Financial Ratio Analysis Assignment

Added on - 29 Apr 2020

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Running head: ACCOUNTAccountName of the studentName of the universityAuthor note
1ACCOUNTTable of ContentsPart 1..........................................................................................................................................3Introduction............................................................................................................................3Ratio analysis and financial performance..............................................................................5Ratio analysis.........................................................................................................................6Operating profit margin ratio.................................................................................................7Return on capital employed...................................................................................................8Capital gearing ratio...............................................................................................................9Interest coverage ratio..........................................................................................................10Asset turnover ratio..............................................................................................................10P/E ratio................................................................................................................................11Conclusion............................................................................................................................12Part 2........................................................................................................................................13Introduction..........................................................................................................................13Sources of funds...................................................................................................................14Final verdict.........................................................................................................................17Part 3........................................................................................................................................20Answer to Question 1...........................................................................................................20Answer to Question 2...........................................................................................................21Answer to Question 3...........................................................................................................21
2ACCOUNTAnswer to Question 4...........................................................................................................23Answer to Question 5...........................................................................................................24Answer to Question 6...........................................................................................................25Answer to Question 7...........................................................................................................25Answer to Question 8...........................................................................................................26Answer to Question 9...........................................................................................................26Answer to Question 10.........................................................................................................27References................................................................................................................................29Appendix..................................................................................................................................34DAMAC Properties..............................................................................................................34Al-Mazaya Holdings............................................................................................................37
3ACCOUNTPart 1IntroductionDAMAC PropertiesThe DAMAC properties is at forefront of the luxury real estate market of Middle Eastsince 2002 that delivers leisure, commercial and luxury residential properties all over SaudiArabia, UAE, Jordan Qatar, United Kingdom and Lebanon. Making their mark at highest endof the stylish living, the company cemented the leading place in the industry and it delivers toalmost 20,000 homes with the development portfolio for more than 44,000 units at differentprogress stages. It prides itself on the uncompromising commitment for serving excellenceservice to the clients irrespective of whether they are assisting the young couple searching fornew homes or providing the advises to the investors with regard to properties. That is why thecompany is identified among the leaders with respect to the luxury developers in MiddleEast.The vision of the company is to become the leader in the luxury developer all over theMiddle East and realises that the customers dreams through building the highest qualitycommercial, leisure and residential developments. At heart of DAMAC properties the culture
4ACCOUNTfocuses on the preferences of the customers to deliver the vision to them. For ensuring thevision development the customers are delivered with highest standards possible, the companydelivers the proper working environment for their talented employees, chooses right partnersand develops the project in the prime locations and utilises the building material that is mostsophisticated.The mission statement of the company is – “DAMAC Properties, as the leadingdeveloper for luxury real estate, strives to deliver the unique living concepts and dreamhomes to the customers from all over the world”.Al - MazayaAl – Mzaya is is well known among the highly thought and most important in the realestate development entity in Middle East market with various impressive projects. Thecompany believes that with the requirements of rigorous and strong investment in the sectorand with respect to maintain and create the trust of wide range of investors in Kuwati marketand in the overseas market. The company is engaged in various other fields related to realestate like ownership, selling and purchasing the lands and developing the land for outside ofKuwait and inside of the company. The company handles the management, properties of theparties, investment and operation, renting the hotels, leasing, health clubs, recreational parks,exhibitions, restaurants, commercial and residential complexes, health resorts and tourists.
5ACCOUNTThe vision of the company is to be among the market leaders in the sector of thedevelopment of real estate and to work with the targeted prospective and the strong brandname that will deliver the distinguished products to the customers.The mission of the company is to –Develop the land mark projectsSustain the value added quality for the projectsDevelop the human capital with high calibreDiversify projects for encompassing the wide spectrum for real estate sectors.Further, as per the message of the cEO, the company’s goals are –Sidestepping the market risksBoarding on the new developments in each fiscal yearsDeliver and execute periodical sales for the real estate developments10% growth in the net profitsManaging the debt of the company in sound way and securing the high credit rankingfrom the agencies those are internationally recognized.Ratio analysis and financial performanceRatio analysis is the quantitative analysis for the contained information in thefinancial statement of the company. The analysis of the ratios are based on the line items inthe financial statements of the company like income statement, balance sheet and cash flowsttaemnet (Amornkitvikai and Harvie 2017). The analysis of ratios is utilised for evaluatingthe different aspects of the company’s financial and operating performances with regard to itsliquidity, efficiency, solvency and profitability. The ratio trends over the time is analysed andcompared with the competitors and the industry average to evaluate whether they are
6ACCOUNTimproving or getting worsen. Though various ratios are there, the invstors are mainlyconcerned with the key ratios mainly like profitability ratio, capital gearing ratio, P/E ratio.Further, most of the companies have the specific range as the benchmark and while thecompany’s ratio does not fall within the range then it will be regarded as overvalued andundervalued based on the ratios (Ashton and Gregoriou 2017).The ratios are generally compared across various companies from the same sector asthe acceptable ratio in the one industry can be considered as too high for another. Forinstance, the companies in the utility sectors may have high ratio for debt-equity, however thesimilar ratio for the technology company may be considered as exceptionally high (Babalolaand Abiola 2013). Normally the successful entities have the strong ratios in all aspects andthe hints of the weaknesses in one sector may highlight the significant selling-off theinventories. Few ratios are closely analyzed as their relevance to the specific sector, forinstance, the inventory turnover for retail sector and the outstanding sales for days for thetechnology sectors.Ratio analysisParticularsFormulaDAMACAl-Mazaya2015201420152014Operating profitmargin ratioOperating income/net sales53%93%28%71%Return on capitalemployedEBIT / capital employed0.460.660.140.07Capital gearing ratioshareholder's equity / fixedinterest bearing funds9.5916.320.008.05Interest coverage ratioEBIT / interest expense29.7751.454.373.08Asset turnover ratioNet sales / average totalassets0.400.560.210.04P/E ratoMarket price / EPS199%NA98%184%
7ACCOUNTOperating profit margin ratioThrough the operating profit margin ratio the analyst can analyse the profit of thecompany after various expenses like overheads, raw material and labours. It measures thepercentage of the total revenues that is made up by the operating income (Caglayan andDemir 2014). To be more specific, the operating margin ratio states the amount of revenuethat are left with the company after meeting all the operating or variable costs. On the otherhand, this ratio reveals the revenue proportion that is available to cover up the non-operatingcosts like financing costs.0%10%20%30%40%50%60%70%80%90%100%Operating profit margin ratioOperating profit marginratioFrom the above table and graph it can be identified that the operating profit marginratio of both DAMAC properties and Al-Mazaya Holdings has been significantly reduced in2016 as compared to 2015. The operating profit margin for DAMAC and Al-Mazaya was93% and 71% respectively in 2014, whereas these fell to 53% and 28% respectively in 2015.The reason behind this may be the surge price on land in the Middle-East area reduced theprofitability of the property business industries and made the high-margin development ofluxury properties less profitable to build (Carlsson-Wall, Kraus and Lind 2015).
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