We can see from the above financial report (balance sheet of Emaar in the year 2007 and in the year 2008) that total asset of the company in the year 2007 were AED 54,790,875,000, which were increased to AED 60,690,798,000. This shows that there was an increment of 10.77 % in the total asset in one year. When we compare liabilities of the company, total liabilities of AED 17,602,609,000 in the year 2007 increased to 24,128,444,000. This means that there was an increase of 37 percent in the total liabilities of the company. Finally, if we compare total equity of the company, total equity for Emaar was AED 37,188,267,000 in the year 2007 and it went to AED 36,562,354,000 in the year 2008. This means that there was a decrease of 1.6 % in the total equity.
Hence, from the analysis of balance statement of the company, we can say that company's value of assets has gone down from 2007 to 2008 and company has more and more under debt in 2008 as compared to its situation in 2007.
Income Statement
2007-2008
Total Revenue obtained by Emaar in the year 2008 was dropped down to AED 16,015,333,000 as compared to AED 17,868,672,000 in 2007. There was a decrement of 10.37 % in the span of one year in the sales. Operating income earned by the company i.e. profit before interest and tax of the company (EBIT) in 2008 was AED 6,811,358 as compared to AED 7,053,765,000 in 2007. This shows that there was a decrement of 3.4 percent in the operating profit of the company. As far as net profit of Emaar is concerned, it has a net profit of AED 3,080,531 in 2008, whereas the net profit of the company in 2007 was AED 6,550,812 which shows that there was a downfall of 53 percent in the net profit of the company.
Cash Flow Statement
2007-2008
Cash generated from total operating activities in the year 2008 was AED 5,551,783,000, whereas cash generated from total operating activities in the year 2007 was AED 5,973,402,000. This shows that there was a decrease of 7 percent from the cash generated from total operating activities in this one year.
When we talk about investing activities, cash used is AED 2,806,782,000 in the year 2008 whereas cash used in investing activities in the year 2007 was AD 7,058,087,000. This shows that there was a decrease of 60 percent in the cash used for investment purpose in 2008.
In case of earnings from financial activities, AED 329,083 were earned in the year 2008 whereas there was an earning of AED 1,959,714,000 in 2007 which shows that there was a decrease of 83 percent in earning from financial activities in the year 2008 as compared to the year 2007.
Analysis of the financial strengths and weaknesses revealed by the Financial Statements analysis using key ratios
2007
Short Term Liquidity Ratio
Current Ratio = Current Assets/Current liabilities
= AED 11,717,524/ AED 14,305,029
= 0.819
Acid-test (Quick ratio) = Cash & Cash Equivalent + M.S +Net receivable/ C.L
= AED (5,175,223 + 587,579)/ AED 14,305,029
= 0.403
Working capital= Current assets-Current liabilities
= AED 11,717,524 - AED 14,305,029
= - AED 2,587,505
Cash ratio (cash to current liabilities) = cash & cash equivalent + M.S/ C.L
= AED 5,175,223 / AED 14,305,029
= 0.362
Cash to current assets = cash & cash equivalent +M.S / C.A
= AED 5,175,223 / AED 11,717,524
= 0.442
Sales- to- working capital = sales / average working capital
= AED 13,926,334 / AED 2,587,505
= 5.382
Defensive interval = Cash &cash equivalent+ net receivables + M.S / daily operating cash outflow
= AED (5,175,223 + 587,579) / 5,551,583
= 1.038
Liquidity index = weighted non cash current assets / current assets
= 0.523 / 0.467
= 1.12
Activity Ratios
Inventory turnover = COGS/ average inventory
= AED 10,814,907/ AED 1,610,358,000
= 0.0057
Number of days of inventory= 365/inventory turnover
= 365/0.0057
= 64,035 days
Receivables turnover= net credit sales / average A.R
= AED 13,926,334 / 406,379
= 34.26
Number of days of receivables = 365 / receivables turnover
= 365/ 34.26
= 11 days
Operating cycle = number of days of INV. + number of days of REC.
= 64,035 days/ 11 days
= 5821.86
A.P turnover =net credit purchases / average A.P
= AED 7,058,087/ AED 406,379
= 17.36
Number of days of A.P= 365 / A.P turnover
= 365/ 17.36
= 21
Cash cycle=operating cycle - number of days of A.P
= 5821.86 - 17.36
= 5804.5 days
Fixed assets turnover= net sales / average fixed assets
= AED 13,926,334 / AED 28,392,470
= 0.49
total asset turnover= net sales / average total assets
= AED 13,926,334/ AED 30,612,166
= 0.45
Profitability Ratios
Profit margin on sales = net income / net sales
= AED 6,536,358/ AED 17,868,672
= 0.366
Net operating income to sales = EBIT / net sales
= AED 7,053,765/ AED 17,868,672
= 0.395
Return on investment ( ROI) = net income / average total assets
= AED 6,536,358/ AED 30,612,166
= 0.214
Du Pont equation (ROI) = (net sales/aver. total assets) Ã- (net income/net sales)
= 0.214 x 0.395
= 0.084
Net operating income to total capital= EBIT / ( equity + interest bearing debt )
= AED 7,053,765/ (AED 37,188,266 + AED 17,602,609)
= 0.129
Return on common equity= (Net income - P.S dividends) / Aver. Common equity
= AED 7,053,765/ AED 36,536,040
= 0.193
Return on total equity= ( Net income-Div. on redeemable P.S)/Ave.Total equity
= AED 7,053,765/ AED 37,188,266
= 0.19
Gross margin=( net sales - COGS) / net sales
= (AED 17,868,672- AED 10,814,907) / AED 17,868,672
= 0.395
Basic earning per share (BEPS) = Net income available to C.S / Aver. Outstanding shares
= AED 7,053,765/ 1,446,049
= AED 4.88
Price earning ratio (P/E)= market price per share / EPS
= (AED 54,790,875/ 1,446,049)/ 4.88
= 7.76
Earning yield= EPS / market price per share
= 1/ 7.76
= 0.129
Dividend payout ratio = dividends per common share / EPS
= AED 3.65/ AED 4.88
= 0.75
Sustainable equity growth rate = [( Net income - P.S Div.) / Aver. C.E] Ã-[1- (DPS/EPS)]
= (AED 7,053,765/ AED 37,188,266) x (1- 0.75)
= 0.047
Return to shareholders = (dividends + capital gain) / measurement period
= (AED 1,215,111 + AED 649,606)/1
= 0.511
return on shareholdersÙ investment (ROSI)=
(dividends +market value of reinvested earnings) /M.P
N.A
Shareholder multiple= (dividends+ market value of reinvested earning)/earning
N.A
Book value per share = Equity / shares outstanding
= AED 37,188,266 / 1,446,049
= AED 25.72
Price- to- book ratio = Market price per share / book value per share
= AED 7.76/ AED 25.72
= 0.3
Operating cash flow to income = Net operating cash flow / net income
= AED 5,973,402/ AED 7,053,765
= 0.847
Capital Structure and Coverage Ratios
Fixed assets to Equity Capital = Fixed assets / Total Equity
= AED 28,392,470/ AED 37,188,266
= 0.76
Net tangible assets to long-term debt = Net tangible assets / long- term debt
= AED 65,200,400/ AED 17,602,609
= 3.7
Total liabilities to net tangible assets= Total liabilities / net tangible assets
= 1/ 3.7
= 0.27
Times-interest-earned ratio = EBIT / interest expense
= AED 10,814,907/ AED 38,956
= 277.6
Cash flow per share = ( cash provided by operations - P.D) / C.S outstanding
= AED 5,973,402/ 1,446,049
= 4.13
Total debt ratio = Total liabilities / total assets( capital)
= AED 17,868,672/ AED 54,790,875
= 0.33
total debt -to-equity ratio = Total liabilities / equity
= AED 17,868,672/ AED 36,922,203
= 0.33
Fixed charge coverage ratio = ( EBIT + leases interest ) / ( interest +leases interest)
= AED 10,814,907/ AED 38,956
= 277.61
Operating cash flow to total debt ratio = Operating cash flow / total debt
= AED 5,973,402/ AED 17,868,672
= 0.33
2008
Short Term Liquidity Ratio
Current Ratio = Current Assets/Current liabilities
= AED 8,642,670/ AED 7,208,468
= 1.198
Acid-test (Quick ratio) = Cash & Cash Equivalent + M.S +Net receivable/ C.L
= AED (2,131,679 + 406,379)/ AED 7,208,468
= 0.351
Working capital= Current assets-Current liabilities
= AED 8,642,670 - AED 7,208,468
= AED 1,434,202
Cash ratio (cash to current liabilities) = cash & cash equivalent + M.S/ C.L
= AED 2,131,679 / AED 7,208,468
= 0.296
Cash to current assets = cash & cash equivalent +M.S / C.A
= AED 2,131,679/ AED 8,642,670
= 0.247
Sales- to- working capital = sales / average working capital
= AED 17,868,672 / AED 1,434,202
= 12.56
Defensive interval = Cash &cash equivalent+ net receivables + M.S / daily operating cash outflow
= AED (2,131,679 + 406,379) / 5,973,402
= 0.425
Liquidity index = weighted non cash current assets / current assets
= 0.54 / 0.46
= 1.174
Activity Ratios
Inventory turnover = COGS/ average inventory
= AED 10,814,907/ AED 1,084,000,000
= 0.0085
Number of days of inventory= 365/inventory turnover
= 365/0.0085
= 42,941 days
Receivables turnover= net credit sales / average A.R
= AED 16,015,133/ 587,579
= 27.52
Number of days of receivables = 365 / receivables turnover
= 365/ 27.52
= 13 days
Operating cycle = number of days of INV. + number of days of REC.
= 42,941 days/ 13 days
= 3303.15
A.P turnover =net credit purchases / average A.P
= AED 2,806,782/ AED 587,579
= 4.78
Number of days of A.P= 365 / A.P turnover
= 365/ 4.78
= 76.36
Cash cycle=operating cycle - number of days of A.P
= 3303.15 - 76.36
= 3226.79 days
Fixed assets turnover= net sales / average fixed assets
= AED 16,015,133/ AED 35,460,931
= 0.45
total asset turnover= net sales / average total assets
= AED 16,015,133/ AED 38,103,346
= 0.42
Profitability Ratios
Profit margin on sales = net income / net sales
= AED 3,077,962/ AED 16,015,133
= 0.19
Net operating income to sales = EBIT / net sales
= AED 6,811,358/ AED 16,015,133
= 0.43
Return on investment ( ROI) = net income / average total assets
= AED 3,077,962/ AED 38,103,346
= 0.081
Du Pont equation (ROI) = (net sales/aver. total assets) Ã- (net income/net sales)
= 0.081 x 0.19
= 0.015
Net operating income to total capital= EBIT / ( equity + interest bearing debt )
= AED 6,811,358/ (AED 36,562,354 + AED 24,128,444)
= 0.112
Return on common equity= (Net income - P.S dividends) / Aver. Common equity
= AED 3,077,962/ AED 36,000,753
= 0.0854
Return on total equity= ( Net income-Div. on redeemable P.S)/Ave.Total equity
= AED 3,077,962/ AED 36,562,354
= 0.084
Gross margin=( net sales - COGS) / net sales
= (AED 16,015,133 - AED 9,203,775) / AED 16,015,133
= 0.425
Basic earning per share (BEPS) = Net income available to C.S / Aver. Outstanding shares
= AED 3,077,962/ 6,091,239
= AED 0.505
Price earning ratio (P/E)= market price per share / EPS
= (AED 60,690,798/ 6,091,239)/ 0.505
= 19.73
Earning yield= EPS / market price per share
= 1/ 19.73
= 0.507
Dividend payout ratio = dividends per common share / EPS
= AED 0.20/ AED 0.505
= 0.396
Sustainable equity growth rate = [( Net income - P.S Div.) / Aver. C.E] Ã-[1- (DPS/EPS)]
= (AED 3,077,962/ AED 36,562,354) x (1- 0.396)
= 0.051
Return to shareholders = (dividends + capital gain) / measurement period
= (AED 1,218,248 + AED 537,062)/1
= 0.288
return on shareholdersÙ investment (ROSI)=
(dividends +market value of reinvested earnings) /M.P
N.A
Shareholder multiple= (dividends+ market value of reinvested earning)/earning
N.A
Book value per share = Equity / shares outstanding
= AED 36,562,354 / 6,091,239
= AED 6
Price- to- book ratio = Market price per share / book value per share
= AED 19.72/ AED 6
= 3.29
Operating cash flow to income = Net operating cash flow / net income
= AED 5,551,583/ AED 3,077,962
= 1.8
Capital Structure and Coverage Ratios
Fixed assets to Equity Capital = Fixed assets / Total Equity
= AED 35,460,931/ AED 36,562,354
= 0.97
Net tangible assets to long-term debt = Net tangible assets / long- term debt
= AED 60,251,407/ AED 24,128,444
= 2.497
Total liabilities to net tangible assets= Total liabilities / net tangible assets
= 1/ 2.497
= 0.4
Times-interest-earned ratio = EBIT / interest expense
= AED 9,203,775/ AED 25,220
= 364.94
Cash flow per share = ( cash provided by operations - P.D) / C.S outstanding
= AED 5,551,583/ 6,091,239
= 0.91
Total debt ratio = Total liabilities / total assets( capital)
= AED 24,128,444/ AED 60.690,798
= 0.397
total debt -to-equity ratio = Total liabilities / equity
= AED 24,128,444/ AED 36,562,354
= 0.66
Fixed charge coverage ratio = ( EBIT + leases interest ) / ( interest +leases interest)
= AED 9,203,775/ AED 25,220
= 364.94
Operating cash flow to total debt ratio = Operating cash flow / total debt
= AED 5,551,583/ AED 24,128,444
= 0.23
Conclusion and Recommendation
We can conclude from the above analysis that financial situation of Emaar Company in the year 2008 was poor as compared to the financial situation of 2007. Considering the issues from the very starting that company has bigger liabilities in 2008 as compared to 2007 and also companies assets were declined.
Coming to the profits made by the company, we have seen in the above analysis that it had lesser profit because there was lesser sale in the year 2008.
Also, as we have seen in the ratio analysis, company has a better standing in the year 2007 as compared to 2008.
One of the very crucial reasons for this decline might be the Global Financial Crisis. Emaar is a real estate company and real estate was the very first cause of the financial crisis and effect on real estate industry all over the world was disastrous.
We can give some of the recommendations to improve the situation of the company. These are as follows:
Company should look forward to advertise itself more and should hide their defect as more as possible. This will pull the investors towards the company
Company has lost a huge amount of capital outstanding in the year 2008, company should get back that capital payment
Company should look for those assets which it has lost or has declined in the financial crisis.
