Real Estate Investar Group Limited: Company Overview, Industry Situation, And Financial Statement Essay.

Real Estate Investar Group Limited is an Australian company based in Ashmore, Australia and was founded in 2006. The company provides services and direct investment property opportunities to property investors in New Zealand and Australia. The company is also a leading provider of integrated services to property investors so as to assist in the analysis, identification, acquisition, accounting and tracking of investment property (Acharya, Gottschalg, Hahn, & Kehoe, 2014). Clint Greaves is the company CEO and managing director since his appointment in 2015. With over 300,000 investors accessing free online member services and about 3000 paying subscribers utilizing its platform to manage and build their respective portfolios. Real Estate Investar Group Limited assist investors to generate wealth through investment in properties and real estates.

The company is considered to operate through transaction services, property and subscriptions segments that offer tools, news services, and resources to property investors to help in the analysis, identification, acquisitions, accounting and tracking of investment property. According to the company, the transactions service segment offers casual non-subscription services to its members through paid marketing referral model with accredited partners that includes real estate transaction services, insurance brokerage and estate and financial planning (Hofmann, & Lampe, 2013). The property segment basically facilitates the sale of newly created and off the plan properties from project makers or developers to diverse investors. Real Estate Investar Group Limited home office is considered to be situated in Ashmore, Australia in order to oversee its overall business operations. The home office is basically situated in a strategic position so as to enhance its operations by having an easy location by both new and existing clients. The company ending date of the latest fiscal year is that the company basically reports its financial statements as at 31^st December 2016 (Real Estate Investar Group Limited annual report, 2014, 2015 and 2016).

The main geographical areas include Australia and New Zealand that the company is considered to be a leader in the data driven matching property investor with the right investment grade property. BDO Audit Pty Ltd is the company’s independent auditors who have the mandate to ensure that the company financial statements present true and fair view. As a lead auditor for the review of the Real Estate Investar Group Limited for the year ended 31^st June 2016, they declared to the best of their knowledge and belief that no contraventions of the auditors independence requirements of the Company Act 2001 in relation to the company review (Real Estate Investar Group Limited annual report, 2014, 2015 and 2016).

Financial Statement Analysis

The auditors also said that the company financial statements basically present a true picture of its financial position because there was no contravention of any applicable code of professional conduct in relation to the review. Real Estate Investar Group Limited was incorporated in 2009, and the most recent price of the company’s stock is AU$0.044 as at 14^th September 2017. Real Estate Investar Group Limited share price has been increasing for the last ten days. Over the last financial year 2016, the company did not declare any dividends for its investors because most of its profits were deemed for expansion purposes.

With more than 200,000 members utilizing the service, the Real Estate Investar Group Limited has firmly established itself as essential resources for both the serious and the first time property investors. Real Estate Investar Group Limited basically generates its revenues through three districted main sources;

• Sale of premium subscriptions to members so as to provide enhanced tools for better decisions in property investment.
• Commissions that are generated from the sale of diverse properties to diverse investors
• The sale of auxiliary services that are associated with the process of investing properties (Real Estate Investar Group Limited annual report, 2014, 2015 and 2016).

Real Estate Investar Group Limited business operations will continue to focus on increasing the membership base, enhancing the knowledge and skills of its members, developing data driven tools so as to accurately match investment grade properties with a range of free and paid services to enhance the process of property investment (Collier, 2015). As at 2016, the company gained a 48% increase in membership to about 202,423 members during the financial years. During the same year, the company gained a marginal increase in paying subscribers from 2,773 in 2015 to 2818 in FY2016 thus attaining the revenue forecast for FY2016 as outlined in the prospectus for 2015.

Real Estate Investar Group Limited future plans basically anticipate increasing its number of members to a significant number so as to ensure that it controls the investment market. The company also anticipated increasing its sales value because the core aim of this particular institution is to make sufficient profits for its shareholders and also increase its share price in the market (Healy, & Palepu, 2012). The company also plans to grow direct property sales through targeted campaigns to members and also generate new revenues streams through complimentary, property investing related services that include finance. Real Estate Investar Group Limited also seek to explore new offshore market opportunities for its products and services.

Gross profit is considered to be the profit that the company makes after deducting the total costs that is associated with selling and making its products or the costs linked with offering diverse services.

Common Size Statement Analysis Technique

From the table above, gross profit has been decreasing over the last three financial periods. This aspect indicates that the company operations have not been good and thus the company has been unable to make any profits from its business operations (Kirkham, 2012). Real Estate Investar Group Limited is facing tough times in its business operations.

Income from operations is considered to be the profit that is realized from a business owns operations generated from running its primary business and often excludes income from other sources (Real Estate Investar Group Limited annual report, 2014, 2015 and 2016).

According to the above table, there is a clear indication that Real Estate Investar Group Limited has been experiencing an increased income from its operations over the last three financial years (Wheelen, & Hunger, 2011). This clearly shows that the company business is gradually picking, gradually increasing and thus proper mechanisms have been initiated by the company management.

Net income is considered to be the total earnings or profits that are basically calculated by taking profits and subtracting the costs of performing business such as interests, depreciations, taxes and other diverse expenses.

The table above demonstrates that there is decrease net profits over the last financial years (De Franco, Kothari, & Verdi, 2011). During the FY2014, Real Estate Investar Group Limited had lesser net income as contrasted to FY2015 that shows less control of cost and a lower assets turnover depicting ineffectiveness at using the assets so as to make revenues. Decreasing net income basically demonstrates that the company is having diverse difficulties in trying to pay off its due liabilities.

Real Estate Investar Group Limited common size income statement heightens a slight decrease in net property sales relative to revenue from 62% in the FY2015 to 57% in the FY2016. Conversely, under the trend analysis, Real Estate Investar Group Limited reported a decrease of 24% in revenues from a property sale in FY2016. The company, common size income, showed a decrease over the two year period on revenues from the sale of premium subscriptions to members from 40.2% to 38% in FY2015 and 2016 respectively.

The selling, general and administrative expense is considered to be another significant aspect of the company. Under the income statement, Real Estate Investar Group Limited recorded relatively higher percentage over the last two years with the expenses being 15% (Fridson, & Alvarez, 2011). Real Estate Investar Group Limited selling expenses increased from 119,014 to 100,727 in the FY2015 to FY2016 which means that the company had more expenses during its overall operation.

Financial Ratios

The net income for Real Estate Investar Group Limited in relation to net sales under the common size analysis of the income statement demonstrates a slight decrease over the last two years with the FY2015 reporting (1,354,160) in FY2016 to (2,091,904) in FY2017 indicating a 31% decrease from the sale of auxiliary services that are associated with the process of investing properties (Rinne, & Suominen, 2016). The two years analysis describes that Real Estate Investar Group Limited had a lower income in the sale of auxiliary services than in the sale of properties.

Generally, assets of a company include liabilities plus equity. The common size balance sheet for Real Estate Investar Group Limited basically reflects total current assets to total assets two-year average from FY2015 to 2016 of 37.1% and total liabilities to total assets two year average of 33.4%. The current assets as compared to the company assets decreased in FY2015 by 0.5% but was able to rebound again to 1.3% in the FY2016 while the current liabilities decreased by 4% and 3.7% in the FY2015 and 2016 (Robinson, Henry, Pirie, & Broihahn, 2015). Real Estate Investar Group Limited long term debts to total equity increased from 17% in FY2015 to 22% in FY2016 thus satisfying that the firm was basically reliant on long term debts in order to finance its operations and sales of its properties. Real Estate Investar Group Limited also had an increase of long term debt to equity ratio from 20% to 27% in FY2015 to 2016 also satisfying it required funds for sale of auxiliary services that are associated with the process of investing properties.

According to Real Estate Investar Group Limited financial statements, there is a significant decrease in the net cash flows that was used in operating activities. According to the company statement of cash flows, there was a 72% decrease in the amount from 263,004 in FY2015 to 2,157,215 in the FY2016. As compared to the net income of the company, there is a significant drop in the income because the company has been paying a large amount of funds to its employees and suppliers. According to Real Estate Investar Group Limited financial reports, the company seems to be slightly expanding through vesting activities because the company increased its net cash flows in investing activities from (551,500) in FY2015 to (348,304) in FY2016. Proceeds from shares and the amount received from customers form a most important source of financing for the company that amounts to 5,006,630 and 3,498,648 respectively in the FY2016. The company statement of cash flow demonstrates that there has been an increase in the cash and cash equivalents at the end of the financial period from 128,813 in FY2015 to 2,271,908 in FY2016 which is a positive result in business operations.

Since Real Estate Investar Group Limited provides services and direct investment property opportunities to property investors in New Zealand and Australia, the company have the mandate of recognizing revenues when the transfer of funds have been made. In this case, the exchange of assets and the money should be complete before the company recognizing the revenue it acquired from any particular sale (Karpoff, Malatesta, & Walkling, 2016). Significant accounting policies accentuate that Real Estate Investar Group Limited should include the recognized revenue in its accounting statements when the entire activity is complete with funds coming to the company account while the asset is going the other direction. Revenue recognition, treatment of revenues and assets are some of the items that might be different from the industry norm (Saleem, & Rehman, 2011). This is because the accounting policies accentuate that on such transactions, the company cannot treat an item as an assets or revenue without the complete process. Revenue is recognized at the fair value of the consideration receivable or received and is basically recognized on a deferred basis over the time in which the services are offered to the client.

The logical description of ratio analysis often expresses a notion of the mathematical relationship of diverse accounts from the financial statements. The ratios assessment is usually articulated by categories that comprise of liquidity, leverage, market value, management of assets and profitability.

Real Estate Investar Group Limited liquidity ratios summarizes a degree that demonstrates the ability of the company to repay the short term obligations when due and long term obligations as they become current (Schroeder, Clark, & Cathey, 2011).

Current ration often evaluates the company compensation of short term liabilities once they fall due by the firm current assets.

The table above shows the declining current ratio for the company over the FY2014, 2015 and 2016 which shows that the current liabilities are increasing more that the current assets.

Average days’ sales uncollected for the company in the current financial period is seven days.

Profitability ratios encompass the financial ratio that is usually used to assess the company ability to generate earnings attributable to financial assets, sales and equity (Weil, Schipper, & Francis, 2014).

Assets turnover ratio encapsulates an efficiency ratio in assessing the general competence of the company in using its assets to generate revenue.

The above table shows an increased asset turnover for the company over the FY2016 while 2014 and 2015 ratios remained constant which indicates that the company did not utilize its assets effectively.

This ratio encapsulates an efficiency degree of the company in handling its assets so as to generate income in the financial stages.

From FY2014 to 2016, the company had a positive ROA indicating that the firm’s assets generated a return for the stakeholders adequately with a return of 5% in the FY2016.

ROE often measures the company efficiency in generating income with the invested capital by its stockholders.

The table shows that the company has a positive ROE which indicates that the company generated sufficient returns for the shareholders (Wheelen, & Hunger, 2011).

This ratio depicts a financial proportion that the company gained from both creditors and the company shareholders.

The above table shows an increasing D/E ratio for the company which means that the firm is basically raising its funds in debts than from shareholders.

Real Estate Investar Group Limited need to have a resilient focus on enlightening its working background and working philosophy with which the firm will be capable of satisfying its workers that in returns will assist the firm to intensify its productivity. Real Estate Investar Group Limited needs to work in accordance with ethics and adequate honesty by following all the regulations and laws that imposed by the ruling government. Basing on this analysis, I consider the company to be a strong performer in the services and direct investment property opportunities for customers. 

References

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Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for decision making. John Wiley & Sons.

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Karpoff, J. M., Malatesta, P. H., & Walkling, R. A. (2016). Corporate governance and shareholder initiatives: Empirical evidence. Journal of Financial Economics, 42(3), 365-395.

Kirkham, R. (2012). Liquidity analysis using cash flow ratios and traditional ratios: The telecommunications sector in Australia. The Journal of New Business Ideas & Trends, 10(1),

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Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial statement analysis. John Wiley & Sons.

Real Estate Investar Group Limited annual report (2014, 2015 and 2016). Retrieved from

https://www.asx.com.au/asxpdf/20170831/pdf/43ly86h85c24wz.pdf

Saleem, Q., & Rehman, R. U. (2011). Impacts of liquidity ratios on profitability. Interdisciplinary Journal of Research in Business, 1(7), 95-98.

Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2011). Financial accounting theory and analysis: text and cases. John Wiley and Sons.

Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

Wheelen, T. L., & Hunger, J. D. (2011). Concepts in strategic management and business policy.    Pearson Education India.