Analysis of Income Statement and Statement of Financial Position - Granite Reit - Case Study Example

Name: Course: Instructor: Date: Analysis of 2014 & 2015 Financial Reports Analysis of Income Statement and Statement of Financial Position Granite Reit Granite Reit is a real estate investment trust company 2015 2014 Current Ratio = = Current ratio = = = 0.98:1 Debt Ratio = Debt Ratio = R.O.I = R.O.I = Debt Equity Ratio = Debt Equity Ratio = Net Working Capital Ratio = Net Working Capital Ratio = Competitor (H&R Real Estate Investment Trust) 2015 2014 Current Ratio = Current Ratio = Debt Ratio: Debt Ratio = R.O.I = R.O.I = Debt Equity Ratio = Debt Equity Ratio = Net Working Capital Ratio = Net Working Capital Ratio = Competitor (Simon Property Group, Inc) 2015 2014 Current Ratio = Current Ratio Debt Ratio = Debt Ratio = R.O.I = R.O.I = Debt Equity Ratio = Debt Equity Ratio = Net Working Capital Ratio = Net Working Capital Ratio = Granite’s liquidity in 2014 was at 0.98 while in 2015 it was 1.12, an indication that the firm can easily convert its stake to cash. The current ratio of Granite reduced in 2015 since the company was able to reduce its current liabilities and increase its current assets. H & R has a current ratio of 1.16 in 2004 and 1.22 in 2015, while Simon group property has a current ratio of 2.65 in 2014 and 2.44 in 2015. Both Granite and H & R had a similar increasing trend in their liquidity between the two years, whereas liquidity of Simon dropped in 2015. However, Simon group property has a higher liquidity as compared to Granite and H & R hence can easily convert its stake to cash. This is supported by their working capital ratios. Analysis of the debt ratio of Granite shows a drop of 1%, a clear show that the firm is working towards reducing the financial risk associated with high debts. In comparison with Simon property group, a similar trend is witnessed since its debt ratio increased by 3%. However, this is different in the case of H & R real estate investment debt ratio, since the company has a constant debt ratio. Both the H & R and Simon group property has a higher debt ratio that exposes them to financial risks as compared to that of Granite. The return on investment of granite increased by 4.28% between 2014 and 2015, an indication that Granite is improving on how it utilizes its assets to generate income. The increase was due to decrease in general and administrative expense by 9.52 %, a decrease in interest expense by 28.3% between 2014 and 2015. Granite generally reported a rise in its return on investment since its income between 2014 and 2015 increased by 177.56%. H & R return on investment dropped by 0.75% while that of Simon group property increased by 0.39%. Therefore, among the three companies, Granite effectively used its assets to generate income between 2014 and 2015 since it reported the highest increase. Analysis of Cash Flow Statements Cash provided by Operating Activities Organization 2015 2014 % Change Granite Reit 159,844 92,863 H & R Real Estate Investment Trust 771,542 765,918 Simon Group Property 3,024,685 2,730,420 Analysis of the cash generated from operating activities shows that Granite Reit reported $159,844 in the financial year ending December 2015 and $92,863 in the financial year ending 2014, representing a rise of 72.13%. The rise was because of 207.16% increase in net income from continuing operations and 11.15 % decline in interest paid. Both H & R Investment Trust and Simon group property reported an increase of 0.73% and 10.78% respectively on the cash generated from operating activities. H & R reported a minimal increase in the cash from operating activities since in the financial year ended December 2015 the company’s net income from its operations dropped by 19.90%. Simon group property also reported a rise of 10.78% in cash from its operating activities, a rise that could not match that of Granite since its income from the operations only rose by 29.54%. Therefore, it is clear Granite Reit reported a higher rise in cash from its operating activities in the year ended December 2015 as compared to Simon group property and H & R real estate investment trust. Cash provided by (used) in Investing Activities Organization 2015 2014 % Change Granite Reit (20,797) 20,127 H & R Real Estate Investment Trust (290,808) 131,659 Simon Group Property (1,462,720) (897,266) In 2014, Granite Reit generated $20,127 from its investing activities, while in 2015 the company used $20,979 for its investing activities. This was due to decline in the proceeds on disposal, use of restricted cash for improvement of company property and acquisition of more land for development. H & R witnessed the same trend as it generated $121,659 from its investing activities in 2014 while in 2015 it used $290,808 for its investing activities. H & R did not generate cash from its investing activities in 2015 as was in 2014 due to decline in the proceeds from disposable assets, increase in the number of assets acquired, increase in capital expenditures and increase in leasing expenses. Simon group however used more cash for its investing activities in 2015 as compared to 2014. The company used $897,266 in 2014 and $1,462,720 in 2015, representing an increase of 63.02%. The increase in cash for investing activities was due to more acquisitions, increase in capital expenditures and investment in unconsolidated securities. Therefore, Granite Reit and H & R has a similar trend in their cash for investing activities as both the companies generated cash and used cash in their investing activities in 2014 and 2015 respectively, while Simon group property used cash in its investing activities in both financial years. Cash used in Financing Activities Organization 2015 2014 % Change Granite Reit 143,958 90,713 H & R Real Estate Investment Trust 466,202 901,706 Simon Group Property 1,473,113 2,937,735 Analysis of cash used in financing activities by Granite Reit shows that in 2014 it used $90,713 while in 2015 the company used $143,958 a percentage increase of 58.70%. The increase was due to an increase in distributions paid and lack of proceeds from back indebtedness as compared to 2014. However, both H & R Investment Trust and Simon group property reported a decline in cash used in financing activities by 48.3% and 49.86% respectively. Simon reported a drop for cash used in financing activities due to increase in proceeds from the issuance of debt by 96.66%. On the other hand, cash used for financing activities in H & R dropped since in 2015 the company received proceeds from the payable debentures. Analysis of Revenue and Expenses Revenue In the year ended December 2015 Granite Ret recorded a rise of 4.29% in its revenues. This financial performance is due to the company’s unique real estate portfolio that enables it generate stable and strong cash flows. Simon group property also attributes the rise in its revenue by 8.12 % to unique portfolio that comprise of prime outlets, malls and the mills. However, H & R reported a drop in its revenue by 3.22% in the year ended December 2015 due to increase in property maintenance cost. Therefore, Simon reported a higher increase in its revenues as compared to Granite and H & R. Organization 2015 2014 % Change Nature Granite 216,299 207,410 4.29 Increase H & R 1,188,299 1,227,803 3.22 Decrease Simon 5,266,103 4,870,818 8.12 Increase Expenses Analysis of the expenses of Granite shows that the company was able to reduce its expenses by 85.56%. This could be due to decline in income expense tax by 325.77% and a gain on sale of investment properties. H & R recorded a 5.6% increase in its expenses due to increase in professional fees, corporate expenses relating to primaris and increase in salaries. Simon also reported an increase in its expenses by 4.5%, which was as a result of 4.2% increase in comparable properties due to increase in annual fixed contractual related to real estate tax recoveries and common area maintenance. Simon’s property expense also increased due to inflationary cost increases, increase in professional and legal fees. Organization 2015 2014 % Change Nature Granite 20,759 143,750 85.56 Decrease H & R 848,166 803,148 5.61 Increase Simon 2,597,230 2,485,470 4.50 Increase Conclusion Based on the financial analysis of Granite, it is clear that the company promises better future performance and returns from its investments. Granite reported rental revenues of $216.3 million in year ended December 2015 and $207.4 in the year ended December 2014, representing an increase in its revenues by 4.29%. Granite also reported a rise in its liquidity by 14.29% and a decline in the debt ratio by 3.03%. However, the company faces challenge in controlling its operating costs since in the year ended December 2015 it reported an increase of 2.89%. Granite Reit however operates in well-established industry where it is predominant. Granite was able to reduce its expenses by 85.56% and raise its revenues by 4.29% within twelve months, a clear indication that the company has a potential to report more income in future. References Granite Reit Annual Report, available at www.granitereit.com, retrieved on April 9, 2017 Simon Property Group Annual Report available at www.simon.com, retrieved on April 9, 2017 H&R Real Estate Investment Trust and H&R Finance Trust Annual Report available at www.hr- reit.com, retrieved on April 9, 2017 Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis workbook step-by-step exercises and tests to help you master financial statement analysis. Hoboken N.J., Wiley. http://www.books24x7.com/marc.asp?bookid=43202. Read More