Companies background

The company was formed in 1990 as part of the United Kingdom’s electricity industry privatisation process and was given the task of facilitating competition in the generation and supply of electricity and the launching of the first open market for trading electricity. National Grid is developing new businesses in the UK and internationally, the most significant new business to date is the Telecommunications company Energis. Investments have also been made in overseas transmission projects. This monopoly knows how to play the game, and it makes real money.

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The National Grid Group is the sole owner of the electricity transmission system in England and Wales. Accountable to government regulators, it delivers electricity to more than 23 million customers through 300 substations, 400 miles of underground lines, and 4,300 miles of overhead lines. National Grid also trades electricity with France and Scotland. Its 74%-owned Energis subsidiary provides telecommunications services to more than 12,000 business customers through a network of about 2,500 miles of fiber-optic cables across the UK. As part of its overseas expansion, National Grid is acquiring US utility New England Electric System.

MajorShareholders: (10 Jan 00) 1484. 74m 11 13/17p Ords – HSBC Investment Bank 10. 06%, Prudential Portfolio Mgrs 4. 90%, Other Dirs 0. 02%. The National Grid Group plc (NGG) is the holding company for the National Grid Company plc (NGC). NGC operates one of the world’s largest interconnected transmission systems which despatches and transports electricity generated by over 70 power stations to the distribution networks operated by the 12 Regional Electricity Companies. This involves the ownership and control of: There are two traditional types of financial statements, the balance sheet and the income statement.

Of the two traditional types of financial statements, the balance sheet relates to an entity’s position, and the income statement relates to its activity. The balance sheet The balance sheet provides information about an organization’s assets, liabilities, and owners’ equity as of a particular date (such as the last day of the accounting or fiscal period). The format of the balance sheet reflects the basic accounting equation: Assets equal equities. Assets are economic resources that provide potential future service to the organization. Equities consist of the organization’s liabilities together with the equity interest of its owners. Assets

Assets are categorized as current or long-lived. Current assets are usually those that management could reasonably be expected to convert into cash within one year; they include cash, receivables, merchandise inventory, and short-term investments in stocks and bonds. Long-lived assets encompass the physical plant-notably land, buildings, machinery, motor vehicles, computers, furniture, and fixtures. Long-lived assets also include real estate being held for speculation and intangibles such as patents and trademarks. Liabilities Liabilities are obligations that the organization must remit to other parties, such as creditors and employees.

Current liabilities usually are amounts that are expected to be paid within one year, including salaries and wages, taxes, short-term loans, and money owed to suppliers of goods and services. Noncurrent liabilities are usually debts that will come due beyond one year-such as bonds, mortgages, and long-term loans. Whereas liabilities are the claims of outside parties on the assets of the organization, the owners’ equity is the investment interest of the owners in the organization’s assets. When an enterprise is operated as a sole proprietorship or as a partnership, the balance sheet may disclose the amount of each owner’s equity.

When the organization is a corporation, the balance sheet shows the equity of the owners-that is, the stockholders-as consisting of two elements: (1) the amount originally invested by the stockholders; and (2) the corporation’s cumulative reinvested income, or retained earnings (that is, income not distributed to stockholders as dividends), in which the stockholders have equity. The income statement excludes the amount of assets withdrawn by the owners; in a corporation such withdrawn assets are called dividends.

A separate activity-oriented statement, the statement of retained earnings, discloses income and redistribution to owners. Income Statement Income Statement is the traditional activity-oriented financial statement issued by business enterprises. Prepared for a well-defined time interval, such as three months or one year, this statement summarizes the enterprise’s revenues, expenses, gains, and losses. Revenues are transactions that represent the inflow of assets as a result of operations-that is, assets received from selling goods and rendering services.

Expenses are transactions involving the outflow of assets in order to generate revenue, such as wages, rent, interest, and taxes. A revenue transaction is recorded during the fiscal period in which it occurs. An expense appears in the income statement of the period in which revenues presumably resulted from the particular expense. To illustrate, wages paid by a merchandising or service company are recognized as an immediate expense because they are presumed to generate revenue during the same period in which they occurred.

If, however, the wages are paid to process merchandise that will not be sold until a later fiscal period, they would not be considered an immediate expense. Instead, the cost of these wages will be treated as part of the cost of the resulting inventory asset; the effect of this cost on income is thus deferred until the asset is sold and revenue is realized. In addition to disclosing revenues and expenses (the principal components of income), the income statement also lists gains and losses from other kinds of transactions, such as the sale of plant assets (for example, a factory building) or the early repayment of long-term debt.

Extraordinary-that is, unusual and infrequent-developments are also specifically disclosed. Cash flows A third important activity-oriented financial statement is the statement of cash flows. This statement provides information not otherwise available in either an income statement or a balance sheet; it presents the sources and the uses of the enterprise’s funds by operating activities, investing activities, and financing activities.

The statement identifies the cash generated or used by operations; the cash exchanged to buy and sell plant and equipment; the cash proceeds from stock issuances and long-term borrowings; and the cash used to pay dividends, to purchase the company’s outstanding shares of its own stock, and to pay off debts. 3. Ratios analysis 1. ROCE (Return on Capital Employed This is a fundamental measure of business performance and expresses the relationship between the net profit generated by the business and the long term capital invested in the business (Peter Atrill et al, 1996). It is the indicator of the investment profit.