 1,444 6,826 568 2,679
Inventory
Turnover 1.608 1.734 1.622 7.667 0.638 3.009
Day of Inventory 226.9270 210.4659 225.0412 47.60613 572.1117 121.3078
(DOH) 251 974 05 829 958 617

Dec. 31, Dec. 31, Dec. 31,

Item 2019 2018 2017 DUK 2019 CMS 2019 WEC 2019
Sales/Revenue 7769 7785 7447 25079 6845 7523.1
Receivable 792 770 781 1066 886 1176.5
Receivable 8.519418 8.536964 8.166316 27.50141 7.506168 8.249766
Turnover 807 269 367 643 327 974
Day of 42.84329 42.75524 44.69579 13.27204 48.62667 44.24367
Receivable (DS0) 815 513 473 368 397 393

Dec. 31, Dec. 31, Dec. 31,

Item 2019 2018 2017 DUK 2019 CMS 2019 WEC 2019
Sales/Revenue 7769 7785 7447 25079 6845 7523.1
Fixed Assets 42913 40964 39185 149675 24506 32858.2
Fixed Assets 0.141211 0.141502 0.135358 0.455842 0.124416 0.136741
Turnover 241 061 49 027 391 702