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Ratio Analysis for the years ended 31 October 2015, 2014, and 2013.
9 February 2016
Background
Al-Enma'a Real Estate Company K.S.C.P. (hereinafter referred to as the
Parent Company is a Kuwaiti public shareholding company registered and incorporated in
the state of Kuwait. The Parent Company is a subsidiary of Kuwait Finance House K.S.C.P.
(hereinafter referred to as the Ultimate Parent Company).
The Parent Company and its subsidiaries (collectively the Group) prepare its financial
statements in accordance with International Financial Reporting Standards (IFRS) issued
by the International Accounting Standards Board (IASB).
The company is listed on the Kuwait Stock Exchange ("KSE").
The Parent Company is engaged in real estate activities include contracting, management
and maintenance of real estate. The Parent Company undertakes contracts to construct
buildings and to carry out real estate, commercial, residential, industrial and touristic
projects as well as security of public and private real estate, and the transportation of funds
and precious metals, in addition to maintenance of mechanical and electrical spare parts
and building materials. Surplus funds are invested in direct equity investments, real estate
and equity portfolios managed by specialist managers, both local and foreign.
Introduction
The management of Al-Enma'a Real Estate Company K.S.C.P (Al-Enmaa or we or us or
the Management), have prepared financial ratios analysis for the years ended 31 October
2015, 31 October 2014, and 31 October 2013 to outline the enhancements / improvements
occurring in the business in the aforementioned years.
This presentation outlines the following:
v Comparison for major ratios throughout the past three years (i.e. 31 October 2015, 31
v Highlighting the major ratios computed for the years ended 31 October 2015, 31 October
v Benchmarking with similar listed real estate entities major ratios; and
v Outlining the enhancement / improvement reasons behind the financial ratios for the years
4,000,000
1.20
2,000,000
1.00
2015
(2,000,000)
2014
2013
Net Working
Capital
0.80
Current
Ratio
0.60
Quick
Ratio
(4,000,000)
0.40
(6,000,000)
0.20
(8,000,000)
0.00
2015
(10,000,000)
Analysis Justification
2014
2013
The net working capital shows a deterioration in 2014 followed by an improvement in 2015. The drop in working capital in 2014 is mainly
due to the new Murabaha facilities obtained during the period, for a total value of KD 4,482K, these facilities were obtained from Boubyan
Bank and Ahli United Bank.
Current assets grew by 6%, while current liabilities increased by 12% in 2014, which illustrates the decrease in working capital, along with
current and quick ratios for 2014 because of the spending in Sabah Al Ahmed project as a result of accelerating percentage of completion
of Sabah Al Ahmad project.
The improvement in net working capital and liquidity ratios in 2015 is due to the rise in amount due from customers and accounts
receivables for an amount of KD 9M due to the work in process progress relating to Subah Al Ahmad housing city construction project
leading to such increase in amount due from customers. In addition, Al Enmaa partially settled an amount of KD 3 million for Murabaha
payable obtained from KFH Bahrain.
254
2013
72
238
2014
68
218
2015
54
Asset Turnover
0.20
0.15
0.10
0.05
2015
2014
2013
22.5%
0.2
23.1%
18.8%
Total Debt to Assets Ratio
0.1
0
2015
2014
2013
70%
36.1%
38%
60%
28.6%
50%
40%
40%
30%
30%
20%
10%
0%
2015
Debt to Equity Ratio
2014
2013
Profitability Analysis
Gross and Net Profit Margin Justification:
Gross margin declined over the years 2014 and 2015 mainly
due to the increase in cost of sales from Sabah Al Ahmad
project that resulted in a negative gross margin for
construction activities. The gross profit margin also dropped
by 2% from real estate services due to the sale of Baitak Real
estate Portfolio 1 and Baitak Real estate Portfolio 2 by the
Ultimate Parent Company, which used to be managed by Al
Enmaa, hence the drop in the real estate services by 2%.
Profitability
12%
8.33%
10%
6%
12.38%
14%
8%
6.99%
8.80%
8.04%
8.36%
4%
2%
0%
2015
2014
2013
7%
6%
5%
4%
3%
2%
1%
0%
2015
2014
2013
Return on
Assets
Return on
Equity
Profit Margin
Asset
Turnover
Financial
Leverage
Return on
Equity
2013
8.36%
0.36
1.68
5.04%
2014
8.04%
0.41
1.71
5.59%
2015
8.80%
0.47
1.66
6.88%
The DuPont decomposition allows us to identify the firms performance drivers to potentially expose effects of weaker
operations that are being masked by the effects of stronger operations.
The decomposition of the DuPont ROE reveals that this is the result of an increase in profit margin and an improvement in asset
turnover, offset by a decrease in the degree of financial leverage. Note that the increase in the profit margin and increase in
asset turnover, in addition to the decrease in financial leverage ratios indicates that the impact of leverage have decreased,
whereas an increase in profit margin and asset turnover indicates that revenue and assets grew throughout the period.
1.40
1.20
Percentage
1.00
Al Enma
Mabanee
0.80
Salhiya
Tijaria
0.60
Mushrif RE
Sokouk Holding
0.40
0.20
Quick Ratio
(0.20)
Return on assets
Debt to Equity
Conclusion
We have analyzed the Parent Companys performance arising from the financial ratios study performed by the
management, as a result, we have noticed the following:
The current ratio increased from 0.78 to 0.79 from 31 October 2013 to 31 October 2014 and continued
The quick ratio decreased from 0.75 to 0.68 from 31 October 2013 to 31 October 2014 and increased
through the year till reached 0.96 at the end of 31 October 2015.
The inventory turn over increased from 5.1 to 5.4 from 31 October 2013 to 31 October 2014 and increased
through the year till reached 6.8 at the end of 31 October 2015.
The account receivable turn over increased from 1.4 to 1.5 from 31 October 2013 to 31 October 2014 and
The asset turn over ratio increased from 0.36 to 0.41 from 31 October 2013 to 31 October 2014 and
The debt to equity increased from 38% to 40% from 31 October 2013 to 31 October 2014 and returning to
The return on asset increased from 3.01% to 3.28% from 31 October 2013 to 31 October 2014 and
continued its increase until it reached 4.14% at the end of 31 October 2015.
Conclusion (contd)
The return on equity increased from 5.04% to 5.59% from 31 October 2013 to 31 October 2014 and
The net profit margin decrease from 8.36% to 8.04% from 31 October 2013 to 31 October 2014 and
returned to increase through the year till reached 8.80% at the end of 31 October 2015.
It is evident from the abovementioned, that the Parent Company has maintained progressive improvement
resulting from the change in the business activities and business plan. The effect is shown in the continuous
increase in the financial ratios of the Parent Company for the year ended 31 October 2015 as compared to 31
October 2014 and 31 October 2013.