A Quick Look At National Grid Plc’s Balance Sheet

A whistle-stop tour of National Grid plc (LON:NG)’s financial notes.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

In this series of articles looking at financial statements, we are going to see if we can delve into National Grid (LSE: NG) (NYSE: NGG.US)’s balance sheet for the year ended 31 March 2013.  If you are new to investing, or are just baffled by some of the terms that make up a balance sheet, then read on.

Again, I will start by noting the balance sheet is only one of three main financial statements. Both the cash flow and income statements are as important, and should be viewed in conjunction to gain the full picture.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

National Grid’s largest asset class is the property, plant and equipment at £37bn.  Predictably, note 10 reveals that plant and machinery outweighs all else with net assets of £31bn.  It is an accounting quirk that the preparer of accounts can choose the estimated life of its assets. With depreciation affecting accounts each year, it is possible to accelerate or defer profits depending on how long an asset is depreciated for. In National Grid’s case, the note also tells us its assets are depreciated over periods up to 100 years!

Next up is borrowings. Of the £25bn the National Grid owes in non-current borrowings, it can be seen that £22bn is in the form of bonds. A bond is a form of borrowing in which an investor loans money to the company for a defined period of time at a fixed interest rate. Unfortunately, and unhelpfully, there is not a great deal of information fleshing out the terms.

Exactly what is in the reserves?

Finally, we have other equity reserves.  A pretty ambiguous term that doesn’t become any less confusing in its component parts, either. The reserves as per note 25 are the translation, cash flow hedge, available-for-sale, capital redemption and merger reserves.  Let’s go through them one at a time. 

The translation reserve arises as the group reports in a range of currencies and must be consolidated, thus causing a currency difference. The cash flow hedge represents the current balance on interest rate swap contracts (which are bought to limit fluctuations in interest rates on loans payable). The available-for-sale reserve is for investments in short-term funds, shares and bonds, which are readily convertible into cash.  Nearly there!  The capital redemption reserve arises because  National Grid bought back its own shares. Last but certainly not least, the merger reserve at a whopping £5bn represents the amount paid in excess of the value of companies acquired (in this case, mainly Lattice Group).

Hopefully that whistle-stop tour was helpful although, as ever, there are many more terms that could be cleared up as well.

If you found this introduction to balance sheets useful, there are more investing hints and tips in this completely free report. Why not take a look to see if you can get one step ahead of the herd?

If you are feeling more adventurous, try 10 Steps To Making A Million In The Market, which can set you on the right path on your investing journey.

> Barry does not own shares in National Grid.

More on Company Comment

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Rolls-Royce shares are trading for pennies. Should I buy them today?

Just because Rolls-Royce shares cost pennies doesn't make them cheap. Its troubles aren't over yet.

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

8.5% and 9.5% dividend yields! 2 FTSE 100 stocks to buy today

The dividend yields at these brilliant blue-chips sit very close to double digits. I think they could be too good…

Read more »

Investing Articles

Tesco vs Royal Mail: which cheap FTSE 100 share should I buy?

The Tesco and Royal Mail share prices both seem to offer great value at recent levels. So which cheap FTSE…

Read more »

Investing Articles

2 FTSE 100 dividend-paying stocks to buy in an ISA

The deadline for new money going into Stocks and Shares ISAs is just around the corner. Here are two FTSE…

Read more »

Business man on stock market crash financial trade indicator background.
Investing Articles

2 dividend paying banking stocks to combat inflation in 2022

With inflation taking off in the US, the Fed may have to raise rates. Stephen Bhasera believes these banking stocks…

Read more »

Various denominations of notes in a pile
Investing Articles

A high-dividend stock I’d buy now

Why this high-dividend stock is potentially more than just a sleepy cash-cow business and growth looks set to kick in…

Read more »

Investing Articles

2 FTSE 100 dividend stocks I’d aim to never sell

I wouldn't try to hold all my investments forever, but these two FTSE 100 dividend stocks both have many qualities…

Read more »

Scene depicting the City of London, home of the FTSE 100
Investing Articles

With £2,000 to invest, I’d buy these FTSE 100 shares with big dividends

Several FTSE 100 shares pay out big dividends, but I'd start my research with these defensive operators in a growing…

Read more »