Report: Financial Ratio Analysis of DAMAC and Al-Mazaya Holdings

This report presents a detailed financial analysis of DAMAC Properties and Al-Mazaya Holdings, two prominent real estate companies in the Middle East. The analysis focuses on key financial ratios, including operating profit margin, return on capital employed, capital gearing ratio, interest coverage r...Read More

Running head: ACCOUNT
Account
Name of the student
Name of the university
Author note

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Table of Contents
Part 1..........................................................................................................................................3
Introduction............................................................................................................................3
Ratio analysis and financial performance..............................................................................5
Ratio analysis.........................................................................................................................6
Operating profit margin ratio.................................................................................................7
Return on capital employed...................................................................................................8
Capital gearing ratio...............................................................................................................9
Interest coverage ratio..........................................................................................................10
Asset turnover ratio..............................................................................................................10
P/E ratio................................................................................................................................11
Conclusion............................................................................................................................12
Part 2........................................................................................................................................13
Introduction..........................................................................................................................13
Sources of funds...................................................................................................................14
Final verdict.........................................................................................................................17
Part 3........................................................................................................................................20
Answer to Question 1...........................................................................................................20
Answer to Question 2...........................................................................................................21
Answer to Question 3...........................................................................................................21

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Answer to Question 4...........................................................................................................23
Answer to Question 5...........................................................................................................24
Answer to Question 6...........................................................................................................25
Answer to Question 7...........................................................................................................25
Answer to Question 8...........................................................................................................26
Answer to Question 9...........................................................................................................26
Answer to Question 10.........................................................................................................27
References................................................................................................................................29
Appendix..................................................................................................................................34
DAMAC Properties..............................................................................................................34
Al-Mazaya Holdings............................................................................................................37

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Part 1
Introduction
DAMAC Properties
The DAMAC properties is at forefront of the luxury real estate market of Middle East
since 2002 that delivers leisure, commercial and luxury residential properties all over Saudi
Arabia, UAE, Jordan Qatar, United Kingdom and Lebanon. Making their mark at highest end
of the stylish living, the company cemented the leading place in the industry and it delivers to
almost 20,000 homes with the development portfolio for more than 44,000 units at different
progress stages. It prides itself on the uncompromising commitment for serving excellence
service to the clients irrespective of whether they are assisting the young couple searching for
new homes or providing the advises to the investors with regard to properties. That is why the
company is identified among the leaders with respect to the luxury developers in Middle
East.
The vision of the company is to become the leader in the luxury developer all over the
Middle East and realises that the customers dreams through building the highest quality
commercial, leisure and residential developments. At heart of DAMAC properties the culture

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focuses on the preferences of the customers to deliver the vision to them. For ensuring the
vision development the customers are delivered with highest standards possible, the company
delivers the proper working environment for their talented employees, chooses right partners
and develops the project in the prime locations and utilises the building material that is most
sophisticated.
The mission statement of the company is – “DAMAC Properties, as the leading
developer for luxury real estate, strives to deliver the unique living concepts and dream
homes to the customers from all over the world”.
Al - Mazaya
Al – Mzaya is is well known among the highly thought and most important in the real
estate development entity in Middle East market with various impressive projects. The
company believes that with the requirements of rigorous and strong investment in the sector
and with respect to maintain and create the trust of wide range of investors in Kuwati market
and in the overseas market. The company is engaged in various other fields related to real
estate like ownership, selling and purchasing the lands and developing the land for outside of
Kuwait and inside of the company. The company handles the management, properties of the
parties, investment and operation, renting the hotels, leasing, health clubs, recreational parks,
exhibitions, restaurants, commercial and residential complexes, health resorts and tourists.

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The vision of the company is to be among the market leaders in the sector of the
development of real estate and to work with the targeted prospective and the strong brand
name that will deliver the distinguished products to the customers.
The mission of the company is to –
 Develop the land mark projects
 Sustain the value added quality for the projects
 Develop the human capital with high calibre
 Diversify 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 risks
 Boarding on the new developments in each fiscal years
 Deliver and execute periodical sales for the real estate developments
 10% growth in the net profits
 Managing the debt of the company in sound way and securing the high credit ranking
from the agencies those are internationally recognized.
Ratio analysis and financial performance
Ratio analysis is the quantitative analysis for the contained information in the
financial statement of the company. The analysis of the ratios are based on the line items in
the financial statements of the company like income statement, balance sheet and cash flow
sttaemnet (Amornkitvikai and Harvie 2017). The analysis of ratios is utilised for evaluating
the different aspects of the company’s financial and operating performances with regard to its
liquidity, efficiency, solvency and profitability. The ratio trends over the time is analysed and
compared with the competitors and the industry average to evaluate whether they are

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improving or getting worsen. Though various ratios are there, the invstors are mainly
concerned 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 the
company’s ratio does not fall within the range then it will be regarded as overvalued and
undervalued based on the ratios (Ashton and Gregoriou 2017).
The ratios are generally compared across various companies from the same sector as
the acceptable ratio in the one industry can be considered as too high for another. For
instance, the companies in the utility sectors may have high ratio for debt-equity, however the
similar ratio for the technology company may be considered as exceptionally high (Babalola
and Abiola 2013). Normally the successful entities have the strong ratios in all aspects and
the hints of the weaknesses in one sector may highlight the significant selling-off the
inventories. Few ratios are closely analyzed as their relevance to the specific sector, for
instance, the inventory turnover for retail sector and the outstanding sales for days for the
technology sectors.
Ratio analysis
Particulars Formula DAMAC Al-Mazaya
2015 2014 2015 2014
Operating profit
margin ratio Operating income/net sales 53% 93% 28% 71%
Return on capital
employed EBIT / capital employed 0.46 0.66 0.14 0.07
Capital gearing ratio shareholder's equity / fixed
interest bearing funds 9.59 16.32 0.00 8.05
Interest coverage ratio EBIT / interest expense 29.77 51.45 4.37 3.08
Asset turnover ratio Net sales / average total
assets
0.40 0.56 0.21 0.04
P/E rato Market price / EPS 199% NA 98% 184%

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Operating profit margin ratio
Through the operating profit margin ratio the analyst can analyse the profit of the
company after various expenses like overheads, raw material and labours. It measures the
percentage of the total revenues that is made up by the operating income (Caglayan and
Demir 2014). To be more specific, the operating margin ratio states the amount of revenue
that are left with the company after meeting all the operating or variable costs. On the other
hand, this ratio reveals the revenue proportion that is available to cover up the non-operating
costs like financing costs.
2015 2014 2015 2014
DAMAC Al-Mazaya
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Operating profit margin ratio
Operating profit margin
ratio
From the above table and graph it can be identified that the operating profit margin
ratio of both DAMAC properties and Al-Mazaya Holdings has been significantly reduced in
2016 as compared to 2015. The operating profit margin for DAMAC and Al-Mazaya was
93% 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 the
profitability of the property business industries and made the high-margin development of
luxury properties less profitable to build (Carlsson-Wall, Kraus and Lind 2015).

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Return on capital employed
This is a financial ratio that measures he profitability and efficiency of the company
and with which the capital in the organization is employed. It measures how efficiently the
company generate the profits from the capital employed (Chiarini and Vagnoni 2015).
Through comparing the net operating profit to total capital employed the return on the asset
can be estimated. Therefore, the entities with good percentage of the return will not face any
problem in generating the return for the shareholders.
2015 2014 2015 2014
DAMAC Al-Mazaya
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
Return on capital employed
Return on capital
employed
From the above table and graph, it is analysed that the return on capital employed for
Al-Mazaya Holdings has been increased in 2015 as compared to 2014, whereas it reduced for
Damac in 2015 as compared to 2014. The return for DAMAC and Al-Mazaya was 0.66 and
0.07 respectively in 2014, whereas these increased to 0.14 for Al–Mazaya and fell to 0.46 for
Damac in 2015. Therefore, it can be stated that the profitability position of Al-Mazaya is
increasing whereas for Damac it is decreasing (Delen, Kuzey and Uyar 2013). The reason
behind this may be the betterment of the profitability position in Middle East owing to
increase in the oil prices.

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Capital gearing ratio
The capital gearing ratio states the relationship among the equity share capital and the
fixed interest bearing funds of a company. The funds that bear fixed interest are the
debentures, preference share capital and any other types of loans that bear interests. The
capital gearing ratio also called as the financial leverage (Fabbri and Klapper 2016). Each
entity requires some funds for acquiring the assets or financing the operations and for that it
has various available options from where it can raise the required funds. Therefore, the
capital gearing ratio is a tool that is used for analyzing the structure of capital through usages
of the equity of the shareholders and the debt level of the entity (Fullerton, Kennedy and
Widener 2014).
Capital gearing ratio
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
DAMAC 2015
DAMAC 2014
Al-Mazaya 2015
Al-Mazaya 2014
From the above graph, it can be found that the though the capital gearing ratio of 2015
for both the company is improved as compared to 2014, the ratio of DAMAC properties for
2015 is significantly high as compared to that of Al-Mazaya as for 2014 Al-Mazaya did not
have any interest bearing borrowings. High ratio represents that the company is highly
leveraged and is associated with various risks like interest risk, credit risk and market risk
(Hanssens, Deloof and Vanacker 2015).

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Interest coverage ratio
The interest coverage ratio is the financial ratio that measures the entity’s ability to
make the payment on time for the interest associated with the debt. This ratio does not
measure the payment status of the original debt but is concerned regarding the interest
payment (Hill, Jones and Schilling 2014). This ratio used by the creditors and the investors
for evaluating the profitability level and the risk associated with that.
2015 2014 2015 2014
DAMAC Al-Mazaya
0.00
10.00
20.00
30.00
40.00
50.00
60.00
Interest coverage ratio
Interest coverage ratio
It is identified from the above graph that though the ratio for DAMAC properties in
2015 has been significantly reduced as compared to 2014, it is far better as compared to the
ratio of Al-Mazaya for both the years. It indicates that DAMAC is financially more viable to
pay-off its interest obligations as compared to Al-Mazaya (Höglund et al. 2016).
Asset turnover ratio
One of the efficiency ratios, asset turnover ratio measures the efficiency of the
company to generate the sales from the assets as compared to the net sales of the company
with the average assets. To be more specific, any company can evaluate the efficiency of the
company to generate the sales (Innocent, Mary and Matthew 2013).

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2015 2014 2015 2014
DAMAC Al-Mazaya
0.00
0.10
0.20
0.30
0.40
0.50
0.60
Asset turnover ratio
Asset turnover ratio
From the above graph it can be analysed that the though the ratio for DAMAC
properties in 2015 has been reduced as compared to 2014, it is far better as compared to the
ratio of Al-Mazaya for both the years. Whereas the ratios for DAMAC properties are 0.56
and 0.40 respectively for 2014 and 2015, the same for Al-Mazaya are 0.04 and 0.21
respectively (Jordan 2014). However, the turnover ratio of Al-Mazaya for 2015 is improved
considerably as compared to that of 2014.
P/E ratio
PE ratio is used widely for the selection of stock. Thus ratio is computed through
dividing the market price of the share by the earning per share. It reveals the sum of money
the company is ready to pay for each dollar. To be more specific, P/E ratio is that price which
the investor pays for $1 for the earning of the company. For instance, if the EPS is $2 and the
market price is $20, then the P/E ratio will be = $ 20/ $ 2 = 10.
However, as the Damac Properties was listed during the last quarter of 2015, the
market price of its share for 2014 and 2015 cannot be obtained. Therefore, the P/E ratio
cannot be calculated and compared.

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Conclusion
Middle – East real estate markets like any other real estate market operates in cycle.
Various factors are there those affect the real estate industry of the county. One of the main
factors is the price of oil remains below the average over the long term period that has clear
impact on the market condition. From the above analysis, it can be concluded that if the
financial ratios of DAMAC properties and Al-Mazaya are compared, it can be identified that
the profitability ratios of DAMAC properties are better as compared to that of Al-Mazaya.
However, the gearing position of Al-Mazaya is better as they have less interest bearing funds
as compared to DAMAC Properties. With respect to the interest coverage ratio and return on
equity DAMAC is in better position as compared to Al-Mazaya. However, as the Damac
Properties was listed during the last quarter of 2015, the market price of its share for 2014
and 2015 cannot be obtained. Therefore, the P/E ratio could not be calculated and compared.
Therefore, if the overall position is considered, DAMAC Properties will be considered as
more viable, profitable and sustainable as compared to that of Al–Mazaya Holdings.

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Part 2
Introduction
Compared with the other kinds of investment, the investment in real estate property
involves comparatively favourable or unfavourable reward profile and risk profile with the
comparatively low level of liquidity. Various factors required to be considered before
investing in land and building will be ass follows –
 Property location – the location of the property is the most important factors for the
purpose of analysing the profitability in the real estate investment. Closeness to the
scenic views, basic amenities, neighbourhood status and peaceful conforming places
are some of the major factors required to be considered before investing. Further, the
closeness to market place, transport hubs, warehouses, tax-exempt areas and freeways
also play major role in selection of property (Lapsley and Rekers 2017).
 Projected cash flows and the opportunities for profit – the purpose of investment and
its impact on the profit opportunities and cash flows shall be taken into consideration.
Before investing, the projected cash flows from the rental income, impact of inflation,
intrinsic value owing to the price appreciation over the long-term period, cost benefit
analysis and benefits from the depreciation shall be measured.
 Property valuation – financing for the real estate property during purchase, investment
analysis, listing price during sale, taxation and insurance premium all depend on the
valuation of real estate. Therefore, the recent comparables for the property sales with
the similar characteristics shall be analysed. Further, summation of all the cost
reduced by depreciation and the expected cash flows shall be analysed (Lundholm and
Sloan 2013).

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 Purpose of investment and the horizon for investment – considering the high-value
investment and the low level of liquidity in the real estate sectors and the lack of
clarity on the purposes may lead to the unexpected outcomes including the financial
distress. Therefore, these aspects must be analysed properly before investing.
Computation for the required net asset value (25%)
Particulars 2016 - Amount
Total Assets $ 23,447,497.00
Less: Total liabilities $ 13,616,584.00
Net asset $ 9,830,913.00
25% net asset value $ 24,57,728.25
Sources of funds
To run the successful operations of the business, every business requires the funds and
it has various external as well as internal sources from those it can raise the required funds.
However, before raising any additional funds the company must consider its capital structure
and the cost of capital (Murfin and Njoroge 2014). The external sources are the third parties
those offer the fund in exchange of interest or any other cost. On the contrary, the internal
sources are the sources within the company and the cost of internal sources are lower as
compared to the external sources. The external sources are availed while the internal sources
are not sufficient to fulfil the obligation or the internal sources of funds are kept to meet any
other obligation (Noordin, Zainuddin and Mail 2017). From the above computation, it can be
identified that DAMAC Properties require $ 24,57,758.25 for the acquisition of land and
building. Different sources for raising the funds are as follows –
Internal sources for the funds
The internal funds are raised from various sources like retained earnings, contribution
of the member, contribution from the employees, sale of the goods, assets or services. The

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details of the internal sources and various advantages and disadvantages associated with the
sources are mentioned below –
Fixed assets – if the organization gets some time to raise the fund, sale of fixed assets are
good option to be considered with. Fixed assets include plant, equipment, land, fixtures,
furniture and building. As the fixed assets take considerable time to be converted in cash it is
not easy to raise funds from it on quick basis. However, if some times are there for the
requirement then selling of fixed assets for generating cash is a good option. Generally, this is
useful while some fixed assets are required to be purchased and amount is required to make
payment for the new purchase (Noordin, Zainuddin and Mail 2017). However, by selling the
assets the company will sacrifice the expected benefit from the assets. However, the option
that can be considered in such situation is sale and leaseback option. Under this, the asset is
sold and then the same asset is taken on lease for the payment of lease rent.
Retained earnings – the easiest source of raising the capital is retained earnings as it is
already available with the company. Retained earnings are the balances that remained with
the company after meeting and all the expenses and paying off obligations. Generally, the
retained earnings are distributed to the shareholders of the company as they are not entitled to
any salaries from the company for their investment (Peppard and Ward 2016). As there is no
maturity period for the retained earnings like other borrowings, it is regarded as the long-term
capital source. However, the amount of retained earnings can be re-invested by the company
rather than distributing it to the investors. The main benefits of using the retained earnings as
the source of capital is that there is no requirement for repayment like various other sources
(Renz 2016).
Currents assets – the current assets are the liquid assets and can be converted into cash very
easily. Various sources of current assets are the cash and cash equivalents, trade receivables,

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inventories and the marketable securities. However, as the current obligations of the company
are paid off with the available current assets of the company, before generating any fund from
the current assets it must be kept in mind that the level of current assets shall not fall below
the required level of meeting the current obligations (Romani and Stern 2013).
External sources of funds
When the internal sources of finance are not sufficient for the requirements to be
fulfilled, the company opt for the external sources. Various external sources of capital are the
debentures, preferred stock, equity stock, leasing, term loans, trade credit, venture capital,
hire purchase and factoring (Shah 2015). The details of the external sources and various
advantages and disadvantages associated with the sources are mentioned below –
Debentures – debentures are issued by the company to raise fund from the investors the main
advantages of debentures is that it is cheaper from the cost of equity and unlike equity it does
not share the shareholder’s control on the company. Another advantage of debentures is that
the expenses of debentures are tax deductible (Smallbone and Mitsui 2016). Moreover,
inclusion of debentures in the source of fund, management can maximize the shareholder’s
wealth. For instance, if the internal rate of return for DAMAC properties are 15% against its
cost of debt 12%, the extra (15% - 12%) = 3% will be shared among the shareholders.
However, the legal obligation involved with debentures is the payment of regular interest to
the investor.
Preferred stock – the preferred stock are called preferred as the holders are paid on priority
basis for the dividend payment as compared to the equity and it holds both the characters of
the equity as well as the debt. For the cumulative preferred stock the dividend is not paid
even if it is accumulated. However, the payment for the cumulative preference share cannot
not be avoided even if delayed; The main advantages of the preferred stock is that it protects

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the company from the share of control as the preferred shareholders are not allowed vote
unless there is a existence of dividend arrears. Further, it increases the flexibility with regard
to the payment of dividend and capital structure as the preferred stocks have the call
provision that increases the capital structure flexibility. However, the disadvantages
associated with the preferred stock are that raising capital through preference shares is not
easy job as it is a tough job to influence the investors as the investors do not find it attractive
as the dividends are not enforceable under legal term. Further, it is very expensive for the
company as it has to offer high interest rates to the investors.
Equity stock – raising funds from the equity stock is the procedure through selling the shares
in the organization. It refers to selling the ownership interest for raising the funds for the
requirement of business. The main advantage of equity finance is that it offers flexibility even
if the company is not profitable or profitable but has limited or negative cash flows. Equity
financing involves wide range of activities with regard to scope and scale. The main
disadvantage associated with the equity stick is that with each issue for the equity share, it
dilutes the rights of the existing shareholder. Further, the equity source is costlier as
compared to debt as the payment of dividend and the issue of bonus shares are not deductible
for the purposes of tax. Moreover, the investors do not convinced easily as various formalities
are involved with the equity stock (Vogel 2014).
Final verdict
Whether to raise the fund from external sources or internal sources will depend on the
requirement, preference, and availability and associated risks with the sources. Before
reaching any conclusion regarding fund, the company must takes into consideration the
capital structure of the company. For instance, if the company has higher component of debt
in the capital structure, it shall opt to equity for additional fund. On the contrary, if the
company has higher component of equity in the capital structure, it shall opt for debt finance.

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From the annual report of DAMAC Properties for the year ended 2015, it is noticed that the
amount of shareholders equity is $ 98,30,913 and that of debt is 10,24,905. Therefore, in the
total capital structure of $ 108,55,818, total equity is 91% whereas total debt portion is only
9%. Therefore, the company has the opportunity to raise the additional capital through debt.
Therefore, the company is suggested to raise 30% of the additional capital through equity
finance and remaining 70% from debt finance.
Let’s assume the following data –
Cost of equity 9%
Cost of debt 5%
Weight of debt 70%
Weight of equity 30%
Tax rate 30%
WACC = r(E) * w(E) +r(D) * (1-t) * w(D)
Where, r(E) is required rate of return, r(D)*(1-t) = after tax cost of debt, w(E) = weight of
equity and w(D) = weight of debt
Therefore, the WACC = [(1-0.3) * (0.05*0.7)] + (0.9*0.3)
WACC = 5.15% approximately
Therefore, total cost of the additional capital = ($ 24,57,728.25 * 5.15%) = $ 126,573
Further, in this way the capital structure of the company will be improved to some
extent as follows –
Total Equity (Existing + new) $ 10,568,231.48
Total Debt (Existing + new) $ 2,745,314.78
Total capital $ 13,313,546.25
Debt component 21%
Equity component 79%

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However, the other factors like cost of the debt and equity, repayment period, risk
associated with the source must be taken into consideration before raising the additional
finance from any sources.

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Part 3
Answer to Question 1
Figure 1: Evolution of Management Accounting
(Source: icmab.org.bd 2017)
The above table shows the concept and practice of management accounting from the
year 1950 to the present time. In the year 1950, major shift in the concept of management
accounting can be seen as the managers started to use the management accounting
information for organizational planning and control purposes. In the years of 1980 to 1989,
the emergence of computerized systems can be seen and it brought a positive change in
management accounting as well. At that time, organizational managers started to use
management accounting with the help of computers in the companies. In this time, business
organizations started to bring efficiency in their operations with the help of management

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accounting like reduction in wastes with the help of Just-In-Time (JIT), the implementation
of Activity Based Costing and others. In the post 1990 years to the current years, the major
focus of management accounting has been to create customer value for the business
organizations. In the recent years, various kinds of innovations can be seen in the process of
management accounting. They are Business Process Reengineering, Outsourcing, Quality
Functional Deployment and others (Ward 2012). Thus, this has been the evolution of
management accounting so far.
Answer to Question 2
In the recent years, there has been a wide debate about the relevance and importance
of management accounting as a discipline in the modern business environments. End can be
put in the discussion by examining the importance of management accounting in the modern
business organizations (Drury 2013). It is a fact that the most important objective of the
companies is to earn profits. In this process, management accounting plays a crucial part as it
helps the organizations in the analysis of necessary accounting and financial information. In
addition, management accounting helps the companies in comparing their financial results
against the industry benchmarks with the help of ration analysis and others tools. This
process helps the companies to identify their loopholes in the financial and accounting
operations (Nixon and Burns 2012). With the help of management accounting, business
organizations use to prepare pro forma financial statements in order to raise required capital
from banks and other financial institutions. Thus, based on the above discussion, it can be
seen that business organizations use various management accounting tools in order to insert
accounting and financial disciplines in their business operations. Hence, it is proven that
management accounting has its importance and relevance in modern industrial environment.
Answer to Question 3
The relevance modern management accounting tools are discussed below:

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Activity Based Costing (ABC): ABC is one of the major management accounting technique.
ABC refers to a particular costing technique that identifies different kinds of costing activities
in the business organizations. It gathers all costing information of a single task (Frazier
2014).
Total Quality Management (TQM): TQM is a specific tool of management accounting that
helps the manufacturing organizations in creating high quality of products while minimizing
the overall cost of production. It helps the management to resolve the quality issues of the
companies (Oakland 2014).
Target Costing: Target costing is another major tool of management accounting that is
majorly based on the pricing model. Target costing helps in the reduction of production cost
by implementing effective monitoring process on the whole manufacturing process.
Benchmarking: Benchmarking is another major tool of management accounting that helps
the business organizations in setting up standard times for each task in the production
process. In this process, the actual result is compared with the benchmarked standards to
identify the loopholes (Rolstadas 2012).
Balanced Scorecard: Balance Scorecard is a major tool for management accounting that
helps the companies to monitor the overall performance of the companies. With the help of
balance scorecard, business organizations assess the performance of labor and machine in
compared with the made investments.
Value Chain Analysis: Value Chain Analysis is a crucial management accounting tool that
helps the companies in the analysis of the actual cost of production. In this technique, cost is
analyzed in every stage of production.

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Analysis of Profitability: This refers to some specific ratio analysis. With the help of
profitability analysis, companies can measure the actual capacity and growth.
Customer Competitive Analysis: In this management accounting tool, three major
techniques are customer’s asset valuation, customer’s lifetime profitability and profitability
analysis of the customers.
Answer to Question 4
The major management accounting techniques are discussed below:
Financial Planning: Financial planning refers to the process to decide in advance about the
necessary financial activities for the business organizations in order to achieve their primary
business activities.
Financial Statement Analysis: This is a major management accounting technique that
involves in the detailed analysis of some of the major financial statements of the companies
like balance sheet, income statement, cash flow statement and others (Bruce-Twum and
Mensah 2015).
Historical Cost Accounting: This management accounting technique provides the
organizations with required past data regarding job, process and department in order to make
comparison with the benchmarked standards.
Standard Costing: This process of management accounting involves in the establishment of
standard costs under efficient business manufacturing conditions. It helps in the comparison
of actual results with benchmarked results (Badem, Ergin and Drury 2013).
Budgetary Control: This is one of the major techniques of management accounting that
helps the organizational managers in the process of planning and controlling various business
activities (Otley 2015).

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Marginal Costing: Organizational managers use marginal costing technique of management
accounting in order to make effective business decisions along with the process of profit
maximization.
Funds Flow Statement: This is a major technique of management accounting.
Organizational managers use this particular technique to measure the change in the financial
position of the companies between two specific dates.
Cash Flow Statement: It is a important technique of management accounting that helps the
organizational managers in gathering detailed information about the inflow and outflow of
cash.
Decision Making: The technique of decision-making is a major part of management
accounting. With the help of this management accounting technique, the organizational
managers become able to make effective business decisions.
Revaluation Accounting: With the help of this management accounting technique, the
organizational managers become able to measure the impact of price changes at the time of
preparing the financial statements.
Answer to Question 5
Management Accounting Tree or Decision Tree is one of the major part of
management accounting. Management accounting tree refers to the diagrammatic
representation of a particular management accounting related problem. It needs to be
mentioned that there are various parts of management accounting tree that show all the
possible course of action of a particular problem. Organizational managers often face the
situations where they need to take series of decisions. In these kinds if particular situations,
management accounting trees play a crucial part as it helps in the evaluation of all the

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outcomes from all stages (Bhargava et al. 2013). Two stages can be seen in the decision
making process under management accounting tree. The first stage is construction stage
where the tree is drawn and all those outcomes are put in the trees with probabilities. The
second stage involves in the evaluation of the options so that proper recommendations can be
made.
Answer to Question 6
Strategic Management Accounting is a major part of management accounting. In this
context, it needs to be mentioned that there is not any particular framework available for
strategic management accounting. It can be seen that strategic management accounting is the
process of make analysis and evaluation of the data of management accounting of the
business organizations and their competitors (Dashtbayaz, Mohammadi and Mohammadi
2014). This analysis of management accounting data is required for monitoring the activities
of the business organizations and for the development effective business strategies. On more
specific note, it can be said that the techniques of strategic management accounting are
designed in order to provide support to the overall competitive strategy of the companies.
This is considered as the emergence of the concept of strategic management accounting in the
companies. Strategic management accounting provides the business organizations with the
power to use information technology for developing products and services. It needs to be
mentioned that strategic management accounting can be combined with the organizational
strategies so that effective organizational strategic can be developed for the betterment of
companies.
Answer to Question 7
It can be seen that different kinds of studies have been done on the concepts of
strategic management accounting. From the analysis of different kinds of literature on
strategic management accounting, it can be seen that the adoption and successful

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implementation of strategic management accounting depend on some major contingent
factors in the companies. some of these contingent factors are to gain competitive advantage
of the competitors, the necessity to increase the customer base of the companies; to increase
the market share of the companies and others. However, it needs to be mentioned that there
are some external factors of the business organizations that create impact on strategic
management accounting. Thus, it can be seen that the process of strategic management
accounting has more effectiveness than the traditional approach for the companies as it helps
in the derivation of major business benefits for the companies (Ramljak and Rogošić 2012).
Answer to Question 8
In the business organizations, the application of strategic management accounting can
be seen for various purposes. It can be seen that most of the business organizations apply
various tools and techniques of strategic management accounting in order to gain necessary
competitive advantage. With the assistance of strategic management accounting,
organizational managers are able to collect valuable data about costs, prices, sales, market
share, cash flow and others. The analysis of these data helps the managers to understand the
financial performance of their companies as compared to the competitors. In addition,
managers use various tools of strategic management accounting in order to improve and
develop overall organizational strategies (Ramljak and Rogošić 2012). With the application
of strategic management accounting, organizations become able to gain strategic advantage
regarding the company’s pricing policy. Strategic management accounting helps in the
evaluation of various cost structure of the competitors so that they can be applied in the
overall business strategies of the company. In these ways, the business organizations apply
various tools and techniques of strategic management accounting in their companies.
Answer to Question 9
The essential techniques of strategic management accounting are discussed below:

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Target Costing: Target costing refers to the method of determining the product’s life-cycle
cost. It is necessary to maintain the product quality while maintaining the costs (Huang et al.
2012).
Kaizen Costing: This is a major strategic management accounting method and it helps in the
reduction the production costs.
Life Cycle Costing: With the help of this method, organizational managers determine the
best cost-effective option among many alternatives.
Theory of Constraints: This particular model helps in the identification of the limitation
factors that stand in the way of achieving the organizational goals (Rand 2013).
Benchmarking: This process helps the business organizations in setting up standard times
for each task in the production process. In this process, the actual result is compared with the
benchmarked standards to identify the loopholes
Activity-Based Management: This method helps the organizations in the identification and
evaluation of all the activities to carry on activity based costing.
Just-In-Time Methods (JIT): With the help of JIT technique, organizational managers can
increase the inventory efficiency.
Answer to Question 10
The concepts, techniques and practical challenges of strategic management
accounting are discussed below:
 In many cases, it has been seen that the organizational managers often do not
understand why it is required for their companies to implement the techniques of
strategic management accounting. Thus, it creates challenge for them.

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 Rapid changes can be seen in the internal as well as external business environments.
Sometimes, organizational managers face major challenges to make changes in
strategic management accounting as per the business environment changes due to lack
of resources (Bititci et al. 2012).
 One of the major challenges of strategic management accounting is that the
perspective of organizational managers as most of them does not consider the
implementation of strategic management accounting as a part of their job.
 Lack of awareness of the techniques of strategic management accounting is another
challenge for strategic management accounting.

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Appendix
DAMAC Properties

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Al-Mazaya Holdings

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