Avoiding Financial Distress in Intensive Care Unit
Added on 2019-10-31
25 Pages6449 Words186 ViewsType: 186
FinanceLeadership Management
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Running Head: FINANCIAL STATEMENT ANALYSISFinancial Statement AnalysisName of the Student:Name of the University:Authors Note:
BUSINESS LAW2Table of ContentsAnswer to part 1:.............................................................................................................................3Answer to part 2:...........................................................................................................................12Answer to part 3:...........................................................................................................................18References:....................................................................................................................................24
BUSINESS LAW3Answer to part 1:Introduction: Established in the year 2002, DAMAC Properties is an integral part of DAMAC Group whichwas formed by Hussain Sajwani in the year 1992. Over the last 15 years since its formationDAMAC properties have become an essential part of DAMAC Group with increase amount ofcontribution to the overall market capitalization of the Group. The success and expansion ofDAMAC Properties, here in after to be referred to only as Damac in this document, can beassessed from the fact that in the month of January of 2015 it became one of the very first realestate companies in the United Arab and Emirates to list on the Dubai Financial Market(Stawicki 2017). Even more impressive fact was the listing of Damac in the London StockExchange as it became the first real estate company from the Middle East to list on LondonStock Exchange in December, 2013. Overview of the business: Across Dubai and in other parts of UAE, Damac has completed several projects, commercial,residential and mixed use projects. Apart from Dubai the company has fair share of marketpresence in Abu Dhabi, Qatar, and Kingdom of Saudi Arabia. Apart from these cities and regionswhere the company has progressed fair bit regions such as Jordan, Lebanon and United Kingdomare also on the radar of company and the company has started making headways in these areastoo (Badea, R.A. and Borcoci 2014). Financial statement analysis:
BUSINESS LAW4Financial statement analysis is a major weapon in the hands of the stakeholders of anorganization to assess the financial position and condition of an organization and theperformance of it in a particular year. Due to the sheer importance of analyzing financialstatements properly a whole new subject has come into financial reporting concept known asFinancial Statement Analysis, FSA in short. The techniques and methods of analyzing financialstatements have undergone numerous changes over the years to make it more effective andefficient. The better the analysis of financial statements the better would be the chances ofstakeholders taking correct decisions that affects their interests in an organization. Anorganization generally requires to prepare a statement of financial position which shall includeall the assets and liabilities of such organization; a statement of profit and loss showing incomesand expenditures of such an organization in a particular period, a statement of showing cashflows, a statement showing changes in equity and notes forming part of accounts (Taleb andMohamed 2015). All these statements are to be prepared by an organization in according withthe relevant guidelines provided in domestic and international accounting standards(International Financial Reporting Standards are the main international accounting standards).Adhering to these accounting standards and following the financial reporting qualityenhancement guidance in preparation and presentation of financial statements will enhance theability of an organization to show its true and fair financial position and performance for aparticular period through its financial statements (Martellini et al. 2015). Importance of ratio analysis: Apart from normal assessment and verification of items of profit and loss to assess theoperating performance of an organization from the statement of financial position ratio analysissuch as gross profit margin over the last few years, operating profit ratios in the last few years,
BUSINESS LAW5return on capital employed and comparison of these ratios with the corresponding ratios of theprevious years would help us to identify the progress or lack of it. Also this will help us toidentify certain abnormal fluctuations in case such fluctuations occur. For example suppose anorganization was earning a gross profit margin of 25% on sales in the last five years suddenlyexperienced a huge dip in the gross profit margin as the current year gross profit margin fell to10 or 15% of the revenue. This will indicate us that either there has been a mistake in keepingaccounting records of the organization or the management has miserably failed to use resourcesof the organization properly. Similarly items of balance sheet from normal reading might onlytell us about the total liabilities and total assets of an organization. However, calculations ofcurrent ratio, acid test ratio, capital gearing or debt to equity ratio from these items of balancesheet would help us to assess the financial, liquidity and solvency strengths of such organization(Grant 2016). Assessment of profitability and financial health of the company: In case of Damac, the annual reports of 2015 and 2016 have helped us to analyze thefinancial position and operating results of organization. Using the information provided in theprofit and loss statement and balance sheet some profitability, liquidity and solvency ratios havebeen calculated to assess the financial position and condition of the company better (Beadle2014). Profitability ratios: Profitability ratios include gross profit margin, operating margin, net profit margin, return oncapital employed, return on equity etc. These ratios will help us to understand how the companyhas been able to use its resources to earn profit from its business operations. Comparative
BUSINESS LAW6analysis of these ratios with corresponding ratios of previous year would be further helpful indetermining whether the company has performed better or worse in than previous years (McNeilet al. 2015). Gross profit ratio has been calculated by using the formula provided below: Gross profit earned in the year x 100/ Revenue in the year. Operating profit margin has been calculated by using the following formula: Operating profit earned in the year x 100 / Revenue in the year. Net profit margin calculated by using the formula given below: Net profit for the year x 100/ Revenue in the year (Gitman et al. 2015). Return on Capital Employed has been calculated by using the following formula: Net profit after tax attributable to the shareholders and investors x 100/ Capital employed. Profitability ratios Particulars 2015-12 2016-12 Revenue AED Mil 8,536.00 7,156.00 Direct operating costs 3,465.62 3,155.80 Gross Profit 5,070.38 4,000.20 Gross Margin % 59.40 55.90 Operating Income AED Mil 4,544.00 3,717.00 Operating Margin % 53.23 51.94 Net Income AED Mil 4,515.00 3,695.00
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