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This report aims at the business analysis of Emaar Properties which is one of the largest builders in the world based on supply / demand principles that affects price which subsequently dominates entire performance of the system
Analysis covers Emaar's astonishing financial results over the past few years in the sector. We would try to figure out what are the different business assets company posses? Further more details would be given by analyzing recent performance of the organization with last year's.
Analysis will focus on the key areas of Assets and its different sub domains. We will also give a detailed analysis of what could possibly be the future of Emaar Properties. The analysis is primarily on the basis of the balance sheet provided by the organization to the public and various secondary data collection tools. Analysis also contains what may be the initiative to be taken by the Emaar Properties for prevention of losses and gaining profits.
Assets are each and everything that is owned by the organization and has some cash value. Every item from pen to computer comes in assets. Assets are the resources of a company that have been earned through many business transactions. They can be both tangible like inventory, buildings and equipments and intangible like goodwill, trademarks, copyrights, patents and computer programs. These assets have some economic value. Intangible assets add value to the firm although they are non physical as they give the firm some kind of advantage in the market place. Some prepaid services that are not yet expired are also included in the assets of an organization like prepaid rent, prepaid insurance etc. (Balance Sheet)
Bank balance and cash
Bank balance and cash is the liquid money that is in hand of the owner. It also includes the amount which is not yet been deposited in the bank this amount is also sometimes referred to as hard cash as it is always with the company and is always available for disposal if the company requires it. It is always listed on the first position in the list.
Cash equivalent also comes under this category which means all the assets that are ready to be converted in to the liquid money in near future. It includes all treasure bills, commercial papers, marketing security, short term government projects etc. Cash equivalent is although placed in the same category it is a bit different from cash as it is not available at the disposal until it is received by the company. It is also the amount of money that a company keeps it in its bank accounts like certificate of deposits, bonds and market funds.
The sum of bank balance and cash balance is equal to the total amount that can be used at any time by the company. Bank balance and cash can together be used as representative of the company's strength as this amount can be used whenever the company sees a bad period as this amount can be made available in a very little time and with nearly no formalities related to them.
Bank balance sometimes also proves vital in getting loans for the projects of a company as bank balance and cash are commonly seen to be related to the income of a company
Percentage increase: 14.0982%
The increase in the bank balance and cash would prove to be very beneficial. These are the liquid money that an entrepreneur could use to expand its business and to try new product. These cash would be helpful in contracting new technology or for training of current employees. As for all this helps in modifying the current structure for the system of organization, taking it to new heights. The liquid cash can also be treated as a measure to earn revenue by lending it to other organizations or new business or just simply by putting it into a bank.
Increase in bank balance and cash is favorable for the company. Growing bank balance and cash reserves of the company often indicate its strong performance. Cash offers protection against tough times and moreover, it also gives the company more options for future growth. Furthermore, companies having ample cash on their balance sheets attract more number of investors.
There is one more type of cash in the balance sheet and that cash is bad for company's balance sheet. This is the cash borrowed from the bank when a company is not able to generate enough profits from the business it used to take loan from banks and that also includes in cash. But this cash is accounted in the company's debt part.
The cash earned by selling any assets also come under this category. The organization has increased their cash means currently they want some more backup for future. So, if something happens they could be safe. This liquid money can also be seen as a possibility for early companies for acquisition type of thing. They could see this as an opportunity for their organization to grow and have some for them who could lend money. (Balance Sheet Accounting) Other receivables, deposits and prepayments
Trade receivables or Accounts receivables is the money owned by an organization for sales of products and / or services. These could be accounting transaction for door - to - door delivery with bills. This is done by creating an invoice, mailing (via electronic or physical media) to the customer then he / she must pay the credit in a given time frame.
A company may also increase income from other sources of its investments which also forms part of the assets of the company all these are put together in this category
This can be done automatically for large organization by use of advanced technology like accounting software on a dedicated server computer. Trade receivables are shown in the company's balance sheet to show owned money or entities outside the company.
The company generally expects to receive these receivables within a year so they are classified as current assets but it is not always possible to recover the whole amount within a year as sometimes clients may not pay the amount in stipulated time.
These are useful for the company in getting loans and they can also be sold through factoring i.e. at a lower amount of immediate money.
Percentage increase trade receivables: 120.54%
Percentage increase other receivables: 35.5052%
It is good for the company to have such a high increase in trade receivables because it is clearly a sign of increasing sales of a company's products and services. But if it's near to double growth is compared to that in cash assets, it comes out that the financial efficiency of the company has decreased. May be the company's collection period is growing longer or the speed at which company collects is slowing down. Company should special attention to this category as its financial health depends upon timely collection ofreceivables.
The receivables also help in creating a large user backup space. If you give a user to try certain products for the first time, it is likely that if the product is good he / she would surely purchase it the next time. On the other hand if you're new product is just launched into the market and you don't allow debt than surely not many people will buy it for a try. Home to home delivery is a classic example of receivables and prepayments, we as a company would like our customer to have least trouble before getting our product. So, delivery has to be made at home for allowing our users to have more faith on us.
It is the inventory of an organization which includes raw material, goods manufactured, work in process and also the items purchased for resale.
Development properties include everything that a company has that may lead to revenue in future. It may thus be helpful in estimating the revenues that may be generated in the near future without need of much input.
If the income from these sources is not generated in a stipulated time these may lead to losses to the company as cost is incurred in storing these properties and sometimes they may also loose there essence with time.
In order to get maximum profit out of these development properties it is important to use them in time so we can say that time management plays an important role in maximizing profit and making best use of development properties.
Percentage increase: 18.4255%
Development properties have increased by a significant amount. This is very much crucial for an organization to cope with the real cruel and advanced market. One has to regularly look into its internals and must increase it. The development properties include the land and other type of expansion of the organization also. All organization must expand even at a small pace. Emaar properties have shown such a phenomenal growth rate for the year 2007-08 which shows that the company is expected to be going somewhere big. These development properties can also be treated as the company is expected to have some type of advanced technology in near future. The competitors in the market are trying hard to bring Emaar down the size but the efforts company is putting into all of this can easily be checked by seeing the difference or the percentage growth rate of development properties from last to this year.
The increase in development properties also signifies that the CEO, director and the owner of the organization are open minded and believe to look into any new suggestions for the organization. These developmental properties may in any form. It can b a part of land, share in some other business sector. This property is helpful for the company to generate revenue in bad times. If the real estate business sector is on a downfall and some other sector like oil market is rising and the company has some investment in oil then that property can used at the time of recession in real estate business. This can be compared with the open culture at different organizations across the world. Emaar properties have built huge buildings all over the world and are expected to do the same in the future. So, Emaar has to do lot of research before creating other marvelous masterpiece.
It can be defined as a tool of financial negotiation that has an associated financial value. It could be treated as an entity that could be kept as collateral to loan.
Securities can more normally be generalized into 'debt' consisting of entities such as debentures, currency notes etc. and 'derivative' such as forwards, futures and options etc. 'equities' such as the common stocks.
These are helpful when a company needs amounts of money for its projects. These securities serve as a guarantee to the banks which keep them assured that they will be able to recover their money if the company is not able to pay it back.
Securities may include stock or mutual funds, bonds issued by corporations or governmental agencies, stock options, limited partnership units, and may include formal investment instruments that are negotiable and fungible as they can yield money if the company is not able to repay its debt. So they are accepted as securities by most financial bodies. (Emaar Securities)
Percentage decrease: 80.9868%
There is a huge decrease in security amount of the organization. This may prove fatal in long run of the organization. Decrease in cost of security results in the decrease for the cost of debt. But on the other hand, it may result in the total downfall of the system, as it increases the leverage. Securities are not always harmful; it helps in an organization to grow and have strong user strength to appeal. Securities results in an organization to grow in a much organized manner rather than having a sole body or a group of bodies controlling the entire working of the organization.
High securities may also result in the downfall because the organization will be in debt and is not being able to repay the amount. No extra credit is available for research or new technology etc. so there is very less possibility for growth. Securities if not understood completely may lead to failure of the organization. There should be a balance between high and low security aspects, a person as an entrepreneur should neither go with high securities nor low securities i.e. the extreme cases this could be harmful and may lead to mistrust in an organization.
Loans to associate and Investment in associate
These terms come from the domain of Investment banking. Investment banking is a financial institution that helps government and corporate to raise their capital by acting as an agent causing a flow of money and getting benefits out of these.
If a company has extra capital, it remains as a static amount with decrease of value as time passes. In order to avoid such a decrease in the value companies usually do not keep the extra capital idle they make various investments in order to maximize their profits. These investments can also be in the form of loans given to various associates who need money in order to run their projects and in return the company earns a fixed interest on its money. The amount whose value could have been depreciated, by proper investments like the ones mentioned above its value can be maximized and can be used when required.
These small profits prove crucial for the companies to give them an edge in today's competitive world.
As most companies work with the motto of maximizing profit it forms an important tool for them and hence higher loans to associates and investment in associates is desirable although various factors must be considered when putting in money in order to get the best utilization of it.
Percentage increase loans to associate: 207.7929%
Percentage decrease Investment in associate: 3.5691%
Loans to associate are showing increase in the cost whereas the investment in associate is showing a slight decline. To explain this we have to understand that loans to associate helps in generating revenue whereas investment in revenue dose not generate any revenue but may be helpful in creating new entrepreneurs. For a high cash flow urgently loans to associate are required whereas if you want to have an alliance with an upcoming organization investment in associate is a way. The later one show two signs to the user group i.e. social one by helping an upcoming organization and secondly it may generate profit if our alliance earns profit.
This helps in generating huge revenue after a regular interval of time. Emaar Properties as an organization would look into the core aspect of themselves to that of the company in which they are investing into. They analyzed themselves and others to come to a conclusion to invest such a huge amount to the associates.
Property, plant and equipment
Property, plant and equipment can be defined as the summation of all the company's purchases of property, manufacturing plants and pieces of equipment up to that point of time, less any amortization. Here amortization refers to the decrease in value of assets with time.
Property, plant and equipment form part of a company's asset that is basic need for doing business but cannot be easily liquidated. Their value typically depreciates with time as assets like plants and equipments are observed to become obsolete with time. It is commonly referred to as PP&E.
PP&E plays an important role in calculating the total market value of a company.
Property, plant and equipment also play an important role in the quality and quantities of goods produced by a company as goods have to be produced using the property, plant and equipment of the company.
The value of property, plant and equipment not only helps us in calculating the assets of the company it also helps in predicting its performance.
Percentage decrease: 27.1621%
Property, plant and equipment show decrement in a significant amount. This could be due to the fact that Emaar Properties sold many of its current buildings to clear the high securities piling up. Decrement in this could be very dangerous for a startup company, but for an old player like Emaar Properties it is no big deal. They could easily create many much properties and plants as they need due to a very large amount of liquid cash they have. Property, plant and equipment play a crucial role for a service sector industry but for industries like Emaar i.e. Civil Developing Building companies and Information Technology companies don't need to have such a nice place.
Emaar Properties may try to invest in its equipments to continue work in such a large pace. They did not invest in the equipment as we could easily see the decrement. Emaar Properties may take new equipments in its inventory for future work if it is not available now.
These can be defined as the properties that are not occupied by the owner and which are purchased with a sole motive to gain profit through rental income or capital gains.
When companies have extra capital they buy properties which are given on rent, these may be houses, villas or an investment in the tourism industry by starting a new hotel or a chain of hotels. These properties lead to a fixed source of income after a starting investment which may be huge or small.
It is considered to be a very good thing for business as it builds equity in property while also generating additional sources of revenue. The main reason for promotion of such activities in such activities is that following the trends if prices of properties it is generally found to rise so the value of the property keeps on increasing as the time passes and also additional revenue is created thus increasing the both the revenue and market value of the company
This equity thus could be used as collateral to secure working capital for future business.
Percentage increase: 135.0816%
Investment properties have shown a tremendous increase in its costs. This could be taken from the research carried out at Emaar Properties and also the rental and capital gains of the organization. The capital gain of Emaar Properties shows a positive response of the other competitors that they tend to have very less gain in the sector. Investment could also be due to purchase of other domains, commodities or due to loans given to associates.
After seeing the total balance sheet of the organization Emaar Properties it could be easily said that the company has invested in loans to associate. They believed in having more alias than improving owns machinery or going for research work. The acquisitions could be beneficial for them but it is not sure. So, it could be as a dilemma to find out the final conclusion as the allied organization could help in the growth or may fail to perform.
Goodwill is an asset that are intangible and that cannot be viewed as a concrete value to a business. For example, if there is a company with total assets worth A and is purchased by a large corporation. With its actual pricing as B, then goodwill is estimated to be (B-A).
Goodwill is a thing that a company earns by the quality of goods and services provided by the company over its tenure of working. It is the trust that people in the market have on the company and is also a measure of how people expect the company to perform in the near future. Goodwill also helps a country in its business.
For example: If three companies present themselves equally well for a contract and the judges for the contract rate them equally then the company with a higher goodwill will be given the contract.
Sometimes companies may be sold at a price higher or lower than their market values due to the influence of their goodwill in the market.
Goodwill not only plays an important role in selling the company it also plays a vital role in selling the goods and services of the company. It is seen that a company that has greater goodwill in the market attracts more customers for its goods in the market.
Goodwill is listed as a company asset but must be amortized within a given life, which cannot exceed a maximum of 40 years.
Percentage decrease: 85.1655%
Good will which is one of the most important aspects when compared to the expected user base. It has shown tremendous downfall which is very dangerous for an organization like Emaar. The investment Emaar has made is more than the expected income. So, it has to rely mainly on the user group to give them work for generating money as credit. There could be many reasons for the downfall of good will, maybe the recent work done by Emaar Properties is not at a level they are expected of, another possibility could be that the Emaar Properties charges too much for its construction than any other competitor in the market.
All in all we must note that, Emaar Properties do have a strong financial status right now but in recent future it will go down to bits and pieces. If the investment done in ally organization also doesn't pay off than it would add as an additive in fire for Emaar Properties. The Emaar Properties should look into the matter and must take immediate actions to increase their good will cost in the market and give some credits to general sector industries also for gaining some of the cheap goods and other stuff.
Emaar Properties is a pioneer in itself. They had build buildings that none have done in its peak time. But recently the market does not look so good for them. They have to be extra workaholic and must have some scent that could attract users for re - believing them and gaining the trust. Emaar has invested hugely in the ally, for which nothing could be said. Hoping for the best if it pays then Emaar may have a stand in the market as one of the strongest competitor to beat. However, going for the worst case i.e. if nothing pays off then it would be a huge loss for them and also for its allies. They must now take steps cautiously as any more losses could not be tolerated.
The overall cash flow statement are positive that shows that still the cash is coming into the organization but it pace is not as compared to the last year's. Emaar Properties may try to build new building and allow budget for new innovations that would be helpful to business and the mankind.
- Emirates Securities Market(n.d.), Retrieved on March 10, 2010 from http://esm.sca.ae/English/Pages/default.aspx
- Balance Sheet Accounting (n.d.), Retrieved on March 10, 2010 from http://www.accountingcoach.com/online-accounting-course/05Xpg01.html
- Balance Sheet (n.d.), Retrieved on March 10, 2010 from http://moneyterms.co.uk/balance_sheet/