The paper 'Understanding Financial Management ' is a perfect example of a Finance and Accounting Assignment. In the year 2006, The Company experienced significant growth in the revenues from AED 8.361 Billion to AED 14.006 Billion an increase of 60% compared to the previous year. In 2007, the revenues grew slightly from AED 14.006 Billion to AED 17.566 Billion a 25% compared to the prior year. The net operating profits increased from AED 4.731 Billion to AED 6.371 billion in 2006 a 34% increase compared to the prior year.
When the revenue of the firm increases, it is because of more marketing strategies being put in place, and as a result of customer satisfaction. It also means that the debtors pay on time. In 2007, the group reported a net profit of AED 6,575 billion (2006: AED 6.371 billion) a 3% increase over the prior year. In 2006, the net profit increased by 34% from AED 4.776 billion to AED 6.371 billion. The company’ s total assets have grown by 144%, 29% and 31% in the years 2005, 2006 and 2007 respectively.
Emaar not only concentrated all the resources on the financial measures but also on the non-financial measures, such as corporate governance and social responsibility. These two aspects are widely touched in the annual reports since nowadays it is a legal requirement by the financial reporting bodies for all companies to report on them (Boland, 2010) DDC Financial statement analysis 2008 2007 2006 AED Billion AED Billion AED Billion Income Statement Revenue 0.622 0.932 0.895 net operating profits 0.375 0.459 0.428 Balance sheet accounts receivable 0.034 0.056 Total assets 18.103 17.599 17.01 current assets 17.599 17.01 current liabilities 0.589 0.452 total liabilities 0.958 0.829 0.7 shareholders equity 17.145 16.770 16.311 long-term debt 0.240 0.248 The graphs below financial statement analysis for the two companies: DDC EMAAR The company’ s total assets slightly increased by 3% in the year ending 2007 compared to 2006.
In the year 2008, the total assets also increased slightly by 3% compared to 2007. In 2007, the total liabilities increased by 18% while in 2008 they increased by 16% compared to the prior years. The total revenue slightly rose up by 4% in 2007 and highly dropped to 33% in the year 2008. This is because of the economic downturn that was caused by the global financial crisis. In 2007 and 2008, the shareholder's equity increased slightly by 3% for both years (Boland, 2010). Ratio analysis In this analysis, we are to consider the profitability, liquidity, financial leverage, and asset turnover ratios (Gibson, 2009).
Financial ratios are used to compare the performance of a company over a certain period of time (Gibson 2008). The tables below show the calculated ratios for Emaar and Dubai development company (DCC) from 2005 to 2007: Ratio Analysis for Emaar 2007 2006 2005 profitability gross profit margin=% of G. P/revenue 39% 50% 57% net profit margin=% of N. P/revenue 37% 45% 57% EBIT margin=% of EBIT/revenue 36% 44% 53% return on equity (ROE)=% of net income/total equity 20% 23% 28% return on Assets(ROA)=% of net income/total assets 14% 17% 21% growth in assets 31% 29% 144% liquidity ratios current ratio= current assets/current liabilities 2.60 1.87 3.14 financial leverage ratios debt/ equity ratio 21% 13% 1% other measures Basic EPS 1.08 1.05 0.85 share price at year-end 15.1 12.05 23.15 The profitability ratios of Emaar seem top be declining over the years a poor indicator that the firm has not been generating profits as with success.
On the other hand, the liquidity ratio has been increasing across the periods a good indicator that the firm is in a position to meet all the short-term obligations without difficulty. The financial leverage ratio is on the increase across the years a poor indicator that the firm is not in a position to meet its long-term obligations (Boland, 2010).
Therefore, the firms’ solvency position seems to be at a risk. Solvency is a state said to occur when the total assets of the firm are more than its long-term liabilities or debt. If the liabilities are more than the assets then the firm is said to be insolvent as it is not in a position to meet its obligations (Boland, 2010).
1. Birt, Gregory Boland (2010). Accounting: Business Reporting for Decision Making. Wiley and Sons Australia.
2. Charles H. Gibson, (2009). Financial reporting and analysis. Cengage Learning. Eugene F. Brigham, Joel F. Houston, (2007). Fundamentals of financial management. Cengage Learning.
3. Dubai Development Company (DDC) website. http://www.sharewadi.com/result-details.php?result_ID=1759 and http://www.sharewadi.com/result-details.php?result_ID=601
4. Emaar website. http://www.emaar.com/Emaar.Upload/EMR-SINGAPORE-EN-US/CMS/annual_report.pdf
5. Richard Bull, (2008). Financial ratios: how to use financial ratios to maximize value and success for your business. Elsevier Science & Technology.