Current Ratio 1.96 1.22 The ratio is generally applied to determine the company’s ability to meet its short-terms obligations with its current assets. In another words, the higher the current ratio, the better the ability to pay its short-term debts.
In real estate industry, a ratio of 1.0 is considered satisfactory. Anything below 1 could indicate that the company’s financial situation is not really healthy. This doesn’t necessarily mean that the organization will go bankrupt because there are other factors involved.
Looking into Emaar financial statements, we can see that the current ratio in 2014 is acceptable while in 2015 this ration remarkably improved to hit the ceiling of 2. That being said, a ratio above 2 isn’t highly recommended as it could indicate that the company is not efficient enough in managing its cash resource.
Quick Ratio 1.95 1.21 The quick ratio shows a firm’s ability to meet current liabilities with its most liquid assets. Besides, this ratio is used to measure the ability of an enterprise to meet its current liabilities out of its current assets.
This is quite similar to the current ration but the inventory is excluded. As a general rule, a current ratio of 1.5 or greater is normally sufficient to meet near-term operating needs. As in the case of current ration, a ration that is higher than 2 could suggest that the cash and current assets are not managed efficiently. A firm with a low quick ratio may be more likely to delay payments because its assets are tied up elsewhere. (1)
The current ratio for Emaar in 2015 shows that there was a remarkable improvement in the liquidity status of the organization. The current ratio in 2014 was 1.22 while in 2015 the ration jumped to around 2.
That being said, the company needs to do regular reviews to its assets management to ensure that the rate does not go higher than 2. The main reason behind this increase could be the significant increase in the current assets from 1,772,406,000 in 2014 to 3,511,296,000. This is also reflected in the returned earnings for the same year.
Cash Ratio 1.77
(94%) Cash ratio is a total cash of company and cash equivalent to its liability.
In 2015, Emaar malls has enough cash to cover the liabilities more than 2014. It seems that cash ratio in 2014 was lower than 2015, which indicates that business was able to pay the short term debt faster in 2015 due to availability of cash.
This increase in the result of the increase in cash from 1,363,958,000 in 2014 to 3,169,826,000 in 2015. This has been reflected in the increased of returned earnings as well.
Long-term solvency or financial leverage ratios
Total debit ratio 0.37
(39%) This ratio shows the proportion of the company’s assets that financed with debt. In addition, this solvency ratio measures the financial leverage of the organization.
The higher Debt ratio, the more leveraged the firm and the bigger financial risk. In 2015, the total debt ratio was slightly lower comparing it with 2014. Figures in 2015 illustrates that Emaar malls has less risk compared to 2014.
(63%) This ration indicates the dependency of the organization on financing in the form of equity or capital. The majority of the companies in UAE adapt a hybrid capital structure that consists of debt and equity with more emphasis on the debts. That’s why most of the organization in the UAE are considered as highly leveraged
The optimal ratio in this industry is to have 60 % of debt and 40% of capital. However, situation may vary from country to country. Companies are often reluctant to finance its assets from debts due to high interest rates. In the above scenario, EMAAR’s debt/equity ratio is quite good and there was a slight improvement in 2015.
Times interest Earned 7.06 4.79
The ration gives an indication of whether the company can generate enough profits to cover its ongoing interests’ charges. The higher the rate, the higher the ability to pay interest fees. In our case, Emaar situation in this regard has remarkable improvement as the rate jumped from 4.79 in 2014 to 7.06 in 2015.
Cash Coverage 7.32 5.00
The cash ratio displays how well a firm can pay back its current liabilities with only cash and equivalents.
The company in 2015 have a good ability to buy interest than 2014. This ratio shows how well a firm can pay back its current liabilities with only cash and equivalents. Therefore, the higher cash coverage ratio, the better ability of Emaar malls to pay the obligations to investors. In 2015 cash coverage is higher than 2014. In 2015, Emaar malls more liquid than 2014, and they can more easily fund its debt.
Asset management or turnover ratios
Inventory Turnover 33.52 30.70 Inventory turnover ratio Indicates the effectiveness of the inventory management practices of the firm. It compares the amount that a company has invested in inventories with the cost of sales, which this inventory supports.
Looking into Emaar figures, we can notice that there was a slight increase in 2015 with a rate of 33.52 compared to 2014 where the rate was around 30.
Days sales in Inventory 10.89 11.89 The day sales in inventory is a key element in a firm’s stock management. Management wants to make sure its stock is moving fast as possible to reduce the cost of storing and keeping it.
The decrease in days’ sales in inventory indicates that inventory in 2015 was faster converted into sale as compared to 2014. The lower number of days is better.
Receivable turnover 14.02 15.05 The receivable turnover ratio measures some organization capabilities to collect its accounts receivables efficiently.
Emaar malls update its receivables from costumer in 2014 higher than 2015. The receivables turnover ratio is an activity ratio, this ratio showed that how fast Emaar malls is to collect the accounts receivables from clienteles. The result shows lower receivables turnover in 2015. This could be due to the fact that the real estate industry suffered some stagnation during 2015. In such situation, the bargaining power of the customer becomes stronger and so he/she could negotiate better payment terms.
Days sales in receivables 26.03 24.26 This ratio shows investors and creditors how good organizations can gather their money from their customers.
In 2015, the number of days that company need to collect its money is higher than 2014. By calculating the number of days to collect the account receivables of Emaar malls, it shows that the period is longer in 2015. It means that 2014 was good in collecting the money from the clienteles. Again as mentioned in the above section, the current industry situation has enabled the customer to impose better payments terms on the companies.
Total assets turnover 0.12 0.12 This ratio describes the ability of a company to use its assets to generate sales.
Total assets turnover in both years is the same.
This ratio is indicating how efficient Emaar malls is to arranging its assets. This showed that they use the assets at the same level in both years.
Profit Margin 0.55
(50%) Profit margin ratio is an indication of the GM management’s ability to control expenses and returns a reasonable profit. It specifies profit levels of a business after all costs have been taken into account.
The company generated profit from sales in 2015 more than 2014. However, it is notable that the difference is only by 0.05. Profit Margin measures the capacity of the company to generate profit.
(6%) This ratio measures how effectively a company can earn a return on its investment in assets. To be more specific, it displays how efficiently a firm can turn the money used to purchase assets into profit.
In 2015, Each AED 1 in Assets is generating 0.067 of profit and 0.060 in 2014. This ratio showed the higher ROA for 2015 because of generating more profit from the assets used in 2014.
(10%) This ratio measures the ability of the organization to generate profit from the stockholder’s investments.
This ratio measures how much shareholders’ equity shared in making profit for Emaar malls. In 2015, for each AED 1 collected from stockholders the company will collect 0.11 in their profits. In 2014, it was lower by just 0.01 times.
Market value ratio
PE ratio 21.9 11.5
PE ratio which is price earnings ratio is ratio for valuing c company to measures its current share price relative to its per share earnings.
In 2014, Emaar malls group was willing to pay about 10.72 times for each AED 1 of earnings, but it has improved in 2015 and it is willing to pay 21.2 times for each AED 1 of earnings. In 2015, Emaar malls increased its price earnings to attract more investors.
Market to book ratio 2.4 1.1
This ratio is used to find the value of a company by comparing the book value of frim to market ratio.
In 2014, Emaar malls was able to create value to its stockholders about 1.1 times, but it has increased in 2015 to be 2.4 times.
The market value usually shows the actual value, while, the book value is the historical value. To make sure that Emaar malls is successful, the book value should be higher than 1 to attract the stockholder. Emaar malls MTB was better in 2015 comparing it with 2014.