Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
Financial Performance Analysis of Energy Companies: A
Comparative Study between Developed and Developing
Countries
Sevgi Aydin
The aim of this study is to determine whether the financial
performances of energy companies change according to the
development level of countries in which they operate. Developed and
developing countries are represented by the United States of America
and Turkey as examples. Secondary data based models have been
used to evaluate whether there is a difference between the financial
structures and performances of energy companies active in the USA
and Turkey. For this research, financial data for 2008 and 2012 of
energy companies listed in Fortune 500 were used.
Keywords: Financial performance analysis, energy companies, Fortune 500.
Field: Accounting
1. Introduction
Turkey’s energy policies can be analyzed in five fundamental periods starting with 1923
(Yılmaz and Uslu, 2007). These are 1923-1930 (after republic) period, 1930-1950
(industrialization) period, 1950-1960 (mixed economy) period, 1960-1970 (planned
economy) period and after-1980 (privatization and modernization) period. There have
been radical changes since 2000s in Turkey’s energy policies. After the energy sector
was opened to competition, Energy Market Regulation Institution (EMRI) was established
in 2001 in order to regulate the sector.
According to Kılıç (2006) for the high speed economical growth needed by the country,
energy prices shouldn’t be impairing to the sector and should increase its competition
ability. For this reason, both privatizations and cheap import connections, together with
energy efficiency and energy savings; energy costs were tried to be reduced but a serious
level of success wasn’t reached. Turkey’s energy prices are 3.5 times bigger than its
rivals. Therefore, it is clear that these prices affect industry section negatively with respect
to competition. On electricity energy, although thanks to investments and improvements
since the 1990s, Turkey has risen from the category of countries with the highest
electricity energy prices, it is still above the OECD average.
In the Ninth Development Plan (2007–2013), the main principle is to meet the energy
needed for economical and social development with constantly secure and minimum cost.
While handling this demand, the aim is to minimize the negative environmental conditions
and to use energy as efficiently as possible (DPT, 9. BYKP).
According to Narin (2009), financial crisis that broke out in mid-2007 affected energy
sector and energy investments badly.
______________________________________________________________________
Sevgi AYDIN, Ph.D is an Assistant Professor at Kadir Has University, Istanbul, Turkey. E-mail:
sevgi.aydin@khas.edu.tr
Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
As energy investments require large capital funds, financial crisis generated great
troubles for this sector especially about credits. Energy companies who had difficulty in
securing sources for credits owing to the crisis postponed, suspended, or cancelled their
investments.
Today, because it is a super power, the USA shapes global strategies according to its
interests. The USA considers energy particularly important in order to sustain its
economical leadership and economical security in the world. Now, The USA consumes
25% of all the energy resources on its own. It imports 27% of these resources. Although it
uses energy efficiently, it will have to import 38% of its energy need in 2025 (Pamir,
2005). The USA can produce only 1/3 of the fuel it consumes. The USA's reserves can be
sufficient for only 10-11 years considering its production speed. Once this production is
exhausted, it will be totally dependent on foreign financial resources (Üşümezsoy, 2006).
The USA, whose influence can be seen everywhere around the world and who apply
various strategies to ensure this influence, have applied policies that affect Caucasus and
Hazar Region since the collapse of Soviet Union. The USA is the top consumer of fuel in
the world and supply this energy need from the Middle East. However, the USA and its
allies in the West had various troubles because of the petrol oil crises in the past. For that
reason the USA shows great interest for Hazar Region that has rich oil reserves in order
to ensure its own energy resources (Pala, 2003).
When compared with respect to population and economical production, the USA’s energy
and oil demand is much higher than other developed countries. For example, energy use
per capita in America was two times as in the West Europe, while connected with the
nominal GDP it is about 50% higher than in the West Europe. The same difference is
almost valid for oil usage. The USA is also one of the most important oil producers in the
world (Alkin ve Atman, 2006).
With its position which is strategically quite important, the USA is determining strategies
to take economical measures to tackle possible short term crises so that the USA can
gain time to redirect its oil importation and can hold a possible crisis’ effects on economy
under control. At the same time, as a consumer, the USA will not have troubles because
of the oil producer countries’ high-priced and low-demanded oil policies (Altınay and
Karagöl, 2005).
2. Methodology
Having been conducted with the aim of understanding whether financial performances of
the energy companies in developing and developed countries are differ from each other,
this study’s methodology is based on benefiting from modeling opportunities. As the
study’s field of application, financial structures of energy companies in Turkey and
America for the years of 2008 and 2012 have been examined. Within the scope of the
study, companies which were included in Fortune 500 US and Fortune 500 TR for the
aforesaid years were examined. In 2008, 18 energy companies from Turkey and 23
energy companies from the USA; while in 2012, 31 energy companies from Turkey and
19 energy companies from the USA were listed in Fortune 500.
Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
Financial structures of the companies were examined with respect to the growth of
turnover, profit, assets, liabilities and shareholder’s equity, besides the numbers of
employees were included. Because of the scale difference between Turkey and America,
rankings were taken into account instead of nominal growth. In order to determine the
accord of the aforesaid rankings Spearman’s Rank Correlation was used.
Determining whether financial structures (performances) of the energy companies differ
from each other according to the economical development level of countries and
investigating the underlying reasons for this difference bears importance as it could help
to determine what strategies and policies successful companies follow and what mistakes
unsuccessful ones do.
3. Findings and Conclusion
The growth variance between the companies and between the countries they operate in
significant for the years of 2008 and 2012 which were analyzed in the research. In order
to minimize the effect of this variability to a rational level and to highlight competitive
interaction between companies and between countries, financial indicators are sorted top
down.
Turnover, profit, assets, liabilities and shareholder’s equity indicators were analyzed
separately with Spearman Rank Correlation according to their nominal growth and the
growth per employee for Turkey and the USA. In total 4 rank correlation matrices of 11*11
sizes that were generated for Turkey and the USA were evaluated.
In these matrices, significant examples for both countries were chosen according to the
significance level of 1%. Correlations shown between parentheses in Table 1, which was
composed according to this selection, are the ones which do not have statistical
significance but have higher correlations than other countries.
Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
Table-1. Turkey-USA, 2008-2012 Rank Correlation Comparison
2008TR 2008USA 2012TR 2012USA
Turnover-Profit
(.13)
.76
.67
.73
Turnover-Assets
.87
.74
.69
.60
TurnoverShareholder’s
Equity
TurnoverLiabilities
.81
.65
.62
.76
.86
.63
.60
.70
Profit-Assets
(.07)
.73
.89
.54
ProfitShareholder’s
Equity
(.20)
.82
.84
.85
Profit-Liabilities
(-.04)
.73
.66
.72
AssetsShareholder’s
Equity
.96
.90
.91
.74
Assets-Liabilities
.93
.92
.74
.80
.81
.95
(.51)
.87
Shareholder’s
EquityLiabilities
The highest correlation in 2008 was between Assets - Shareholder’s Equity (96%) in
Turkey while in the USA it is between Shareholder’s Equity - Liabilities (95%). That
means a very significant correlation was observed between Assets and Shareholder’s
Equity of energy companies in Turkey for 2008. The second highest correlation was 93%,
between Assets and Liabilities. As for the USA, the highest correlation was 95%, between
Shareholder’s Equity and Liabilities; the second highest correlation was 92%, between
Assets and Liabilities.
Financial indicators with the highest correlation were the same for 2008 and 2012 for both
countries, however correlation levels decreased from 96% to 91% in Turkey and from
95% to 87% in the USA. This may be the indication of the weakening of relations about
financial growths of both countries. For as much as Chart 1 is evaluated as a whole, it can
be seen that there are similar correlation data in other financial growth relations. On the
other hand, the second highest correlation in 2012 changed compared to of 2008. The
second highest correlation was 89% between Profit and Assets in Turkey; 85% between
Profit and Shareholder’s Equity the USA.
The changes according to years and countries in financial growth rankings which were
evaluated are shown in Chart 1.
Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
Chart 1: TR - USA Financial Indicator Rankings 2008 - 2012
Ranking correlation tests of Turkey and the US were conducted for 2008. From those
which have significance of .01 and .05 in rank correlation symmetric matrix, the shared
ones in TR and the US were determined. It was found out that for 2008 7, for 2012 13
rank correlations were suitable for these features. Four of them are related to turnover, 2
to profit, and 2 to assets. Important changes were found in Turnover - Profit and Profit Shareholder’s Equity relation degrees. While in Chart 1 a general overview is given, in
Chart 2 and Chart 3 annual comparison overviews of countries are shown.
Chart 2: TR - USA Financial Indicator Rankings 2008
In Chart 2, financial indicator correlations for 2008 can be seen. Here, a 7 fold relation
variation can be followed between turnover and profit. Similarly, a 4 fold relation variation
can be seen between profit and shareholder’s equity.
Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
Chart 3: TR - USA Financial Indicator Rankings 2012
In Chart 3, financial indicator correlations for 2012 are shown. The appearance of
financial indicator correlations changed radically in 2012. The Turnover - Profit correlation
degree of Turkish companies caught 70%, with an increase of 7 fold. On the other hand,
Profit - Shareholder’s Equity relation also caught up with the level of American companies
with an increase of 4 fold.
When 2008 and 2012 were evaluated with a general assessment using 8 financial
indicator correlations, it can be seen that Turkish companies caught up on American
companies on the degrees of financial indicator correlations in a period of 5 years. . That
is to say, the financial performance ranking variance between American companies and
Turkish companies shrunk significantly in 2012.
The statistical indifference tests of financial indicators of turnover, profit, assets,
shareholder’s equity and liabilities in Turkish and American companies for 2008 and 2012
were evaluated with Mann-Whitney U Analysis 2008.
The results of the test conducted for 2008 can be seen in Table 2. From the results
shown in Table 2 it can be seen that there is a significant difference between Turkish and
American energy companies with respect to financial indicators for turnover, assets,
shareholder’s equity and liabilities, while only for profit there is not a significant difference.
However, according to Mean Rank values, Turkish companies are in higher positions only
for shareholder’s equity. With respect to turnover, assets and liabilities indicators, the
USA companies are in higher positions.
Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
Table-2. 2008 Turkey-USA Financial Growth Statistical Tests
Mann-Whitney U Analysis test results for 2012 are shown in Table 3. It can be seen from
the results shown in Table 3 that the difference and indifference between two countries
substantially changed compared to 2008. In 2012 Turkish and American energy
companies are significantly different only on liabilities. On the other hand, with respect to
turnover, profit, assets and shareholder’s equity financial indicators, there is not a
significant difference between Turkish and American energy companies.
Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
Table-3. 2012 Turkey-USA Financial Growth Statistical Tests
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Proceedings of 9th Annual London Business Research Conference
4 - 5 August 2014, Imperial College, London, UK, ISBN: 978-1-922069-56-6
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