Toward a European Energy Union: Financial Ratio Analysis of the EU Energy Sector

In order to achieve the European Union energy objectives, namely cutting down greenhouse gas emissions, increasing energy consumption from renewables, and improving overall energy efficiency, the energy sector needs to be competitive, reliable, and keep track of changes in the world energy market. Particularly in the last decade, this sector has been facing significant changes, which have affected the development of the energy companies' profiles and their financial performance. This chapter aims to evaluate the financial performance of the EU energy sector in order to deepen our understanding of its risk and return, as well as to provide information useful for making investment, credit, policy or regulatory related decisions. This is achieved through ratio analysis of the EU energy companies with the largest market share in each country observed for the period 2005-2015. Financial ratios indicate that the EU energy sector has been affected adversely by turbulent changes in economic, political, and regulatory conditions. The obtained results point out that new energy reforms are needed in order to ensure new investments required for building a low-carbon economy, competitive facilities for energy production and distribution, as well as for achieving sustainable financial efficiency and effectiveness in companies' operation.