A Sample financial analysis performed by S.Gee - From an investor’s perspective. Compares TransCanada with others competitors in industry using financial reports primarily.

1. Sample
Analysis
-­‐
Prepared
by
Shirley
Gee
TransCanada
A
Financial
Analysis
January
2009

2. Sample
Analysis
-­‐
Prepared
by
Shirley
Gee
2
A
Company
Embedded
in
Mutual
Funds
in
many
401(k)’s
A
look
at
financial
profile
of
TransCanada
as
an
investment
opportunity.
A. Introduction
Finally,
comparable
corporations
were
reviewed
The
goal
of
this
review
is
to
determine
whether
to
assess
TransCanda’s
performance
in
TransCanada
has
a
sufficiently
strong
financial
relationship
to
others
in
the
same
industry.
The
profile
to
recommend
it
as
an
investment
two
corporations
selected
for
this
comparison
opportunity.
TransCanada’s
financial
track
record,
were
TC
Pipelines
L.P.,
which
owns
and
its
prospect
for
future
earnings,
and
its
managerial
participates
in
the
management
of
United
States-­‐
acumen
were
evaluated.
The
most
current
annual
based
pipeline
systems
in
the
mid-­‐western
states,
report
used
was
in
2007
and
was
the
primary
basis
and
Enterprise
Products
Partners
L.P.,
which
for
making
this
financial
assessment.
This
review
is
operates
in
Mid-­‐America.
Comparative
results
supported
by
financial
statements
going
back
between
TransCanada
and
others
in
the
industry
three
years
(i.e.,
2004
to
2006)
and
was
used
to
are
reflected
in
Section
D.
Summary
of
Findings
assess
TransCanada’s
financial
trends.
To
using
their
respective
2007
annual
reports.
compliment
this
review,
general
research
was
also
performed
to
determine
whether
there
were
It
should
be
noted
that
all
figures
within
the
significant
activities
associated
with
TransCanada,
Tables
in
this
financial
assessment
are
in
Canadian
which
would
negatively
impact
on
its
financial
dollars
and
in
$Million
units.
standing
subsequent
to
its
2007
annual
report.

3. Sample
Analysis
-­‐
Prepared
by
Shirley
Gee
3
A
Corporation
with
a
Pipeline
reaching
from
Canada
through
United
States
to
Mexico
B.
Overview
TransCanada
is
a
corporation
that
operates
a
pipeline
system,
which
delivers
natural
gas
throughout
North
America
via
its
vast
pipeline
network
and
one
of
the
largest
providers
of
gas
storage.
TransCanada’s
organizational
structure
reflects
two
primary
segments;
namely,
Pipelines
and
Energy.
The
Pipeline
segment
consists
primarily
of
Transamerica’s
natural
gas
pipelines
in
Canada,
the
U.S.
and
Mexico
with
one
oil
pipeline
(Keystone
Pipeline
Project).
The
Energy
segment
includes
the
Corporation’s
power
operations,
natural
gas
storage
business
and
liquefied
natural
gas
(LNG)
projects
in
Canada
and
the
U.S.
The
corporation
is
expanding
their
business
into
the
oil
pipeline
business
creating
another
avenue
for
future
growth.
Their
storage
capability
and
pipeline
assets
are
the
fundamental
basis
for
their
business
and
the
platform
from
and
growing
…
which
they
launch
ancillary
businesses
(e.g.,
energy
infrastructure
projects,
alternative
energy
initiatives,
etc.)

4. Sample
Analysis
-­‐
Prepared
by
Shirley
Gee
4
Assessment
of
Financial
Performance
is
Critical
C. Financial
Performance
and
Management
Assessment
1. General
Financial
Assessments
–
Income
Statements
between
the
period
2004
and
2007
were
reviewed
to
determine
whether
the
business
had
a
consistent,
positive
net
income
(owner’s
equity)
over
multiple
years.
An
upward
trajectory
(i.e.,
an
increase
of
net
income
over
time)
was
considered
a
good
indication
of
financial
health.
Balance
sheets
over
the
same
period
were
used
to
assess
current
and
long-­‐term
assets
and
to
determine
whether
such
assets
were
related
to
their
primary
business
(i.e.,
pipeline
systems
or
gas
storage).
Liabilities
were
reviewed
to
assess
the
corporation’s
debt
load
and
to
review
its
existing
financial
obligations.
Also
of
interest
was
the
section
on
Shareholder’s
Equity
to
assess
other
capital
investments
and
contributions
in
addition
to
net
income.
A
quick
review
of
total
assets
and
net
income
revealed
the
following
trends.
Total
assets
had
an
upward
trend
while
net
income
had
a
downward
trend
between
2004
and
2007,
with
a
significant
drop
in
net
income
in
2006.
Under
closer
examination,
it
was
determined
that
this
drop
in
net
income
in
2006
was
due
to
a
major
acquisition
in
2007
(of
ANR
Pipelines)
by
TransCanada.
See
Figure
1
–
Assets
and
Net
Income

5. Sample
Analysis
-­‐
Prepared
by
Shirley
Gee
5
Figure
1
–
Assets
and
Net
Income
-­‐
+
Year
2007
2006
2005
2004
Current
and
Long
$30,330
$25,909
$24,113
$22,130
Term
Assets
$
Difference
and
$4,430
$1,796
$1,983
$1,429
+
%
of
Increase
in
(+17.1%)
(+7.4%)
(+9.0%)
(+6.9%)
Assets
(between
Years)
Net
Income
$1,223
$1,079
$1,209
$1,032
(Canadian
$
and
in
$Millions)
=
$
Difference
and
$144
-­‐$187
$177
$181
%
Increase
in
Net
(+13.3%)
(-­‐15.5%)*
(+17.2%)
(+21.3%)
Income
1. Financial
Ratios
–The
corporation’s
liquidity,
asset
management,
leverage
capabilities,
and
profitability
was
determined
by
calculating
relevant
ratios.
These
calculations
are
provided
in
Ratios,
the
tables
below.
ratios,
and
a. Liquidity
–The
first
review
involved
the
firm’s
ability
to
meet
its
short-­‐term
obligation.
The
corporation’s
current
assets
more
wee
measured
against
its
current
liabilities
(current
ratio).
A
“quick
ratio”
calculation
(current
assets
–
inventory
divided
ratios…
by
its
current
liabilities)
was
also
performed
to
extract
inventory
from
calculation.
Included
in
this
part
of
the
review
was
the
corporation’s
net
working
capital
against
its
assets
(current
assets
–
current
liabilities
divided
by
its
total
assets)
to
check
its
ability
to
adequately
run
its
operation.
It
was
noted
that
short-­‐term
assets
when
measured
against
short-­‐term
liabilities
trended
upward
over
the
last
four
years
(i.e.,
Current
Ratio
and
Quick
Ratio).
Net
working
capital
was
consistently
negative.
See
Figure
3
below
for
liquidity
conclusion.

6. Sample
Analysis
-­‐
Prepared
by
Shirley
Gee
6
Meeting
short-­‐term
obligations
with
liquidity.
See
Figure
2
–Liquidity
Year
Formula
2007
2006
2005
2004
-­‐
+
Current
Current
$2305/
$2092/
$1566/
$1109/
Assets/
$3035
=
$2989
=
$3112
=
$2744
=
Ratio
Current
Liability
75.9%
70.0%
50.3%
40.4%
+
Quick
Current
$2305-­‐ $2092-­‐ $1556-­‐ $1109-­‐
Asset
–
$297/
$392/
$281/
$174/
Ratio
Inventory/
Current
$3035
=
66.2%
$2989
=
56.9%
$3112
=
41.0%
$2744
=
34.1%
+
Liabilities
Net
Current
$2305-­‐ $2092-­‐ $1556-­‐ $1101-­‐
Asset
–
$3035/
$2939/
$3112/
$2754/
Working
Capital
Current
Liabilities/
$30330
=
$25909
=
$24113
=
$22422
=
-­‐
to
Assets
Total
Assets
-­‐2.4%
-­‐3.5%
-­‐12.9%
-­‐7.4%
b.
Asset
Management
–An
attempt
was
made
to
review
the
corporation’s
efficiency
in
creating
sales
using
its
assets,
but
no
information
was
available
breaking
out
the
revenue.
Inventory
turnover,
collection
period,
fixed
asset
turnover
or
total
assets
turnover,
therefore,
could
not
be
determined
based
on
readily
available,
public
sources.
c. Leverage
–
Next
came
the
corporation’s
degree
of
indebtedness
and
its
ability
to
meet
its
long-­‐
term
obligations.
It
was
determined
that
TransCanada’s
liability
was
approximately
66%
on
average
to
assets.
Clearly
TransCanada
was
maximizing
its
leverage
capabilities
and
using
its
assets
to
expand
its
business.
The
Debt
to
Equity
ratio
was
2:1
and
leverage
at
65+%
of
equity
(presumably
for
growth
and
expansion),
while
temporary,
seemed
high.
There
is
some
degree
of
risk
and
exposure
here.
See
Figure
3
below
for
Asset
Management
and
Leverage
Conclusions.

7. Sample
Analysis
-­‐
Prepared
by
Shirley
Gee
7
See
Figure
3
–
Asset
Management
&
Leverage
Year
Formula
2007
2006
2005
2004
-­‐
+
Debt
Ratio
Total
$19546/
$17453/
$16124/
$14430/
Liabilities/
$30330
=
$25909
=
$24113
=
$22130
=
Total
Assets
64.4%
67.4%
66.9%
65.2%
-­‐
Debt-­‐to-­‐ Total
$19546/
$17453/
$16124/
$14430/
Liabilities/
$9785
=
$7701
=
$7206
=
$6565
=
Equity
Ratio
Owner’s
Equity
200%
2:1
226%
2.3:1
224%
2.2:1
220%
2.2:1
-­‐
d.
Profitability
–
The
corporation’s
profit
margin,
return
on
assets
and
equity,
price/earnings
ratio,
and
market-­‐to-­‐book
ratio
were
all
reviewed
to
determine
its
current
financial
standing
relative
to
profitability.
In
spite
of
a
trend
downwards
and
given
current
economic
conditions,
the
gross
profit
margin
seemed
good
at
~14%.
Return
on
assets
was
positive
each
year
and
return
on
equity
was
solid.
Price/earnings
was
over
15
times
each
year,
which
is
good.
See
Figure
4
below
for
results.
Figure
4
–
Profitability
Year
Formula
2007
2006
2005
2004
-­‐
+
Gross
Net
Income/
$1223/
$1079/
$1209/
$1032;/
Profit
Revenue
$8828
=
$7520
=
$6124
=
$5497
=
Margin
13.9%
14.3%
19.7%
18.8%
+
Return
Net
Income/
$1223/
$1079/
$1209/
$1032/
on
Assets
Total
Assets
$30330
=
$25909
=
$24113
=
$22430
=
4.0%
4.2%
5.0%
4.7%
+
Return
Net
Income/
$1223/
$1079/
$1209/
$1032/
on
Equity
Owner’s
$9785
=
$7701
=
$7206
=
$6565
=
Equity
12.5%
14.0%
16.8%
15.7%
=
Price/
Common
Earnings
Stock
Price
per
17.5
18.4
14.7
14.0
Share
/Earnings
Per
share
+

8. Lorem
Ipsum
3.
Assessment
of
Management
power
regulations.
TransCanada’s
management
of
It
appears
the
corporation
is
making
reasonable
these
risk
seemed
both
thorough,
orderly,
and
decisions
regarding
the
business.
The
corporation
reasonable.
More
importantly,
it
seemed
was
sustaining
its
long-­‐term
value
through
its
transparent
and
designed
for
comprehensibility,
as
existing
assets
by
investing
in
energy
infrastructure
compared
to
the
other
corporations
reviewed
projects,
which
are
directly
related
to
its
core
(whether
due
to
administrative
inexperience,
lack
business.
All
of
these
projects
appear
to
be
timed
of
comparable
resources,
absence
of
available
to
come
on
line
around
the
same
time
(i.e.,
in
3
data,
or
deliberate
omission).
years)
and
barring
any
major,
unforeseen
event,
It
was
noted
that
the
corporation
manages
16
there
should
be
a
jump
in
revenue,
return
on
assets
pipeline
systems
and
controls
9
of
them
100%;
5
of
and
return
on
equity
by
2010
and
beyond.
them
50+%;
and
3
of
them
less
than
50%.
This
Management
is
also
making
decisions
to
diversify
provides
for
maximum
control
over
the
into
“other
energy-­‐related”
projects
(e.g.,
oil)
and
management
of
the
pipeline
network
and
stability
“alternative”
energy
projects
(e.g.,
wind),
which
within
the
corporation
and
industry
within
which
it
demonstrates
a
“forward
leaning”
posture
operates.
consistent
with
market
direction
(e.g.,
the
Green
It
appears
that
management
recognizes
that
Movement).
More
importantly,
the
Corporation
is
regulatory
decision
have
a
negative
impact
on
staying
within
its
core
business
and
competency.
financial
returns
especially
on
existing
and
future
Of
particular
interest
was
the
sections
in
the
investments.
This
demonstrates
an
solid
Management’s
Discussion
and
analysis
on
how
they
awareness
of
the
industry
and
its
business
handled
the
business
risks
whether
it
was
supply.
environment.
This
coupled
with
the
size
(large)
of
Competition,
market
prices,
weather,
plant
TransCanada
and
its
ability
to
take
advantage
of
availability,
execution
and
capital
cost
risks,
and
“economy
of
scale”
makes
TransCanada
less
Leadership
is
key
.
.
.

9. Sample
Analysis
-­‐
Prepared
by
Shirley
Gee
9
vulnerable
to
external
forces.
As
such,
TransCanada
contribute
to
the
profitability
of
the
business
which
is
probably
more
capable
of
managing
regulatory
is
modest,
but
steady.
issues
and
it
arises.
In
any
case,
adverse
regulatory
A
review
of
their
liquidity,
leverage,
and
decisions
impact
the
industry
as
a
whole;
not
just
profitability
demonstrates
a
consistent
picture
of
TransCanada
so
the
corporation
should
not
lose
its
reasonable
financial
health
with
maximum
financial
competitive
edge
due
to
it.
flexibility.
This
financial
state
would
enable
the
Liquidity
risk
is
always
a
problem,
but
corporation
to
take
advantage
of
opportunities
and
management
seems
to
be
managing
its
cash
flow
react
to
market
shifts
and
challenges.
needs
pretty
well
with
5+
years
of
forecasting,
TransCanada’s
success
appears
to
be
based
on
including
provisions
to
cover
both
contractual
maintaining
a
strong
cash
flow
position
in
order
to
repayment
obligations
and
long-­‐term
debt
service.
take
advantage
of
opportunities;
its
“forward
TransCanada’s
management
capability
and
thinking”
corporate
culture
with
respect
to
energy
competency
seem
solid
and
reasonable.
needs
of
customers
in
next
5-­‐10
years;
a
deliberate
D. Summary
of
Findings
effort
to
construct
infrastructure
now
to
meet
those
1. Financial
Assessment
needs
in
the
future;
and
a
relatively
conservative
In
reviewing
the
income
statements
and
balance
approach
to
growth
(i.e..,
modest,
steady
growth).
sheets,
I
determined
that
the
corporation
had
a
Moreover,
the
corporation’s
commitment
to
staying
reasonably
strong
financial
posture.
Over
a
period
within
their
core
business
and
competency
is
wise
of
four
years,
the
corporation
had
a
fairly
steady
and
its
consistent
ability
to
provide
dividends
to
its
financial
profile.
It’s
debt
ratio
was
a
bit
high
at
over
stockholders
(even
providing
buying
opportunities
65%
of
liabilities
to
assets,
but
this
appears
to
be
due
at
discounted
rate)
is
a
real
plus.
You
always
want
to
the
numerous
expansion
projects
which
should
all
to
keep
the
shareholders’
happy.
come
on
line
by
2010.
The
numerous
projects,
2. General
Observations
and
Assessments
which
either
supports
their
primary
business
There
were
no
major
or
significant
findings
found
(pipeline
infrastructure
expansion
or
maintenance)
during
my
general
research
which
would
raise
or
expands
their
gas
storage
business,
all
seem
to
concerns
about
its
dealings
within
the
market.

10. Sample
Analysis
-­‐
Prepared
by
Shirley
Gee
10
There
was
no
history
of
financial
malfeasance
or
concerns
regarding
its
corporate
culture
or
managerial
philosophy.
The
only
critical
accounting
disclosure
and
information
was
in
2004
when
the
corporation
did
a
re-­‐
statement
of
its
income
statement
and
balance
sheets
to
make
the
Canadian
Institute
of
Chartered
Accountants
better
align
its
financial
definitions
to
the
International
Financial
Reporting
Standards
(IFRS)
and
the
U.S.
GAAP
(See
2007
Annual
Report
Note
#2).
The
financial
impact
of
this
particular
adjustment
was
an
increase
in
retained
earnings
by
$4
million
dollars
for
year
ending
2007.
Of
interest
given
a
climate
of
high
profile
corporations
going
bankrupt
due
to
questionable
accounting
practices
was
the
corporations
position
with
respect
to
its
retirement
obligations.
A
quick
review
of
their
asset
retirement
obligation
as
of
December
31,
2007
was
$88
billion.
Settlement
of
the
obligation
ranges
from
11
to
32
years.
Using
the
11
years,
to
be
conservative,
the
corporation
would
need
$8B
to
cover
its
retirement
obligations
for
any
given
year.
With
a
net
worth
of
$10B
as
of
December
31,
2007,
TransCanada
could
easily
cover
its
current
retirement
obligations.
3. Industry
Comparison
A
review
of
TC
Pipelines
L.P.
and
Enterprise
Products
Partners
L.P.
gave
a
good
industry
comparison
to
TransCanada.
The
following
is
the
comparative
chart.
With
respect
to
debt
and
profitability,
TC
Pipeline,
while
smaller,
might
be
a
better
buy
than
TransCanada
based
on
their
respective
2007’s
performances.
A
more
in-­‐
depth
analysis
of
TC
Pipeline’s
historical
trend
would
be
needed,
however,
before
they
could
be
recommended.
TransCanada
does
not
seem
particularly
out
of
sync
with
the
industry
as
a
whole.
The
following
is
a
comparative
table
depicting
the
three
corporations
side
by
side.

11. Sample
Analysis
-­‐
Prepared
by
Shirley
Gee
11
Figure
4
–
Comparisons
Formula
TC
Pipelines
Enterprise
TransCanada
($M)
Products
Partners
($M)
($M)
2007
–
2006
$1493
(+91.9%)
$2618
(+18.7%)
$30330
(+17.1%)
Total
Assets
Assets
(+
or
-­‐)
2007
-­‐
2006
$593
(+25.0%)
$9951
(+36.7%)
$19546
(+12.0%)
Total
Liabilities
(+
or
-­‐)
Liabilities
Total
Owner’s
2007
–
2006
$900
(+196%)
$6132
(-­‐5.4%)
$9785
(+27.1%)
Equity
(+
or
-­‐)
Equity
Net
Worth
Assets-­‐(Liabilities
$0
-­‐$13465
+$10999
+
Owner’s
Equity)
Net
Income
Revenue
-­‐
$89
(+99.1%)
$534
(-­‐11.6%)
$1223
(+13.3%)
Expenses
Liquidity
Current
Current
Assets/
$11/$13.8
=
$2538/$3045
=
$2305/$3035
=
75.9%
Current
Liability
Ratio
79.7%
83.3%
Quick
Ratio
Current
Asset
–
$11-­‐0/$13.8
=
$2538-­‐$354/$345
$2305-­‐
Inventory/
79.7%
=
71.7%
$297/$3035=66.2%
Current
Liabilities
Working
Current
Asset
–
$11-­‐$13.7/1493
$2538-­‐ $2305-­‐$3035/$30330
Current
Liabilities/
Capital
=
-­‐.2%
$3045/$16608
=
-­‐2.4%
Total
Assets
=3.1%
(Continued)
Formula
TC
Pipelines
Enterprise
TransCanada
($M)
Products
Partners
($M)
($M)
Profitability
Gross
Profit
Net
Income/
$89/$137.4
=
$534/$16950
=
$1223/$8828
=
13.9%
Revenue
Margin
64.8%
3.2%
Return
on
Net
Income/
$89/$1493
=
$534/$16608
=
$1223/$30330
=
4.0%
Total
Assets
Assets
6.0%
3.2%
Return
on
Net
Income/
$89/$900
=
9.9%
$534/$6132
=
$1223/$9785
=
12.5%
Owner’s
Equity
8.7%
Equity
Debt
Debt
Ratio
Total
Liabilities/
$593/$1493
=
$9951/$16608
=
$19546/$30330
=
Total
Assets
39.7%
60.0%
64.4%
Debt-­‐to-­‐ Total
Liabilities/
$593/$900
=
$9951/$6132
=
$19546/$9785
=200%
Owner’s
Equity
Equity
Ratio
65.8%
.7:1
162%
1.6:1
2:1

12. Sample
Analysis
-­‐
Prepared
by
Shirley
Gee
12
E. Recommendation
All
in
all
and
although
the
debt
ratios
were
a
bit
high,
I
would
still
affirmatively
recommend
this
corporation
due
to
its
strong
and
steady
financial
posture
and
its
consistent
return
on
assets
and
equity
over
a
sustained
period
of
time.
Their
regular
dividend
payouts
over
the
last
5+
years
shows
a
sustained
ability
to
manage
operations
for
the
benefit
of
stockholders.
Their
current
projects
indicate
expansion
opportunities
(i.e.,
in
oil,
wind,
coal
fire
electric
power,
and
additional
pipeline
acquisition
and
storage
facilities),
which
should
provide
for
continual
return
on
assets
and
equity
well
into
the
foreseeable
future.
The
corporation’s
move
towards
alternative,
renewable
energy
is
in
keeping
with
the
direction
of
the
market
from
all
indications
and
demonstrates
an
awareness
of
opportunities
and
the
need
to
position
itself
to
maximize
leverage
of
its
assets.
Finally,
as
compared
to
others
in
industry,
it’s
a
very
solid
corporation
with
a
positive
net
worth,
manageable
debt
ratio
and
good
return
on
assets
and
equity.
It’s
a
Buy!