Presented by:

Ang Kian Yong

Ankur Mangla
Beatrix Judika Evelyna
Eunice Peh
Zhang Yinmeng

Introduction
to Renewable Energy Industry and Solar PV
Market

Solar PV Market

Company Overview
Renewable Energy Equipment &
Services Industry.
U.S based PV solar energy solutions.
FS operates through two segments:
Component:
Design, manufacture & sale of solar modules.

System provide system solutions:

Project development
Engineering, Procurement & Constructions (EPC)
O&M services
Project Finance

Company Overview
(contd)
Top revenue streams for FS:
Project development
Sale of PV modules to third party
Electricity Sales from own project (via Power
Purchase Agreement PPA)

Top competitors:

SolarCity Corp (U.S)

Hanwha Q Cells Co Ltd (South Korea)
Trina Solar Ltd (China)
Canadian Solar Inc (Canada)
SunPower Corp (U.S)

Accounting
Analysis
Internal

Financing Activities Debt

VS Equity

FS capital structure is heavily relying on equity instead of

debts. In addition, it can be seen that there is an increasing
trend of equity financing throughout the years. One possible
reason of this behavior could be explained by the business
nature of Solar PV industry which has a rather high risk.

Financial Ratio Analysis

1. Profitability
2. Liquidity
3. Asset utilization / activity
4. Leverage / solvency

Comparison of Ratios
Over Time
2012

2013

2014

LiquidityRatios
QuickRatio
Current Ratio

2.45
2.57

2.31
2.39

2.68
3.19

SolvencyRatios
Debt-to-EquityRatio
Financial Leverage Ratio
Interest Cover

0.76
1.76
-2.70

0.53
1.53
195.61

0.34
1.34
214.01

3.53
103.43
7.75
47.13
0.53
687.91
4.47
81.64

5.03
72.55
8.51
42.90
0.48
759.29
2.97
122.79

15.97
22.86
6.72
54.35
0.50
723.63
2.42
151.04

ActivityRatios
ReceiveablesTurnover
ReceiveablesTurnover (days)
InventoryTurnover
InventoryTurnover (days)
Total AssetsTurnover
Total AssetsTurnover (days)
Cash Turnover
Cash Turnover (days)

Ratios with significant changes over years:

1.

Current ratio

2.

Financial leverage ratio

3.

Interest cover

4.

Receivables turnover

5.

Cash turnover

Comparison of Ratios
Over Time (contd)
ProfitabilityRatios
GrossMargin
NetMargin
EBITMargin
ReturnonAssets(ROA)
ReturnonInvestedCapital(ROIC)
ReturnonEquity

2012

2013

2014

25%
-3%
-1%
0.26%
-0.41%
-2.67%

26%
11%
11%
5.13%
3.57%
7.84%

24%
12%
13%
5.97%
4.18%
7.89%

Ratios with significant changes over years:

6. Gross margin
7. ROA
8. ROIC
9. ROE

Liquidity
Ratios
It can beseen that
throughout the
Current
Ratio
years, current
assets and current
liabilities have
linear
relationship (i.e.
current assets
increase, current
liabilities will also
increase).
It can be
interpreted from
this ratio that FS is
financially
healthy and able
to pay off its
debts using its

$4,000,000

$3,000,000

$2,000,000
Millions ($)
$1,000,000

$0

Current
Ratio

2.57

2.39

3.19

Solvency Ratios
Interest Cover
EBIT
$500,000
$400,000
$300,000
$200,000
$100,000
$0
$100,000

2012.0 2013.0 2014.0

Interest Expense*
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0

2012.0 2013.0 2014.0

Interest
2.70
195.61 214.01
Cover
*Interest expense, net of amounts capitalized, decreased
during 2013 compared with 2012 primarily as a result of $4.7
million in expense during 2012 associated with the repayment

 For FS case, the

increase in
receivable turnover
is greatly influenced
by a great
decrease in A/R
(especially
retainage) over
smaller increase in
net sales.

Activity
Ratios

It can be assumed
that from 2013 to
2014 First Solar has
completed many of
its contract, which
shows by smaller
number of account
receivable, unbilled
and retainage; its
customer is able to
pay its debt
directly / quickly.

Receivable Turnover (days)

120
100

104

80
73

60
40
20
0

23
2012.0

2013.0

2014.0

Profitability Ratios Gross

Profit Margin

It can be seen that First Solars gross profit margin

decreased by 2% in 2014, compared to 2013. One
possible reason is because of the increasing cost from
system segment that causes the overall COGS to
increase by almost 5% from $2.45 billion in 2013 to $2.56

Profitability Ratios ROA

$8,000,000
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
$1,000,000
ROA

2012.0
0.26%

2013.0
5.13%

2014.0
5.97%

Profitability Ratios ROE

ROE Decomposition:
(Net Margin) x (Assets Turnover) x
(Leverage)
ROE Decomposition 2014 = (11.70%) x (0.50) x
(1.34) = 7.89%
ROE Decomposition 2013 = (10.67%) x (0.48) x
(1.53) = 7.84%
ROE Decomposition 2012 = (-2.86%) x (0.53) x
(1.76) = -2.67%

Profitability Ratios
ROE (contd)
Net margin shows a company operating efficiency
and it is affected by two factors net income &
sales.
Looking at negative net margin in 2012, it can be
concluded that First Solar did not operate efficiently
during that period of time.
From 2012 to 2013, there is around 450% increase in
net income, which caused by:
Incurred loss due to competition from Chinese
manufacturer in 2012 and operating inefficiency.
Restructuring and asset impairment strategy that
First Solar conducted in 2013, which results in decrease in
cost.

Peer Group
Comparisons
Ratios

FirstSolar

Current Ratio
Quick Ratio
Total AssetsTurnover
InventoryTurnover
ReceiveablesTurnover
Total Debt to Equity
Interest Cover
GrossMargin
Net Margin
EBITDMargin
Return on Assets(ROA)
Return on Investment (ROI)
Return on Equity(ROE)

3.45
2.93
0.49
5.91
6.04
0.06
21.49
9.68
15.98
4.71
5.59
6.44

SolarCIty HanwhaQ TrinaSolar

Corp
CellsCoLtd
Ltd
1.05
0.73
0.07
0.92
10.63
2.73
-6.55
35.29
-171.16
-106.56
-11.62
-15.91
-4.16

1.00
0.76
0.53
3.3
5.36
4.04
-0.65
11.96
-9.69
9.58
-5.12
-14.38
-37.83

0.93
0.75
0.8
5.34
4.77
1.27
3.45
17.63
3.2
5.99
2.57
5.79
7.91

Canadian
SolarInc

SunPower
Corp

0.96
0.74
1.00
5.66
8.77
1.84
4.27
19.11
7.85
11.38
7.88
22.51
38.59

1.95
1.63
0.61
6.83
6.8
0.71
2.62
20
2.97
10.03
1.82
2.62
11.36

Renewable
Energy
Industry
0.44
0.28
0.32
8.93
5.96
0.21
1.74
26.26
-12.06
1.49
4.21
5.32

Economic
Analysis
External or Industry Analysis

Long-term Outlook

A huge potential for solar electricity.

Five Forces
Supplier Power
- Critical suppliers + many small
suppliers
Buyer Power
- First Solars products: cost/watt
efficiency
- However, the company relies on a
limited number of customers

Supplier
Power:
Medium

Threat of
New Entry:
Medium

Threat of
Substitutio
n: High

Buyer
Power:
Medium

Porter
s Five
Forces

Competitiv
e Rivalry:
High

Competitive Rivalry
- Highly competitive
Threat of Substitution
Only in US, thousands competitors in
-- First
Solar faces intense competition from manufacturers of
the industry
crystalline silicon solar modules, thin-film solar modules, and
solar thermal and concentrated PV systems.
- Competition will be worse with the increasing popularity of
other renewable generation technologies
Threat of New Entry:
- Several entry barriers, such as R&D, high cost,etc.

Financial
Analysis
Shareholders

Valuation Ratios
1. P/E
2. P/S
3. P/B
4. AVERAGE INDUSTRY ROE

Peer Group Comparisons on

Valuation Ratios
Trina
Solar
Limit
ed

Sun
Powe
r

Canadi
an
Solar

Rene
wable
Energ
y
Group

-38.09

6.61

18.56

43.26

13.81

25.8

4.71

9.34

1.01

5.08

0.71

0.93

2.14

1.49

0.46

P/S

1.5

14.96

1.83

0.43

1.13

0.39

0.25

Beta

2.0

2.8

2.49

3.25

3.06

2.06

EPS

3.07

-0.3

-12.04

0.77

0.97

4.39
0.81
*on average

Ratio
s

First
Solar

SolarCi Hanwha Q
ty
Cells Corp
Corp

ROE*

8.33

-8.22

P/E

16.41

P/B

Fair Value
IS THE STOCK OVER VALUED
OR UNDER VALUED?
Fair Value = EPS * Industrial P/E
FV of First Solar $28.6738
MV of First Solar: $ 50.57
FV<MV,

OVERVALUED

Conclusions
First Solar is financially healthy,
because:
High liquidity ratios
Higher ROE compared to its benchmark

However, the management does not

perform well throughout the years,
which can be seen from:
A much higher ROA ratio compared to its
benchmark, showing inefficient investment in
assets.
Too low Debt-to-Equity ratio showing that
they do not fully take advantage of financial

Thank You
Any Questions?