Contents

1. E . ON Electricity Supplier: .................................................................................................................... 3 1.1.1. E. ON Decision making process: ............................................................................................ 3

1.2. The importance of costs in the pricing strategy as per E. ON organization: ..................................... 4 1.3. Costing system within E. ON Organization: ....................................................................................... 4 2. Forecasting Techniques as per E. On: ...................................................................................................... 4 2.1. Forecasting techniques for decision making................................................................................. 5

2.1.1. Cash Flow for E. ON Organization: .............................................................................................. 5 2.1.2. 2.2. Financial management: ......................................................................................................... 5

Sources of funds available to an organization for a specific project: ........................................... 6 Internal sources of E. ON ...................................................................................................... 6 External sources of E. ON ...................................................................................................... 6

2.2.1. 2.2.2. 2.3. 3.

Budgetary targets for E. ON Organization: .................................... Error! Bookmark not defined.

The process of creating a master budget in. ON UK: ............................................................................ 6 3.1. Actual expenditure and income to the master budget for E. ON Organization: Error! Bookmark not defined.

4.

Manage cost reduction for E. ON Organization: .................................... Error! Bookmark not defined. 4.1. Activity-based costing for E. ON Organization: ............................................................................. 7

5.

Financial appraisal techniques: ............................................................................................................. 7 5.1.1. 5.2. 5.3. 5.4. Payback Method: ................................................................... Error! Bookmark not defined.

Financial Investment Appraisal Techniques.................................................................................. 7 Traditional Techniques of Financial Appraisal .............................................................................. 7 Strategic investment decision through post-audit appraisal: ....................................................... 8 Financial Investment Decision .............................................................................................. 8 Financial viability of E .ON :................................................................................................... 8

5.4.1. 5.4.2. 6.

Financial Statement Analysis: ............................................................................................................... 8 6.1. Tools and Techniques of Financial Statement Analysis in E .ON : ................................................ 9

6.1.1. Ratios Analysis: ........................................................................................................................... 9 6.2.3. Profitability Ratios: ...................................................................................................................... 9 6.2.4. Liquidity Ratios: ........................................................................................................................... 9 6.2.5. Long Term Solvency or Leverage Ratios: .................................................................................... 9

Reflective Learning Statement: ..................................................................................................................... 9 References .................................................................................................................................................. 11

Managing Financial Principle and Techniques Introduction & Background: 1. E . ON Electricity Supplier: The leading supplier of power and gas in the United Kingdom is E.ON. We have a very diverse in the world class gas, coal, oil and renewable energy plants, include biomass, onshore and offshore wind farms with 11.3 GW of total capacity. Were also the UK market leader in combined heat and power (CHP) units, with 1.7 GW of electric and heat capacity. Our retail business supplies power and gas to over 8 to the industrial sector, SME and residential area customers across the country. Retail provides electricity, gas, and micro generation products to residential, business, and SME customers. We also are developing 160 million cubic meters of underground gas storage capacity, which will be available by the end of 2012.(Keoleian, G. A., 1994) In 2009 a powerful electric plant installed which can produce 86 gigawatts (GW) electricity. Also 2009, the electricity generation plant can generate 362 billion kilowatthours (BKWH) of electricity with consumption of 345 kWh. Mostly they generate electricity 80% from thermal sources 13% from nuclear, 96% from renewables and 1% from hydroelectricity. The electricity sector in the U.K. is privatized. Where distributors and generators can openly trade in the wholesale market. Most powerful producers in the U.K. are E. ON Energy, which control almost one sixth of the electricity of the country through nuclear power capacity. Important companies which generate electricity, includes E. ON U.K., Npower RWE, (SSE) Scottish and Southern Energy , and (SP) Scottish Power . The national transmission system operates National Grid in U.K. and NIE (Northern Ireland Electricity) operates the grid in Northern Ireland. (A. Ansper, 2007) 1.1.1. E. ON Decision making process: Decision making is a key of E.On electricity organization of U.K.The Manager of a profit making organization like ESI decide the objectives of the business and one of them is related to allocating the resources in a way so that they can achieve profit maximum all the organization specially private and public sector thus have a financial implications. (D. Jefferson, 2007)

1.2. The importance of costs in the pricing strategy as per E. ON organization: Cost is a very important part of pricing because it decides the profit margins which add up in the price of the product. Mostly all the organization cut their cost to increase their profit margins but when the cost goes up it directly effect to the price of an organization. But usually

manufacturers would like to keep the price constant when there is a minor adjustment in cost. (B. Schneier, 2007) 1.3. Costing system within E. ON Organization: According to Carl Marx (2009) A most important area in the UK generation fleet is to update and decarbonizing. We are committed to maintain the atmosphere of the country through decreasing the environmental impact of coal and deploying the next generation of gas fired units. Our latest 1.3 GW Isle of the grain CHP unit is Southeast England, which serve there services in 2011 are more effective. With the collaboration of our partners, weve also begun work on London Array in the Thames (world largest wind project). In April 2011, we sold our UK electricity power distribution business, Central Networks. In Numbers Installed capacity Power & Gas sales 11.3 GW 112.2 TWh

Customers (Gas & Power) 8.2 million Employees 12,264

2. Forecasting Techniques as per E. On: In 2008 251 million coal reserve in U.K. U.K. can produced 19.4 MMst in 2008, but in 1990 it decreases dramatically, but now it's stable. In 2009 U.K. import 42 MMst which means 60% of total coal. Other important areas include markets outside Europe, as generating 25% of overall profits.

2.1.Forecasting techniques for decision making. In E. ON energy organization they use appropriate cash flow methods. 2.1.1. Cash Flow for E. ON Organization: In 2008 E. ON UK invested $927 million in fixed assets. The expense relates to construction of grain gas fired CHP power station. Investing cash flow in 2009 $813 million inflow of cash flow proceeds $31 million from disposal of fixed assets. In 2008 they earn $ 1452 million cash outflow as compared to $262 million cash inflow through paying their loans and dividends as $480. (Financial statement, 2009)

2.1.2. Financial management: Financial management is most important and primarily part of the business. E. ON UK generate energy from a variety of sources 10% with selling gas and electricity. 38% fromcoal , 21% from wind forms, 13% heat and power facilities. E. ON generate 10% electricity demand of U.K.

(Cooper, R., pp 86-88) 2.2. Sources of funds available to an organization for a specific project: There is more than one source is available for E. ON electricity company energy projects. Some provided by government agent some private energy companies. Most of the findings are according to policy. Most important note is that the providers of the funds insist to provide the energy before they are qualified for funding grants. (Cooper, R., pp 78-81) 2.2.1. Internal sources of E. ON E. ON have three internal finance sources. These are as follows All Profits they Retained Working capital Generate through the sale of fixed Assets.

2.2.2. External sources of E. ON Some nonprofit organizations and Funds offers grants for the E. ON they simply desire to install electricity in their energy projects in their buildings, from energy efficiency through to microgeneration.

3.

The process of creating a master budget in E.ON UK: Firstly they plan that how they process. Make discussion about the process. Set their goals Collect all information. After completion revise them Review

3.1.Activity-based costing for E. ON Organization: Activity based costing (ABC) is a method of distributing costs to products and services. For planning and control they used this as a tool. It relates to approach where traditional cost management systems which calculate actual production and cost through useful information. But for these decision dates on which we take decisions should be accurate. The major activity in the process is a way of working. Pools created for the activism altogether. Through this we find out different drivers. The number drivers identified using a balance between accuracy and complexity.After calculating the cost they determine the rates. Then cost used to determine the price. (Cooper, R., pp 78-81)

4. Financial appraisal techniques: To achieve a good and profitable decision you should have to apply a good appraisal method to analyses competing investment projects in public and private sectors.We are going to use payback method. 4.1.Financial Investment Appraisal Techniques E. ON financial policy is to catch the external financing at E. ON AG holding company by giving subsidies whenever it's possible. We have a strong credit rating capacity in E. ON AG Groups and this provide external finance. Then they fund its subsidiaries with internal finance of the company. The finance maybe in the form of equity, debt.This study is basically conducted in order to evaluate the financial investment. And the methods are usually used to take a correct decision in investment with maximum rewards. (Navin-Chandra, 1993) 4.2.Traditional Techniques of Financial Appraisal The pay back method is not good because it ignores the time value of money. theoretically weak and it cant lead the best. This is

4.3.Strategic investment decision through post-audit appraisal: It means that we took decisions on the audit reports already done the in past. It helps a lot in decisions making.It is normally believed that the investors when they are trying to invest money they would like to know the following: 1. Whether it will be profitable and sustain throughout the year. 2. Any possible threat against the successful implementation of the project. 3. All available investment opportunities so they can invest in a profitable project. 4.3.1. Financial Investment Decision A deleke (2002) Financial investment means a lot of funds. Which are scarce and demands of it are too numerous, so managers of an organization use policy to take decisions in the allocation of funds. This investment is irreversible once it did, and this investment usually involves huge sums of money.In 2009 Fixed assets invested $927, in 2008 it invests $1,223 million. The expense is related to contract for bidding of power stations, wind farms and investment In the distribution network. Cash flow after investing in 2009 is $813 million flow on disposal of E. ON energy.Out flow $1452 as compared to inflow $262 in 2008 because of payment of debts. 4.3.2. Financial viability of E .ON : The purpose of analyses the financial statement is to get the basic information that will tell us about the financial viability of the company. Different agency says that no one financial statement can give a guarantee that the organization remains solvent throughout the year. Each gives an overlook picture for a specific time period. Groups Financial Review shows the performance, position and development of a company. In December 2009 E .ON have a financial profit$1,066 million (loss of $241 million In 2008). In that situation higher management did not recommend the dividend.

5. Financial Statement Analysis: In 2008 profit is $1458 million and a loss is $ 108 million because of discontinued apparatus in E. ON energy which sold in January 2009.The profit for the year of 1,458 million (2008: loss of 108 million) is primarily driven by the change in the result from discontinued operations,

relating to the E. ON Energy Trading business which was sold in January 2009. The post-tax profit from discontinued operations was 903 million in 2009 compared to a post-tax loss of 565 million in 2008.(Greenwood, 1992) 5.1.Tools and Techniques of Financial Statement Analysis in E .ON : 6.1.1. Ratios Analysis: By repaying of loans in E. ON Energy is trading it has reduced our assets and payables, but actually have another side assets and liabilities. Other non current assets which generate $867 million through capital expenditure. Total loan of the E .ON is reduced from $3,832 million in 2008 to 2,825 million in 2009 because of $813 million cash income. 6.2.3. Profitability Ratios: In 2008 proofs are $1458 million and loss is $ 18 million because of discontinued operations related .ON Energy trading business. The post-tax profit is $903 million in 2009 compared to a post-tax loss of $565 million in 2008. 6.2.4. Liquidity Ratios: $741 million are the total receivables through cash collections , lower sales volume and lower retail prices. 6.2.5. Long Term Solvency or Leverage Ratios: After paying the $480 million dividend and loss $872 in 2009 the total profits are $1458 for the year.

Reflective Learning Statement: After a deep analysis on E. ON UK PLC company. We get to know the detail information about business and competitors. Their internal and external factors which affect directly and indirectly on the business. The business model can also help us in examining the business sections. Through charts and graphs we can easily understand the situation of the business and can take good and wise decisions on different investment. The only drawback which we found is that the

information depends upon the past data and also we are not sure that data is accurate or not. Sometimes it can lead you in the wrong direction.

References D. Jefferson, A security analysis of the secure Electronic Registration and voting Experiment.21.01.2007 A Ansper, a Buldas, the concept of Analysis and Measures..2003. B Schneier. Attack trees. Dr. Dobbs Journal December 1999. Modeling Security and threats. 28.01.2007. D. Geer, K. WooHoo, A. Jaquith. Why the future belongs to Quants. Keoleian, G. A. AndMenerey, D., Sustainable Development Approaches in Electricity (1994), pp. 644-668. Brooks, P. L., Davidson, L. J. AndPalamides, J. H.,Environmental compliance: You better know your ABCs, Occupational Hazards, February (1993), pp. 41-46. Cooper, R., ABC: A Need, Not an Option, Accountancy, September (1990), pp. 86-88. Cooper, R., Five Steps to ABC System Design, Accountancy, November (1990), pp. 78-81. Emblemsvg, J. And Bras, B. A., Activity-Based Costing in Design for Product Retirement, Proceedings 1994 ASME Advances in Design Automation Conference, DEVol. 69-2, Minneapolis, Sept. 11-14, ASME, (1994), pp. 351-362. Turney, P. B. B., How Activity-Based Costing Helps Reduce Cost, Journal of Cost anagement for the Manufacturing Industry, Vol. 4, No. 4 (1991), pp. 29-35. OGuin, M., Focus The Factory With Activity-Based Costing, Management Accounting, eb. (1990), pp. 36-41. Raffish, N. AndTurney, P. B. B., Glossary of Activity- Based Management, Journal of Cost Management for the Manufacturing Industry, Vol. 5, No. 3 Fall (1991). Navin-Chandra, D., ReStar: A Design Tool for Environmental Recovery Analysis, 9th International Conference on Engineering Design, The Hague, August 17-19, Heurista, Zurich, Switzerland, (1993), pp. 780-787. Greenwood, T. G. And Reeve, J. M., Activity Based Cost Management for Continuous Improvement: A Process Design Framework, Journal of Cost Management for the Manufacturing Industry, Vol. 5, No. 4 (1992), pp. 22-40.

Beitz, W., Suhr, M. AndRothe, A., RecyclingorientierteWaschmaschine (recycling-oriented washing machine), InstitutfrMaschinenkonstruktion - Konstruktionstechnik, TechnischeUniversitt, Berlin (1992).

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