A Financial Statement Analysis on Three Major Construction Companies in the UAE (Arabtec Holding PJSC, Drake & Scull PJSC and Emaar Properties PJSC)
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Date
2015-04
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The British University in Dubai (BUiD)
Abstract
Financial statement analysis has been carried out with respect to three construction companies that are operating in UAE that are, Arabtec Holding PSJC, Drake & Scull PSJC and Emaar Properties PSJC. In this research, financial ratio analysis has been conducted regarding profitability ratios, liquidity ratios, leverage ratios, activity ratios, cash flow ratios and market ratios. The data was taken from Dubai Financial Market, and the studied years were 2011, 2012 and 2013. The three years were chosen based on the fact that a recovery phase has been under process since 2010 and after the global financial crisis that hit the world in 2008. A detailed analysis has been conducted in respect to the following:
It is concluded in the study that profitability is the performance indicator of companies. A General profitability trend in the construction industry may be negated by well performed operational activities, which minimizes the direct cost and increases the profitability. EMAAR in the study has proved that well operated assets can bring good profits to the company.
Liquidity ratios have been analyzed to adjudge the company’s capability to meet its current liabilities within existing stream of current assets. Desirable liquidity ratio of (1.5-2 times) is a good indicator of a company’s position and the sample chosen companies are meeting the standards of the desirable liquidity ratio.
Leverage ratios have been studied to observe the debt dependency of the companies. Higher Debt to equity ratio is undesirable and risky, but it is concluded that if one company uses its debt efficiently, it generates good and heavy returns. On the other hand, low debt to equity ratio though desirable and favorable may be proved bad if resources are not utilized well or fall short of needs.
Activity/Efficiency ratios have been scrutinized to trace the reasons of efficient or in-efficient use of working capital as compared to other companies. Activity/Efficiency ratios with short operating cycle helps the company to keep its money in circulation and earn more profits. Early recovery and conversion always help to overcome the need of cash.
Cash flows, the life blood to operate in a dynamic Dubai market, have been observed on the three companies from 2011 to 2013 to see the impact of favorable or unfavorable cash flows. The main focus in this research was on operating cash flows. It is concluded that a healthy cash flow, especially operating cash flow, plays an important part in the running of operational activity. Enough cash flow is always attractive and satisfactory for investors and lenders.
Market trend has also been analyzed to explore the reasons of high market value of shares or low market share price in Dubai Financial Market. Market ratios analysis have provided reasonable answers where consistent dividend issue policy has been adopted.
Based on above, analysis, recommendations and conclusions have been drawn to induce improvements in the operations of the companies that are not performing well comparatively. Upon that, Arabtec Holding PSJC and Drake & Scull PSJC are advised to improve their operating activities.
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Keywords
financial statement analysis, United Arab Emirates (UAE), Dubai financial market, construction industry