Entering Alternative Energy Markets: Siemens Case Study

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Siemens' Case Study

The time is now. Fossil fuels are quickly becoming an outdated energy source, because they are rapidly depleting. For energy companies like Siemens, it is now the crucial moment where there needs to be adjustments in strategy to reflect a changing world. However, the company must be in a good financial position to do so. Clearly, there needs to be enough free cash to reinvest into alternative energy sources as a way to ensure the company continues to exist long after the fossil fuels wells have run dry. Thus, this analysis aims to explore Siemens' financial position to determine whether or not there is enough of a balance to go forward with massive investing into new technologies.

Pro-Forma Cash Flow Statement

Pro-Forma Cash Flow Statement (In Millions)

2012

2013

Sales

30,305

29,913

Change in Receivables

2,087

2,175

Cash From Sales

10,891

9,190

Cost of Sales

21,607

22,106

Change in Payables

27,236

25,771

Change in Cash

2,060

2,365

Cash Margin

35.93%

30.72%

Research and Development

2,904

2,878

Selling & Administrative

3,991

4,173

Other

Assets Reduction Due to Spin-Off

1,800

Total Cash Expenses

124730

130319

Net Cash From Operations

2,509

3,084

Income Taxes

Interest Expense

2,278

1,087

Investment and Financing Transactions

Interest Income

2,946

1,306

Other Financial Income

7

Total Nonoperating Cash Changes

6,639

6,664

Net Cash Increase (Dec)

-1274

BCG Matrix

2012

LOW

HIGH

HIGH

Strategy: Maintain current operations, while cutting back on R&D spending slightly. The company must first get itself a stronger cash flow to rethink more investment in R&D of alternative energy products in bulk.

Strategy: Investments in R&D are still worthwhile, but in very limited amounts.

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It is clear there is a need to stay competitive, but spending must be cautious because of the poor performance in 2011.

LOW

Strategy: With a weak ability to turn a profit increasing cash flow is difficult. The company would need to scale down the cost of operations first before future investing.

Strategy: Look to acquire smaller successful companies in the market.

2013

LOW

High

HIGH

Strategy: Explore smaller, successful companies that already have their presence made in the market share. There is a potential for relatively high ROE without all the initial start up investments.

Strategy: Heavy investments into wind energy resources. Possible expansion into Southern California for large scale wind turbine plant construction.

LOW

Strategy: Scale down development of alternative energy spending and focus on the combustion of coal, which the company is already a proven leader in. This is ultimately the return to something the company does well to increase profits.

Strategy: Begin the steady decrease in investments related to fossil fuels. There is no growth here and even though the market is still lucrative today, it will begin to end soon. The company needs to begin the transition into alternative energy designs.

Strategic Recommendations

By examining Siemens' cash flow, it is clear that the company had more cash flow in 2013 than in 2012. Although the profit margin was down in 2013 to 6.3%, rather than the 6.3% seen in 2012, the cash the company has is an indication it has the potential to invest back into the corporation during this crucial decision moment (Siemens, 2013). This free cash can open up funding for more research and development.....

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