The Performance Analysis of the Companies Based In United Arab Emirates - Research Paper Example

Companies in GCC of the of the Table of Contents 2 Executive Summary 3 Introduction 4 Detailed Study 4 Conclusion 25 . Recommendations 25 Executive Summary The report will highlight the performance analysis of the companies based in United Arab Emirates (UAE).It will provide detailed performance analysis of the five companies named Gas, Sorouh, Tabreed, Emirate Islamic bank and Orient insurance. The performance analysis will be based on the Balance Sheet, Income Statement and stock price movement of all these companies. Therefore, through this report the improvement in the performance of the companies from the year 2011 will be highlighted in a detailed way. It will help to judge the profitability and market position of the companies better. The performance analysis of all these companies and recommendations will be presented in a detailed manner in this report. Introduction The Business plan highlights the performance analysis of the companies in UAE through the balance sheet, the income statement and stock market movement of the companies such as Dana Gas, Sorouh, Tabreed, Emirate Islamic bank and Orient insurance (The Wall Street Journal, 2014). Among these, Dana Gas is a company which functions independently and deals in gas. The major private shareholder in this company is Crescent Petroleum . Sorouh, on the other hand is the largest developer in the real estate business of UAE. Tabreed is another company for which detailed performance analysis will be conducted. It is a company based in Abu- Dhabi which is associated in the business of district cooling. Emirates Islamic Bank is the leading bank in Middle East and has a huge asset base (The Wall Street Journal, 2014). There will be analysis of the performance of Orient insurance as well, which is a pioneer in the insurance business. They provide security for covering all kinds of risks (The Wall Street Journal, 2014). Detailed Study The report will provide detailed performance analysis of the companies like Dana Gas, Sorouh, Tabreed, Emirate Islamic bank and Orient insurance. The performance analysis of Dana Gas can be presented through the study of the balance sheet of the company. Figure: 1- Balance Sheet of Dana Gas (Source: Bloomberg, 2012) Performance Statement Analysis of the Dana Gas can be presented as follows: Non-Current and Current Assets: There is a sharp decrease in the Non-current assets of the company in 2012 as compared to the year 2011(Terterov, 2006). The current assets of the company like inventories increased in 2012 to USD 54 million from USD 53 million in 2011. The increase in the inventories is a negative indication to the company and should be curbed. A high rate of inventory denotes low rate of turnover of the same. This adds to the cost of the company in terms of storage (Terterov, 2006). Again, through the performance analysis of the current assets it can be noticed that there is an increase in the trade receivables in the year 2012, as compared to the year 2011. There is increase in the trade receivables from USD 501 million in 2011 to USD 670 million, which is a positive sign (Bloomberg, 2012). A high rate of return from the debtors of the company is always beneficial to maintain the liquidity position. The amount of cash and cash equivalents of the company has also increased which shows that the company is financially quite robust (Bloomberg, 2012). Equity and Liabilities: From the analysis of the equity and liabilities, it can be seen that there is an increase in the retained earnings from USD 220 million in 2011 to USD 349 million in 2012, which is a good indicator of the earnings which are retained by the company for future use (Katzman, 2010). The borrowings and the trade payables have increased drastically. The rate of borrowings can be summed up- to USD 920 million in 2011 to USD 951 million in 2012. An increase in the rate of borrowing should be avoided as it will further add to the liability of the company. The trade payable was USD 134 million in 2011 and has increased to USD 138 million in 2012 (Katzman, 2010). These are the negative indicator of the performance of the company. Dana Gas should therefore pay-off all the loans to maintain the profitable status. The provisions of the company have decreased from USD 17 million in 2011 to USD 14 million in 2012, which is again a positive sign (The Wall Street Journal, 2014). Therefore, there is an increase in both the assets and liabilities of the company from 2011. An increase in the former is a positive indicator of the financial condition of the company but the latter indicates a negative status. Thus, the company has a robust financial condition and the repayment of the borrowings will help it to retain the profitable position (The Wall Street Journal, 2014). The report will also highlight the financial performance of Sorouh, through the analysis of the balance sheet of the company. Figure: 2- Balance Sheet of Sorouh (Source: Bloomberg, 2012) The performance analysis of Sorouh can be explained as follows: Non-Current and Current Assets: The trade receivables have decreased in the current assets part of the balance sheet. This shows that the company is unable to recover cash from the debtors it has. There is a decrease in the rate of inventories from AED1640300000 to AED 4719722000 (Katzman, 2010). This shows that the company successfully fulfilled equivalent demand and supply conditions (Katzman, 2010) by a large margin. The cash and bank balances have decreased sharply. The decrease in the cash flow of the company can be witnessed in the year 2012. The amount of cash flow in 2012 was ASD 2259773000 was much less than that of 2011, which was ASD 4157680 (Katzman, 2010).The cash and bank balance are the primary liquid asset, which Sorouh should maintain for having a healthy financial position. Equity and Liabilities: The liabilities of the company have decreased in the year 2012 by a huge margin. The borrowings of the company in 2012, have witnessed a fall from 2011. In 2011 the amount of borrowings under the current and non-current liabilities together accounted for AED 917635000 (Katzman, 2010). In 2012 the amount fell to AED 4929215000 (Katzman, 2010). Thus the company paid off the loans it had by a good margin. The rate of trade payables also decreased from AED 8417140000 in 2011 to AED 6461788000. Sorouh paid off the creditors by a great margin, which shows the stable financial position. The financial performance of Tabreed can be explained through the detailed analysis of the balance sheet. Figure: 3- Balance Sheet of Tabreed (Source: Bloomberg, 2012) The performance analysis of Tabreed can be explained as follows: Assets The inventories of Tabreed had increased from AED 35796000 in 2010 to AED 33909000 in 2011 (Katzman, 2010). The company should have control the levels of the inventory so as to avoid any sorts of costs related to storage and abnormal loss. Cash and short term deposits of the company had increased from AED 361815000 in 2010 to AED 511997000 in 2011(Bloomberg, 2012). This shows that the company had sufficient increase in the liquid assets. Liabilities: The accounts payable of the company has decreased from AED 65624000 in 2010 to AED 41462000 in 2011. This indicates that the company has successfully paid off many of its creditors (Bloomberg, 2012). The loans and borrowings of the Tabreed had also decreased by a great margin, from AED 2406091000 in 2010 to AED 72811 000 in 2011. This shows that the company was capable of paying off the loans it had by a large margin (Bloomberg, 2012). The performance of Oriental Insurance can be explained in details through the analysis of the balance sheet of the company. Figure: 4- Balance Sheet of Orient Insurance (S(Source: Bloomberg, 2012) The performance of Orient Insurance can be analyzed as follows: Assets: The insurance receivables of the company have increased from AED 204674000 in 2011 to AED 238151 in 2012.This shows the company has efficiently recovered all the receivables it had in the year 2012 (Katzman, 2010). The cash and cash equivalents of Orient Insurance have also risen from AED 58185000 in 2011 to AED 69498000 in 2012, showing a strong asset margin of the company (Katzman, 2010). Liabilities: The reinsurance and other payables and accruals have augmented from 2011. The amount of reinsurance in 2011 was AED 198265000 and it has risen to 201019000 in 2012 (Katzman, 2010). The bank should take necessary step to lower down all it needs to pay so as to control the amount of liabilities it has. The performance of Emirate Islamic bank can be analyzed as follows: Figure: 5- Balance Sheet of Emirate Islamic bank (Source: Bloomberg, 2012) The performance of Emirate Islamic bank can be analyzed as follows: Assets The cash balances, trade receivables have shown a positive increase. The cash balances of the bank was AED 1195167000 in 2011 and gone up to AED 20046 95000 in 2012. Following the same trend, trade receivables of the Emirate Islamic bank has increased from AED 12969041000 in 2011 to AED 19825471000 in 2012 (Bloomberg, 2012). Thus, this shows a robust asset margin and a decrease in the debtors of the company. Liabilities The dues to the bank have increased by a sharp margin. It was AED 1343999000 in 2011 and increased to 3023964000 in 2012 (Bloomberg, 2012). Therefore, the bank should consider these dues seriously and take actions to lessen it. The overall liabilities of the bank have risen; hence it is necessary to reduce them. The performance analysis of the five companies can also be done through their Income Statement that can be laid down as follows: Figure: 6- Income Statement of Dana Gas (Source: Bloomberg, 2012) Figure:7- Income Statement of Sorouh (Source: Bloomberg, 2012) Figure: 8- Income Statement of Tabreed (Source: Bloomberg, 2012) Figure: 9- Income Statement of Emirates Islamic bank (Source: Bloomberg, 2012) Figure: 10- Income Statement of Orient Insurance (Source: Bloomberg, 2012) Through the performance analysis of the company Dana Gas, it can be inferred that the company’s revenue decreased considerably in 2012. There was a decrease in the finance cost of the company therefore, the company efficiently paid back some of the interest that it was liable to pay. The Earning per Share (EPS) of the company increased in 2012, which is good indication from the perspective of the shareholders’ (Katzman, 2010). This will help it to gain the confidence of the shareholders further. The Gross profit of the company decreased but the overall income Dana Gas increased in 2012 by a healthy margin. Sorouh’s income statement showed an increase in the income of the company in the year 2012 more than way it was in 2011.The revenue of the company is much higher than the rate it was in 2011.The depreciation and write off costs and finance costs also decreased. The finance income was higher than the amount of 2011. Thus the company allocated and utilized it funds in a way which is much better than what it was in 2011 (The Wall Street Journal, 2014). Tabreed had an increase in the operating costs, finance cost from the year 2011. There was a decrease in the administrative expenses of the company decreased in 2012 which is healthy indicator of the performance of the company. The interest income and other income although increased significantly. Thus there was a rise in the overall profit of the company. Emirates Islamic bank experienced massive loss in 2011, but recovered successfully in 2012. There was an increase in the net profit and decrease in the costs of the company in 2012. This is what the income statement of the bank reflected in the year of 2012. Orient Insurance performed well in 2012 than what it did in 2011. The net profit of the company is the indicator of the same. It went through less losses and more income, like the huge premium incomes in 2012 (Mahajan, 2012). Figure 11 : Stock market movement of Dana Gas (Source: Bloomberg, 2012) The stock market movement of Dana Gas is indicated that the share value witnessed considerable high and low phases. While it started with a low phase, but the price of the shares increased profitably in the later part of the year with a decrease again in the month of March (Mahajan, 2012). Figure: 12- Stock market movement of Sorouh (Solution: Bloomberg, 2012) The stock market movement of Sorouh in 2012 indicated a low phase followed by a steady phase. The share price of the company was low in the month of April but steadily increased thereon. This shows the company faced a low share value at the beginning of the year but later gained on the momentum (Mahajan, 2012). Figure: 13- Stock market movement of Tabreed (Solution: Bloomberg, 2012) From the above figure of the stock market movement of Tabreed, it can be interpreted that the stock price of the company initially started on a low note but gradually increased. There was slight decrease in the price of the shares of the company in the month of March (Mahajan, 2012). Figure: 14- Stock market movement of Emirates Islamic bank (Source: Bloomberg, 2012) The stock price movement of Emirates Islamic Bank represented an initial low start with gradual gain in momentum in the later months of the year. Thus, the stock price of the company shows profitable position in terms of the steady share price. Figure: 15- Stock market movement of Orient Insurance (Source: Bloomberg, 2012) Stock price movement of the company Orient insurance shows a continuous rise in the price of the shares. The price of the shares of the company was initially low but increased later in the coming months (Mahajan, 2012). Conclusion Thus it can be concluded from the report that the companies had a more or less profitable condition and a steady performance in 2012 (Mahajan, 2012). There was a sharp increase in the net profit of Sorouh in the year 2012 as compared to the other companies and bank. The other companies like Dana Gas, Tabreed, Emirate Islamic bank and Orient insurance also saw an increase in the profit and decrease in their cost to a great extent as well. The share price of Emirate Islamic bank was high in 2012 and Sorouh was considerably stable in that year. Thus the shareholders who invested in these companies based on their overall performance gained. Thus the companies experienced an overall ealthy performance in 2012 as compared to 2011 with a low start and then a gain in the momentum in the later part of the year (Mahajan, 2012). . Recommendations The recommendations can be that the company should control their costs more. They should earn more and spend less for maintaining their profitability conditions. The stock market performance of Sorouh and Emirate Islamic bank was pretty well (Usha, 2007). The share market performance of Emirates Islamic bank and Sorouh was high but Dana gas on the other hand could not perform well. It would thus be profitable to spend on the former company by the shareholders. References Bloomberg. ( 2012). Emirates Islamic bank. Retrieved from http://www.bloomberg.com/quote/EMIRATES:UH Bloomberg. ( 2012). Orient Insurance. Retrieved from http://www.bloomberg.com/quote/OEH:US Bloomberg. ( 2012). Sorouh. Retrieved from http://www.bloomberg.com/quote/ALDAR:UH Bloomberg. ( 2012). Tabreed. Retrieved from http://www.bloomberg.com/quote/TABREED:UH Bloomberg. (2012). Dana Gas. Retrieved from http://www.bloomberg.com/quote/DANA:UH Katzman, K. (2010). United Arab Emirates (UAE): Issues for U. S. Policy. Darby: DIANE Publishing. Mahajan, V. (2012 ). The Arab World Unbound: Tapping into the Power of 350 Million Consumer. New Jersey: John Wiley & Sons. Terterov, M. (2006). Doing Business with the United Arab Emirates. London: GMB Publishing Ltd. The Wall Street Journal. (2014). U.A.E.s Dana Gas 4Q Net Profit Rises On Egyptian Output. Retrieved from http://online.wsj.com/article/DN-CO-20140202-000390.html Usha, I. (2007). Doing Business and Investing in United Arab Emirates Guide. Washington DC: USA International Business Publications. Read More