Financial Analysis of Aldar and Emaar

Added on - 16 Sep 2019

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IntroductionIn this present paper, we will discuss the financial analysis of ALDAR and EMAAR Company then both thefinancial statements are compared on the basis of financial ratios and statements of the company. TheEMAAR is a real estate development company which is located in the United Arab Emirates. Thecompany comes under the public joint stock company and it is also listed under the Dubai FinancialMarket as DFM: EMAAR. The EMAAR operates internationally and it provides management services andproperty development services (Emaar Properties PJSC et al., 2017). The company has sixty activecompanies and six business segments. The company is present in thirty six markets across the NorthAfrica, Middle East, Europe, Pacific, and North America. The company comes under one of the largestreal estate developers in the UAE. The company is majorly known for its greatest achievements such asdevelopment of Burf Khalifa which is the tallest tower in the world and it is the seven star hotels acrossthe globe. The company was founded in 1997 by its chairman Mohamed Alabbar (Aldar Properties et al.,2017). The company has diversified its interest into real estates which includes the building of residents,commercials, malls, hospitals and others. The company directly contributes towards the development ofthe country and its revenue in the year 2010 was $3.307 Billion. The total employees of the company in2010 were ten thousand. The company was owned by the public and the founding shareholders of thecompany has 24.3 percent share in the company. Whereas the ALDAR properties is also one of the realestate development company which is presiding in Abu Dhabi, United Arab Emirates. It is the investmentmanagement company which is popular for the successfully delivery of various projects such as Al JimiShopping Centre, Yas Island, Al Gurm Resort, Abu Dhabi commercial market and others. The company isfounded in 2001 and it is owned by the Abu Dhabi institutions. The company has various individualshareholders such as Abu Dhabi Investment Company, Abu Dhabi national hotel company, MubadalaDevelopment Company and others. The company comes under the real estate industry and it operatesin Abu Dhabi. The present portfolio of the company includes re-development, development within theAbu Dhabi which includes Al raha beach, coconut island central market and others. The EMAARproperties work internationally whereas the ALDAR properties work locally within Abu Dhabi. The sharesof ALDAR Company are 25.4% holds by the government and the foreign ownership is passed by thegovernment which does not exceed forty percent. The company accounts forty five percent of theproperty within the capital in the past ten years. The company also contributes towards the grossdomestic product of the country by developing the infrastructure of the country. The company hasstrong relationship with the government of Abu Dhabi. The company has wide scope in the futurebecause there are various business opportunities in Abu Dhabi which enables to expand the businessgrowth. The EMAAR properties have also developed neighborhoods of Dubai such as The Greens, TheSprings, The Lakes, The Meadows and others. The EMAAR has done international projects in variouscountries such as Egypt, India, Saudi Arabia, Syria, Pakistan, and turkey.
Ratio analysisThe company analysis is done on the basis of ratio analysis of the company in the year 2014-2015. Theratios analysis of the company enables to analyze the financial position of the company. The ratioanalysis is defined as the type of financial analysis which is used to obtain the quick indication regardingthe financial position of the company within the particular time period. The financial ratios are classifiedinto four segments, namely, liquidity, profitability, solvency and efficiency ratios. The analysis of thefinancials of the company is described below:1.Liquidity ratioIt is defined as the ratio which is used to determine the liquidity of the company within the particulartime period. It measures the capability of the company to convert the assets into cash within one year.a.Current ratioIt is defined as the ratio which is calculated by dividing the current assets upon current liabilities.The ideal current ratio is 2:1 which shows that the company has twice current assets in contextof current liabilities. The current ratio of the ALDAR Company in 2015 is 1.23 and in the year2014 is 1.21 which shows that the current ratio is increased by 1.65%. It shows that the currentratio of the company is improved in the year 2015 from the year 2014. The current ratio of theEMAAR Company in 2015 is 1.05 and in the year 2014 is 0.79 which shows that the current ratioof the company is increased by 32.91% (annualreport2015 et al., 2017). By comparing thecurrent ratio of the both the company it shows that the liquidity of ALDAR Company is moresatisfactory than the EMAAR Company.2.Solvency ratioIt is also known as the leverage ratio which is used to calculate the ability of the company to sustain theoperations indefinitely by comparing the debt level of the company with equity in the particular periodof time. It is used to determine the long term sustainability of the company.b.Debt equity ratioIt is defined as the ratio which is calculated by comparing the total debt to total equity of thecompany within the particular time period. The debt equity ratio of the ALDAR Company in theyear 2015 is 0.02 and in the year 2014 is 0.02. It shows that the debt equity ratio of the companyremains same in two years. The debt equity ratio of the company is low which shows that thecontribution of debt in the equity is low and the company has the capability to operate itsbusiness activities. The debt ratio of EMAAR Company in the year 2015 is 0.35 and in the year2014 is 0.37 which indicates that the company is using more creditors financing than theinvestors financing and it shows that the operations are more funded by the creditors(annualreport2015 et al., 2017). The EMAAR Company is more risky than the ALDAR Company.
3.Efficiency ratioIt is defined as the ratio which is used to determine the utilization of assets by the company in order togenerate higher profits within the particular period of time. It is also known as activity ratio. It is used todetermine the efficiency of assets or resources in order to contribute towards the higher profits.c.Assets turnover ratioIt is defined as the ratio which is used to determine the ability of the company in utilizing itsassets to generate sales. It is calculated by comparing net sales with the average total assets ofthe company. The asset turnover of ALDAR Company in the year 2015 is 1.85 and in the year2014 is 1.97 which shows that the assets turnover of the company is decreased by 6.48%(annualreport2015 et al., 2017). The decrease in assets turnover shows that utilization of assetsis decreased by the company which is a poor indicator that directly impacts on the profitabilityof the company. The assets turnover of EMAAR Company in the year 2015 is 0.18 and in the year2014 is 0.14 which shows that the assets utilization of the company is increased by 28.57%. Bycomparing the assets turnover of both the company it shows that the assets utilization of ALDARCompany is better than the EMAAR Company.4.Profitability ratioIt is the most useful ratio which is used to determine the profitability of the company within theparticular period of time. It determines the ability to generate profits from the business operations. It ismajorly used by the creditors and investors in order to determine the profitability of the company.d.Return on equityIt is defined as the ratio which is used to determine the total return received by theshareholders from the total profits of the company. It is used to measure the ability of thecompany to generate profits from the investment of shareholders. The ratio reflects that howmuch profit the company is generating from the common stockholder’s equity within thespecific accounting period. The return on assets of ALDAR Company in the year 2015 is 7.19 andin the year 2014 are 4.02 which show that the ratio is increased by 78.85%. It shows that thereturns on equity is improved which is a positive indicator of the performance of the company.The return on equity of EMAAR Company in the year 2015 is 11.48 and in the year 2014 are9.75. It shows that the return on equity is increased by 17.74%. By comparing the ratios of boththe companies it shows that the ALDAR Company is performing better than the EMAARCompany.Company relationship with employees and managementThe EMAAR Company is focusing on maintaining healthy relationship with the employees andmanagement in order to add competitive advantage to the company. The successful projects deliveredby the EMAAR properties shows that the company has best manpower who directly contributes towardsthe achievement of higher profits and brand image in the eyes of the customers. The company is
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