A Case Study on Emaar

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In tandem with Dubai's rapid growth, Emaar Properties PJSC is rapidly evolving to become a global provider of premier lifestyles. A Dubai-based Public Joint Stock Company, Emaar is listed on the Dubai Financial Market and is part of the Dow Jones Arabia Titans Index. Emaar has been shaping landscapes and lives in the Emirate since the company's inception in 1997. Not just building homes, Emaar develops value-added, master-planned communities that meet the homebuyers' full spectrum of lifestyle needs. A pioneer of innovative community-living concepts, Emaar is the prime mover of the Emirate's real estate and construction sector. Emaar Properties PJSC, Dubai-based Public Joint Stock Company, is one of the world’s largest real estate companies. With six business segments and more than 60 active companies, Emaar has a collective presence in over 36 markets.It is a part-private & part-government property developer. Its major projects in the recent past have been Burj Dubai ( Burj Khalifa ), Dubai Mall and Emirates Hills. The case study puts a light on a shareholder named Juan who has invested in EMAAR properties, who is worried about his investments in the company , He calls his friend Linda , MBA specialization in Finance to discuss the sinking share prices of Emaar’s stock and it’s current financial health . The problems which were discussed with Linda are :-

* Financial health of the company .
* Problems that Emaar properties are facing
* Reasons for company’s share price to decline .

Problems faced by Emaar properties :-
Emaar properties was a very highly profitable company till the year 2007 , but company faced problems due to a slowdown & recession in the real estate market because of the financial crisis faced by The United states of America , the sub prime mortgage crisis faced by America . The slowdown in the real estate market also affected the UAE real estate Market , especially Dubai , which was growing on a rapid pace , Emaar faces an increase in the form up build-up in receivables, development properties & investment properties,which shows “supply exceed demand” scenario. This increased the “Net receivables” of Emaar sharply,i.e,120% increase from 2007. Finally the company had to take a 750 million write-down on its US units in 2007.

Here below are the various ratios of the company to study the financial health of the company :-

Debt ratio

Debt ratio :- Total Liabilities / Total assets

This ratio indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load.A debt ratio of greater than 1 indicates that a company has more debt than assets, meanwhile, a debt ratio of less than 1 indicates that a company has more assets than debt.

Year| Debt Ratio|
2008| 0.40|
2007| 0.32|
2006| 0.26|
2005| 0.20|
2004| 0.39|
2003| 0.27|

In 2008 , the debt ratio of the company 0.40 as compared to 0.32 in the year 2007 , which clearly shows the increased financial risk compared to previous year . This shows that the company is inducing more financial risk for itself .

Inventory turnover ratio
Inventory turnover = cost of goods sold/average inventory
Year| Inventory turnover|
2008| 0.52|
2007| 0.78|
2006| 0.995|
2005| 2.21|
2004| 1.72|

From the common size income statement ,we can see that the net sales has gone down in 2008 as compared to 2007, but the inventory(i.e development properties) increased from 30% to 32% and net receivables increased(trade receivables – 2% to 3% and other receivables from 5% to 6%) in the same period.

This means that Emaar is unable/finding it hard to sell their inventory.

In the above graph , which clearly shows...
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