Finance Reviews

The Enercon E126 launched five years ago is still the world’s largest wind turbine with a production capacity of 7.5 MW. Harnessing wind energy has been in practice since times immemorial, with sailors harnessing it with the use of sails. The idea of utilizing the kinetic energy of wind to produce electricity came to the Scottish academic James Blyth when he installed the first electricity generating wind turbine as a battery-charging machine in July 1887 to light his holiday home in Marykirk, Scotland. Windmills have been used traditionally for other purposes like, pulling water out from wells, grinding grains, etc. The idea that wind energy could be utilized for commercial production of electricity became a reality when a prototype model of the modern horizontal-axis wind generators came into service at Yalta, USSR in 1931. The first utility grid-connected wind turbine to operate in the UK was built by John Brown & Company in 1951 in the Orkney Islands while as of 2012 Vestas is the largest manufacturers of wind turbines.

India has been one of the major producers of wind power with an installed capacity of 19051.5 MW. India ranks fifth in terms of installed wind power capacities, with Tamil Nadu being the major producer with 7154 MW of installed power capacity. The current energy scenario suggests that renewable energy is the way to go, as fossil fuels along with their exhaustible nature are majorly the cause for global warming. The unsustainable use of non-renewable resources has been touted as the major cause for the increasing global GHG emissions. Climate change mitigation strategies all around the world are advocating for the use of renewable energy sources.

Sources like solar, wind, biomass and water are the major options currently available for renewable energy production. While water and biomass are gaining popularity in India, solar and wind energy are lagging behind in terms of production capacity. The high prices per unit of electricity produced from solar panels are one of the reasons why solar energy has not gained the desired popularity. Wind energy on the other hand is gaining popularity in India with The Ministry of New and Renewable Energy (MNRE) having aimed to reach a target of 10,500 MW during the period, 2007-12, but an additional generation capacity of only about 6,000 MW was to be made available for commercial use by 2012. As of January 2013, India boasts of an installed capacity of 19051.5 MW.

The positives of electricity production from wind energy do not however cover up the fact that Wind Turbines are possibly the one of the most harmful among the renewable energy options available to us today. A recent report published by the CSE on the impact assessment of Wind turbine projects to be set up in Maharashtra have raised many an eyebrows on the issue of renewable energy’s -cleanliness-. The report mentions the harmful side-effects of utilizing wind turbines for electricity generation among its advantages as well. According to the study, wind projects set up on forestland and hilly areas can have a greater impact on water resources and ecology as compared to those in plains. The major disadvantage for humans is observed in case the turbines are placed near human settlements. Residents will be affected by the loud noises and the shadow flicker effect that is commonly associated with the wind turbines. Ecologically, birds and bats are affected severely due to the changing air pressures caused by the swiftly rotating turbines. Turbines also cause extreme soil erosion in forested and hilly areas causing a phenomenon known as linear erosion of soil. It has been observed in cases of large wind farms that the rotating blades cause many bird fatalities. All these ecological atrocities are the reason why there is a need for a paradigm shift from the conventional wind energy generation.

It is observed that instead of installing multiple small wind turbines in wind farms it is usually ecologically more efficient to have one large turbine operating in the area. The velocity of the blades is lower than the small turbines thereby reducing the combined effects of shadow flicker and linear fragmentation of soil. Offshore wind turbines have proven to be more effective as compared to terrestrial/onshore ones. Current plan to install around 10,000 MW capacity wind farms in Maharashtra may prove disastrous to the ecology as well as to the population of the area.

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Pro forma financial statements are a process of formally displaying financial projections for a given period of time and in a consistent layout. The word pro forma is derived from the Latin term which means “as a matter of form”. Most businesses make use of pro forma financial statements in the executive process for planning and control as well as for reportage to owners, investors, and creditors. A pro forma financial statement is utilized as the foundation stone while comparing and analyzing information in order to give a feel to the management, investment analysts, and credit officers about the nature of the business’s fiscal organization under different conditions. The American Institute of Certified Public Accountants (AICPA) and the Securities and Exchange Commission (SEC) both ask that standard formats be used when presenting or forming these types of statements.

For those who are interested in getting started in a business, the preparation of pro forma statements, both for income and for cash flow, is essential before investing any money, time and energy into the venture. Being an essential part of the planning process, these financial statements help reduce to the barest minimum, any risks associated with the start-up and operation of a business. It may be the basis of convincing lenders and investors to provide capital for a new business venture.

Pro forma financial statements must be reliable and accurate and should help those studying it to draw a true and accurate picture of the start-up firm. It should be based upon purposeful and dependable information that will go a long way in creating a true and concise projection of the expected profits of the business as well as its financial requirements in the first year of operation and after. Once the business has taken flight and the initial statements have been prepared, these should be regularly updated, both monthly as well as annually.

Most companies use pro forma statements for business planning and control. These pro forma financial statements are obtainable in homogeneous and columnar lay-outs and are used by management to evaluate and distinguish between other alternative business strategies. By judiciously presenting information concerning financial and operating statements adjacent to one another, the management is thus able to analyze the projected results of the various contending strategies and arrive at the best path and the most suitable plan of action.

While forming pro forma financial statements, companies should realize that these statements should be unique and each proposed plan or project has its own distinct features that should be accurately captured therein. The prime usage of these statements is for management to:

1. Recognize the assumptions that cause the financial and operating characteristics to produce different company scenarios
2. Build on the different sales and budget (income and expenses) projections
3. Bring together the results in the form of profit and loss projections
4. Transform such data into cash-flow projections
5. Evaluate the resultant balance sheets
6. Execute ratio analysis and compare projections against one another as well as against those of comparable companies
7. Examine proposed decisions regarding marketing, production, research and development and make an assessment about their impact on profit as well as on the liquidity of the company

Through simulation of competing plans, useful gains are obtained with regard to the evaluation of financial effects of each alternative plan. With different sets of assumptions providing different scenarios regarding sales, production costs, effectiveness and practicality, projected financial statements for each such scenario holds enough information to indicate the future prospects, inclusive of sales and earnings forecasts, cash flows, balance sheets, projected capitalization, and income statements.
Company management also uses the these financial statements to choose from different budget alternatives. The planner will provide sales revenue, production expenses, balance sheet and cash flow statements for different contending plans and will explain the essential assumptions of each. Having analyzed this data, the management will then select the annual budget. Having chosen the action plan, all that remains to be done is to explore and find deviations in the plan and rectify them.