FINANCIAL STATEMENT ANALYSIS

FIN3111

ASSIGNMENT 1

EMAAR PROPERTIES PJSC

(2014-2018)

COMMON STOCK ANALYSIS

DR. BASHAR AlMANSOUR

ALI RAZA / 14182

 Financial Analysis Assignment 1
Emaar Properties
Emaar Properties is the one of the largest real estate company present in UAE. Emaar
Properties were founded in 1997 in UAE Dubai by Mohammad Ali Alabbar. Emaar is
also very famous in UAE for the role in country’s commercial and residential
development programs. Emaar Properties is also listed in Dubai’s financial market
which is also known as DFM (Dubai Financial Market). Emaar became one of the
leading companies around the world because of its world class projects like
constructing world’s largest shopping mall in Dubai which is also known as Dubai
mall, constructing world’s tallest building known as Burj Khalifa in Dubai, Marina Mall
in Dubai and many other projects in UAE and other parts of world. Currently Emaar is
also hosting international projects in 7 different countries for property development
and these 7 countries are Pakistan, India, Egypt, Saudi Arabia, Turkey and Northern
part of Iraq. The company had the value of DHM 35.6 million as of 2018. Below in the
assignment, last 5 years of financial statements will be analysed based on Common
size statement of Emaar Properties. These financial statements are from the 2014 to
2018.

DFM
DFM known as Dubai Financial Market is one of the leading financial market of UAE
and region. Today DFM runs by chairman DFM known as H.E. Essa Kazim. DFM is the
first financial market of UAE, it started its operation back in 2000 Dubai. DFM
provides the opportunity to investors in UAE and internationally to invest in
companies and organizations listed on DFM. It plays the role of middleman in
investors and organizations for selling and buying of stocks and shares issued by
companies or organizations. Now there are 3 main financial markets in UAE ADX
(Abu Dhabi Securities Exchange), Nasdaq and DFM. There are many organizations
listed on DFM from UAE and from MENA Region there are organizations from
neighbouring countries like Oman, Kuwait, Bahrain and Sudan. DFM was owned by
the government of Dubai until 2006 when it turned into public joint stock company
and listed its 20% of shares to public and investors to buy through IPO (Initial Public
Offering). As of 2017 the DFM made the profit 233.5 million DHMS. The data
collected for the assignments for common stock analysis is from DFM.
 Common Size Analysis
To analyse the previous 5 years of income statement and balance sheet, the
commons size analysis method will be used also known as vertical analysis method.
In income statement if we use this method then we will divide all the items with total
revenue to get CSA % of each item. In Balance sheet if we use CSA method then we
will divide all the items with Total assets or Total Liabilities + Equities to get the CSA
% of each item. According to % of each item in last 5 years we will analyse the
Income Statement and Balance Sheet.

Income Statement 2014 2015 2016 2017 2018

100.00 100.00 100.00 100.00 100.00
Revenue % % % % %
Cost of revenue -40.32% -46.83% -47.88% -49.26% -49.86%
Gross Profit 59.68% 53.17% 52.12% 50.74% 50.14%
Other operating Income 3.06% 2.35% 2.09% 1.88% 1.69%
Other Operating Expenses -1.73% -1.18% -1.01% -0.89% -0.76%
Selling, general and administrative expense -26.15% -21.07% -19.09% -18.06% -17.07%
Finance Income 4.84% 3.16% 4.12% 3.40% 3.25%
Finance Cost -5.14% -3.50% -3.85% -3.90% -4.11%
Gain on distribution of non-cash assets 0.00% 0.00% 0.00% 0.00% 1.38%
Discounting of long-term loans to an associate -0.28% 0.00% 0.00% 0.00% 0.00%
other income 4.25% 1.09% 2.81% 2.54% 1.90%
Share of results of associates and joint
ventures -0.88% 1.38% 0.73% 0.72% 0.19%
Impairment of loan to an associate -0.30% 0.00% 0.00% 0.00% 0.00%
Write off assets 0.00% -2.21% 0.00% 0.00% -1.54%
Earning Before Tax 37.34% 33.20% 37.93% 36.42% 35.06%
Income Tax expense / credit -0.08% 0.39% -0.51% -0.39% 0.04%
Net Income 37.26% 33.60% 37.43% 36.03% 35.10%
 Income Statement
In the analysis of the CSA of income statement of 5 years, we get the followings CSA of net
income (2014 = 37.26%), (2015 = 33.60%), (2016 = 37.43%), (2017 = 36.03%) and (2018 =
35.10%). By looking at income statement we can see that the net income of Emaar
Properties is decreasing, it decreased from 37.26% in 2014 to 35.10% in 2018. Now we will
be analysing the factors decreasing net income over the period of 5 years.
First, we have cost of revenue or cost of goods, after the CSA we get the following values in
2014 40.32%, 2015 46.83%, 2016 47.88%, 2017 49.26% and 49.86% in 2018. By looking at
the values of Cost of revenue we can say that the cost of revenue increased gradually over
the period and it is one of the major factors behind decrease of net income.
Second factor responsible for the decrease in NI of the company is the decrease operating
income of the company. The 1st year it was recorded to be 3.06%, 2.35% in 2nd, 2.09% on 3rd,
1.88% in 4th and 1.69% in 5th. Due to this decrease it effected not greatly but surely the net
income.
Third factor responsible for decreasing net income is decrease in finance income which was
recorded 4.84% in 2014 and 3.25% recorded in 2018, it decreased by the margin 1.59%
which effected cost of net revenue to increase and net income to decrease. It was due
decrease in profits from non-primary business and increase in interest expense.
Fourth factor affecting net income is decrease in other income which includes properties
held for rent and property held for sale or asset held for sale. From CSA income statement
we can see that other income decreased from 4.25% in 2014 to 1.90% in 2018 it decreased
by 2.35% over the period resulting in decrease of overall net income. It decreased due to
people leaving their rented commercial shops or residential units provided by Emaar
Properties.
These are the four main factors that affected income statement to decrease over the period
of 5 years from 2014 to 2018. These four factors also affected gross profit which decreased
resulting in decrease of Net Income.
Balance Sheet 2018 2017 2016 2015 2014
Assets          
Current Assets          
Bank Balances and cash 8.48% 18.72% 17.95% 22.52% 21.59%
Trade and Unbilled Receivables 6.65% 2.66% 2.79% 3.29% 1.52%
Other assets, receivable, deposits and prepayments 12.98% 9.69% 8.18% 6.05% 4.57%
Assets classified as held for sale 2.81% 5.83% 6.45% 0.00% 0.00%
Total Current Assets 30.92% 36.90% 35.37% 31.86% 27.69%
Non-Current Assets          
development properties 34.29% 31.27% 33.69% 26.84% 37.24%
investment in securities 2.00% 1.76% 1.68% 2.08% 1.26%
Loans to associates and joint ventures 0.88% 0.65% 0.16% 3.80% 3.94%
Investment in associates and joint ventures 4.20% 4.19% 5.05% 8.42% 7.54%
Property, Plant and equipment 9.51% 9.97% 9.69% 11.73% 11.07%
Investment Properties 17.66% 14.72% 14.31% 15.21% 11.21%
intangible assets 0.55% 0.56% 0.00% 0.00% 0.00%
Goodwill 0.00% 0.00% 0.05% 0.06% 0.06%
Total Non-current Assets 69.08% 63.10% 64.63% 68.14% 72.31%
100.00 100.00 100.00 100.00 100.00
Total Assets
% % % % %
Liabilities and Equity          
Current Liabilities          
Advances from Customers 12.14% 12.89% 16.35% 17.69% 20.87%
Trade and other payables 16.05% 12.84% 11.73% 11.75% 13.29%
Retentions Payable Within 12 Months 0.49% 0.39% 0.32% 0.40% 0.54%
liabilities directly associated with assets classified as held fo sale 0.65% 3.00% 3.34% 0.00% 0.00%
Total Current Liabilities 29.32% 29.12% 31.74% 29.84% 34.71%
Non-current Liabilities          
Provision for employees' end of service benefits 0.15% 0.14% 0.15% 0.17% 0.18%
Sukuk 6.54% 6.49% 7.59% 8.04% 8.62%
Retentions Payable After 12 Months 0.65% 0.53% 0.61% 0.61% 0.43%
Interest bearing loans and borrowings 12.14% 12.64% 10.42% 8.64% 8.03%
Total Non-Current Liabilities 19.47% 19.80% 18.78% 17.46% 17.26%
Total Liabilities 48.80% 48.92% 50.52% 47.31% 51.97%
Equity          
Share capital 6.40% 6.35% 7.43% 9.00% 9.65%
Employees performance share program 0.00% 0.00% 0.00% 0.00% 0.00%
Reserves 14.81% 14.81% 16.81% 21.29% 22.12%
Non-Controlling Interest 7.85% 7.56% 6.92% 4.79% 3.53%
Retained earnings 22.14% 22.36% 18.32% 17.62% 12.73%
Total Equity 51.20% 51.08% 49.48% 52.69% 48.03%
Total Liabilities and Equity 100.00 100.00 100.00 100.00 100.00
 % % % % %

In Balance sheet we analysed the following 5 components current assets, non-current assets
current liabilities, non-current liabilities and equity of the company we are doing CSA based
on their increase or decrease.
Current Assets:
Current assets, if we look at current assets they increased from2014 to 2018 which means
cash outflow, we see that current assets were increasing from 2014 (27.69%) to 2017
(36.90%) when they suddenly went down in 2018 (30.92%) mainly because the cash and
bank balances reduced to 8.48% in 2018 from 18.72% in 2017 this means company has
invested more in 2018 then 2017. The other factors increasing current assets are increase in
trade and unbilled receivables which from 1.52% in 2014 to 6.65% in 2018 which means the
company sold more goods on credit. The second factor increasing current assets are other
assets, receivable, deposits and prepayments which increased from 4.57% in 2014 to
12.98% in 2018 and gradually increased in last 3rd factor increasing current asset is assets
classified as held for sale which were 0% in 2014 and 2.81% in 2018.

Current liabilities:
The current liabilities of Emaar properties Dropped from 34.71% 2014 to 29.32% in 2018
which means company has paid off its more liabilities then 2014 which also means more
cash outflow. The only factor significantly decreasing the current liability is the advances
from customer which were 20.87% in 2014 and decreased to 12.14% in 2018 which means
more tenants left and company had to pay back the advances to customer which means
cash outflow. The second factor affecting current liability is trade and other payable which is
increasing from 13.29% in 2004 to 16.05% in 2018 which means company bought more stuff
on credit and had to pay back to within the respected time other factors didn’t played large
roles but still were affecting current liabilities.

Current Assets and Current Liabilities:

If we compare both current assets and current liabilities it is showed that the current
liabilities are less than current assets which means company can pay off its current liabilities
which 29.32% but the company is not healthy as current assets are only 30.92%.
Non-Current Assets:
The non-current assets of the company started decreasing from72.31% in 2014 to 63.10% in
2017 after that it increased in 2018 to 69.08% but still it was less than 2014. The reasons
behind decreasing of non-current assets are, first one is decrease in development properties
project from 37.24% in 2014 to 34.29% in 2018. The second factor decreasing non-current
assets is loans to associates and joint ventures which decreased to 0.88% in 2018 from
3.94% in 2014. The third factors decreasing non-current asset is decrease in investment in
associates and joint ventures which decrease from 7.54% in 2014 to 4.20% in 2018. The
fourth factor is decreasing in property, plant and equipment which was 11.07% in 2014 and
9.51% in 2018 which means company has sold some of its property plant and equipment.
These are four main factors decreasing non-current assets.

Non-current Liabilities
The non-current liabilities of Emaar properties increased in the period of 5 years from
17.26% in 2014 to 19.47% in 2018. They were increased main because of 2 main factors the
first one is retentions payable after 12 months which were gradually increased from 0.43%
in 2014 to 0.65% in 2018 and the second reason they were increased in because of
significant increase in Interest bearing loans and borrowings which increased from 8.03% in
2014 to 12.14% in 2018. The overall liabilities are increased by 2.21% from 2014 to 2018.

Equity
The shareholder equity of the company increased by 3.17% as it was 48.03% in 2014 which
increased to 51.20% in 2018 which means. The following factors affecting SHE are followed.
The first factor is capital share which was decreased by 9.56% in 2014 to 6.40% in 2018, this
is because of the number of shares in the company were decreased. The second factor is
decreasing reserves in 2018 (14.81%) then 2014 (22.12%). The third factor increasing total
equity is non-controlling assets which increased from 3.53% in 2014 to 7.85% in 2018. The
fourth and last factor increasing total equity is increasing in retained earnings from 12.73%
in 2014 to 22.14% in 2018 due to taking more cash from common stockholder’s equity
which led to increase in retained earnings because company wanted to have more cash to
invest. These all factors led to increase in total equity over the period of 5 years from 2014
to 2018.
Conclusion:
In conclusion, the Net Income of Emaar Properties PJSC mainly decreased because of high
direct cost of revenue, resulting in decreasing Gross profits which decreased the overall net
income. In balance sheet the total current assets were more the total current liabilities, but
the company was not healthy as there was not much of difference between currents assets
and liabilities. There was gradually decrease in non-current assets of Emaar which means
cash outflow and gradual increase in non-current liabilities which means cash inflow. The
equities of Emaar properties also increased by increasing Retained Earnings and Non-
controlling Interests.

Recommendations:
Emaar Properties should look for the reasons in increasing cost of revenues to minimize the
Cost of revenues and maximize the net income in future. Their current assets were a bit
higher than their current liabilities which shows company is not healthy, therefore they
should increase their current assets also to make their organization healthier as compared
to current liabilities.

Reference:
https://www.emaar.com/en/investor-relations

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