Analysis of Emaar and Damac Company - Case Study Example

Analysis of Emaar and Damac Company Name: Tutor: Subject: Date: Tables of Contents Introduction 4 The Financial Statements 5 Damac Company Properties 5 Emaar Company 5 Damac and Emaar Company 7 Types of Ratios 7 Leverage Financial Ratio 7 Liquidity Financial Ratios 8 Operating Financial Ratio 9 Profitability Financial Ratios 10 Cash Ratio 11 Graphical Analysis 12 Leverage Financial Ratio 12 Liquidity Financial Ratio 13 Operating Financial Ratio 14 Profitability Financial Ratio 15 Cash Ratio 16 Conclusion 16 References 18 Introduction Damac Properties are one of the most luxurious properties in Dubai. For a decade, Damac Company has been on the forefront in the Middle East region and it is the leading in the real estate luxurious market in Dubai. The companies have an enduring passion for design and quality. The company is known for generating some of the most attractive properties in the United Arab Emirates, Qatar, Saudi Arabia, and Lebanon. Damac Properties are among the largest developers in the Middle East region having completed almost eleven thousand units and have more than thirty thousand units across the region. Some of the constructions made by the Damac Properties Company are the hotel apartments and hotel rooms. They are over ten thousand units of the same constructions all over Dubai. An example being Paramount Hotels and Resorts Emaar Properties are one of the worlds most valuable and admired real estate’s development companies in Dubai. Emaar companies are a pioneering developer of integrated master planned companies that has transformed the real estate sector in Dubai, United Arab Emirates because of the high competence in property, shopping malls and retail, hospitality and leisure. Emaar real estate is one of the record breaking developer companies in Dubai with more than twenty five years of experience in building and construction. Therefore, Emaar Company is also on the forefront leader in international property developers and real estate service companies < http://www.emaar.com/en/who-we-are/leadership/> The Financial Statements Damac Company Properties On November 2013, Damac company properties publicized that it planned to raise around five hundred million dollars from the sale of global depository receipts on the London stock exchange forum. On December 3rd 2013, Damac properties became the first real estate company from Middle East region to list on London stock exchange through a global depository receipts program. The Dubai based group, one of the leading property developers in the gulf region, raised four hundred million dollars by distributing Global Depository Receipts (GDRs), valuing the company at three billion dollars and making it one of the largest international IPOs in London this year. Damac Company reported a first half earnings of around four hundred and seventy million dollars in 2014, having an increase of 36% compared to 1H 2013. The increase in profits has been associated with increased revenue from hospitality and retail businesses. Damac company through its CEO, hussain Sajwani; has announced a plan to construct a one billion dollar project in partnership with Viacom Inc’s Paramount group (Brigham, & Ehrhardt, 2013). Emaar Company In 2013, the net profit for Emaar company properties was three hundred and thirty five million dollars. Emaar properties have recorded a net profit of about four hundred and seventy one million dollars during the first half of the year 2014. This increase in results has been attributed to the strong performance of the malls and hospitality business segments. This has built on the positive growth of Dubai’s economy. Compared to 2013, where the net profit was three hundred and thirty million dollars. Therefore, the percentage increase realized was forty one percent. Emaar revenue for the first six months of 2014 was around one point four billion dollars ($1.4billion). The revenues for the year 2013 were the same to the current year and therefore no increase in revenue for the first quarter of both years. The net profit for the second quarter of the year 2014 was two hundred and thirty million dollars. This has greatly increased compared to the second quarter of 2013 where it was about one hundred and eighty million dollars. The increase realized in 2014 was twenty nine percent higher than in 2013 (Dane, 2014). The revenue for the second quarter of the year 2014 was seven hundred and sixty million dollars. This is twenty four percent higher than in the first quarter of 2014. Emaar’s malls & retail and hospitality & leisure subsidiaries contributed around seven hundred and twenty million dollars incurring revenues during the first six months of 2014, fourteen percent higher than the revenues from these high performing businesses during the same period in the year 2013 which was six hundred and thirty million dollars. The share of revenue from the two businesses to the total revenue in 2014 is fifty two percent. The malls, retail & hospitality revenues during the second quarter of the year 2014 was three hundred and fifty four million dollars, twelve percent higher than the second quarter of 2013 revenues that were three hundred and sixteen million dollars. Revenues from the company’s global operations during the first quarter of 2014 were about two hundred million dollars, representing fifteen percent of the total revenue. This, in fact, is forty three percent higher than the international revenues during the year 2013 which were at one hundred and forty three million. Revenue from international operations during the second quarter of the year 2014 was at one hundred and twenty six million, sixty one percent higher than the revenue from the first quarter of the year 2014 which were at seventy eight million dollars. Mohamed Alabbar, Chairman of Emaar Properties, said the positive growth of the company has been energized by Dubai’s strong credentials as a stable and safe hub for business and leisure. Emaar net profit increased by forty one percent first half of 2014 four hundred and seventy one million dollars (Donald, Deventer and Mark, 2013). Damac and Emaar Company Damac Properties 1. Paramount pictures 2. Trump organization Emaar Properties 1. Al Mazaya holding company- MAZAYA 2. Grand real estate project company- GRAND Types of Ratios Leverage Financial Ratio This shows the percentage of a company’s capital structure that made up on debt or liabilities owed to external parties. This type of ratio shows the debt levels incurred by the company. Emaar Company. Financial leverage table No leverage Leverage with 50% debt Cost: $1980000 Cost: $1980000 Debt: $0 Debt: $990000 Equity: $1980000 Equity: $990000 Income: $14711400 Income: $14711400 Debt service= 0/14711400 Debt service= $990000/14711400 Return on equity= 14711400/1980000 =7.43 Return on equity = 990000/1980000 =0.5 Damac Company No leverage Leverage with 50% debt Cost: 1,932,700,000 Cost: :$ 1,932,700,000 Debt:$0 Debt:$ 966,350,000 Equity: $1,932,700,000 Equity: $966,350,000 Income:$ 14,514,577,000/ Income: 14,514,577,000/ Debt service=0/14,514,577,000/ Debt service=$966,350,000/ 14,514,577,000/ Return on equity=$14,514,577,000/ 1,932,700,000 = 7.51 Return on equity= 96635000088/ 1,932,700,000 = o.5 Liquidity Financial Ratios This category of ratio explains the available resources for the company to use in order to pay off its bills and pay the staff members. Therefore, the company can pay its debts through the liquidity financial ratio. An example of liquidity financial ratios is the quick ratio. Also referred to as acid test ratio. Quick ratio= (cash and equivalence + short term investment + account receivable) / current liabilities (Eddie, 2014). Emaar Company In the year 2013, the cash and equivalence for Emaar Company was $2,365,906. Short term investment: $1,306,809. Account receivable: $10,754,962. Current liabilities: $30,198,939. Quick ratio= ($2,365,906 + $1,306,809 + $24,754,962) / $30,198,939 =$28,427,677 / $30,198,939 =$0.9413468797 =$0.9 Damac Company In the year 2013, the cash and equivalence for Damac Company was: $545,700,000. Short term investment: $0. Account receivable: $1,235,200,000.Current liabilities: $2,382,400,000 Quick ratio = ($545,700,000 + $0 + $1,235,200,000)/ $2,382,400,000 =$0.7475235057 = $0.75 Operating Financial Ratio This explains the ratio of operating expenses to net sales. This ratio is often expressed in percentage Operating Ratio = operating expenses/ net sales Emaar Company EMAAR COMPANY INCOME STATEMENT FOR 2013 REVENUE $2,109,510 COST OF GOODS SOLD $1,232,921 GENERAL ADMINISTRATIVE EXPENSE $530,505 TOTAL OPERATING EXPENSE $1,838,921 TOTAL OPERATING INCOME $702,249 Operating ratio = $1,838,291/ $2,109,510 = 0.8714 =87% Emaar Company pays out 0.8714 of operating expenses for every $1.00 in sales, therefore, has the remaining of $0.13 to cover non-operating expenses. Damac Company DAMAC COMPANY INCOME STATEMENT FOR 2013 REVENUE $1,224,300,000 COST OF GOODS SOLD $436,300,000 GENERAL ADMINISTRATIVE EXPENSE $221000000 TOTAL OPERATING EXPENSE $964,750,000 TOTAL OPERATING INCOME $69,400,000 Operating ratio = $1,050,000,000/ $1,224,300,000 =0.85763 = 86% Damac Company pays out $0.85 of operating expenses for every $1.00 in sales, therefore, the remaining of 0.15 to cover non-operating expenses Profitability Financial Ratios These are financial ratios that measure the return earned on a company’s capital. It, therefore, measures the company's ability to generate earnings relative to sales, assets and equity. A good example being; Return on Asset ratio (ROA) Emaar Company For example, the total asset for Emaar Company on December 2013was $3,843,170,000 during the year end in December 2013; it earned net income of $ 152,189,532. Calculate the Return on Asset ratio. Total Asset: $3,843,170,000 Return on Asset =$ 152,189,532/ $3,843,170,000 =3.96% Damac Company The total assets for Damac Company in 2013 were $3,041,500,000. During the year ended in 2013, it earned net income of $128,704,114. Calculate the Return on Asset ratio Total Asset: $3,041,500,000 Return on Asset= $128,704,114$3,041,500,000 = $4.23% Cash Ratio This is the ratio of cash and cash equivalents of the company to its current liabilities. It is expressed by: cash ratio=cash equivalents + cash ÷ current liabilities Emaar Company Cash and cash equivalents: $2,702,293 Current liabilities; 3,255,774 Therefore, the cash ratio for Emaar Company was: 2,702,293 ÷3,255,774 = 0.83 Damac Company Cash and cash equivalent: $545,700,000 Current liabilities: 606, 400, 00 Cash ratio=545700000÷606, 400, 00= 0.9 Graphical Analysis Leverage Financial Ratio The leverage financial ratio shows that Damac Company has a higher value in its capital structure compared to Emaar Company. Therefore, Damac Company has incurred high debt levels and this reduces the general performance of the company. Liquidity Financial Ratio The liquidity financial ratio shows that Emaar Company has more resources available for its use compared to Damac Company. This means that Emaar Company can pay off its debts easily compared to Damac Company having a lower liquidity ratio. Operating Financial Ratio . The operating financial ratio reveals that Emaar Company has a higher value than Damac Company. But Damac Company having a smaller ratio means that it can generate profits if the revenues decrease. Profitability Financial Ratio Profitability financial ratio shows that Damac Company is higher than Emaar Company. This shows that Damac Company is doing great as it’s able to generate earnings compared to its expenses. Cash Ratio Both companies have their cash ratios below 1.00. This means that they can pay their current liabilities with time but not immediately. Both companies, therefore are operating on normal values of cash ratio that is below 1.00 (Moyer, McGuigan, & Rao, 2014).  Conclusion This article reveals the financial analysis of Damac and Emaar companies that show the overall performance of these companies in the year 2013 and 2014. To begin with, the leverage ratio of Damac Company is higher than that of Emaar Company; therefore Damac Company is spending more on debts. This reduces the performance of the company. And as a result, Emaar Company is better in leverage financial ratio than Damac Company. Secondly, liquidity ratio of Emaar Company is higher than Damac Company so this means that Emaar Company has more resources available that it will use to pay off its debts and bills. Thirdly, the operating financial ratio of Emaar Company is higher than Damac Company. This in turn means that Emaar Company cannot generate profits better than Damac Company that has a smaller ratio. Therefore the smaller the ratio, the more the profits generated that is if the revenues decrease. Lastly, the profitability financial ratio of Damac Company is higher than Emaar Company. This, therefore, means that Damac Company can generate more earnings with very little expenses. The five ratio types which include solvency ratio, leverage ratio, liquidity ratio and operating ratio are important in the financial solutions of the company. These are important in analyzing the strengths as well as how to deal with challenges encountered by the organization. References About DAMAC properties, retrieve on 22nd August, 2014 from http://www.damacproperties.com/en/section/about-damac-properties Brigham, E., & Ehrhardt, M. (2013). Financial management: theory & practice. Cengage Learning. Dane, R. (2014). Business Credit 2014: Build Credit Fast. Iron Dane Richards & Iron Solutions Group, LLC. Donald, R., Deventer, K., Mark, M. (2013). Advanced Financial Risk Management: Tools and Techniques for Integrated Credit Risk and Interest Rate Risk Management. John Wiley & Sons Eddie, M. (2014). Business Finance. Pearson Education, Limited, Emaar Company, retrieve on 22nd August, 2014 from < http://www.emaar.com/en/who-we-are/leadership/ > Locationgroup research, (2014). Retail Market Study Middle East, Asia & Pacific, and Africa 2014. Location Group AG Moyer, R. C., McGuigan, J., & Rao, R. (2014). Contemporary financial management. Cengage Learning. Read More