General Overview of United Utilities Group Plc Term Paper

General Overview of United Utilities Group Plc - Term Paper Example By doing this, the company helps in the smooth flow of about 7 million people as well as 200,000 businesses in the North West and it does this by the provision of fresh and clean water on a daily basis. The company also takes away and treats the North West waste water which then helps in keeping the beaches and rivers quite clean. The company plans to finance its operations using debt securities instead of conventional bonds. This plan matches the market trends as the market, or the sector across the globe has been opting for the issuance of conventional debts due to the low interest rates attracted by bonds. Bonds usually pay a fixed income and the issuance of bonds in the utilities sector in the United Kingdom only account for half of the total funds raised in the equity capital markets. Firms in this sector just like the United Utilities Group Plc are opting for the issuance of debt securities even though it has high risks of threatening the market viability. Data also showed that only 8.7% of the funds raised were through equity capital markets while the remaining portion being raised through the use of debt securities. ... b. General Overview of the issued debt Debt security is an instrument which can be sold or bought between two different parties and include corporate bonds, collateralized securities, preferred stock and zero-coupon securities (Fabozzi et.al 2003). The interest rate on a debt security is usually determined by the borrower’s repayment ability. Debts securities are quite safer than equity securities as the principal amount is usually returned to the lender upon the maturity of the security. This is what United Utilities Group Plc plans to use as it mode of raising finance. 2. Evaluation using the Annual Financial Reports and accounts a. The position of the company to issue debt securities The annual profits for the company have decreased from ?909.20 million in March 2008 to ? 316.5 million in March 2012. Its EBITDA has been fluctuating over the period with an increase only being recorded on March 2009 after which the company recorded a continued decline. The company has also re corded a decrease in its Free Cash Flows for the Firm (FCFF) from ? 562.7 million in 2011 to ?559.8 million in 2012. The company borrowed ?215 million during the 2012 financial year in order to offset the dividends of ?209 million. Free Cash Flow to Equity (FCFE) is low for the firm as the firm’s equity is higher than the free cash flow. From the March 2012 annual statement, it is quite evident that the company has made maximum use of debt securities as it net debt is quite higher than the one recorded during the previous year which then reflects the additional borrowing done by the company as a way of funding its capital investment programmes. The gearing ratios for the company are also quite