Determinants of Eskom’s key financial ratios
Date
2020
Authors
Ndlovu, Senzesihle Philani
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Abstract
This research estimates an empirical model to determine the key drivers of Eskom’s profitability measures. These measures are return on assets (ROA) and net profit margin (NPM). The explanatory variables used were the real GDP growth rate, relative coal price, relative electricity price, USDZAR exchange rate, SA government bond yield, and Eskom’s default risk premium. The paper applies Ordinary Least Squares (OLS) estimation to timeseries data collected from the period 2000 to 2018 using multivariate regression analysis. The study finds that the key drivers of Eskom’s ROA are the growth rate of real GDP and the growth rate of relative coal prices. The growth rate of real GDP has a significant and positive impact on ROA. The second part of the investigation focused on the drivers of Eskom’s NPM. Of the six independent variables tested, only one variable was found to be statistically significant, and that variable was real GDP growth. The growth rate of real GDP has a significant and positive impact on NPM.
Description
A research submitted in fulfilment of the requirements for the degree of Masters of Management in Finance and Investment (MMFI) to the Faculty of Commerce, Law and Management, Wits Business School, University of the Witwatersrand, Johannesburg, 2020
Keywords
Eskom, OLS estimation, Multivariate regression analysis, ROA, NPM, Real GDP growth rate, Eskom default risk premium, Relative coal prices, Relative electricity prices, USDZAR exchange rate, SA government bond yield