Course: Business Finance

assignment: Financial Analysis.

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Contents
Introduction:....................................................................................................................................3
About company:...............................................................................................................................4
Company Activities:....................................................................................................................4
markets :.......................................................................................................................................4
major competitors :...................................................................................................................4
Analysis of Risks:............................................................................................................................5
1- Credit risks:.......................................................................................................................5
2- Interest rate risk:................................................................................................................5
3- Foreign exchange risk:......................................................................................................6
4- Liquidity risk:....................................................................................................................6
Ratio Analysis.................................................................................................................................8
Current Ratio...............................................................................................................................8
Quick Ratio:...............................................................................................................................9
Efficiency Ratios :.........................................................................................................................10
Solvency Ratios............................................................................................................................11
Profitability Ratios:........................................................................................................................12
Evaluation:.....................................................................................................................................14
Conclusion:....................................................................................................................................16
References:....................................................................................................................................17

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Introduction:
Many companies have been subject to setbacks and crises due to non-treatment of the risks they
were exposed to. The results were bad, as many companies were liquidated and others suffered
long losses. Some of them were acquired and others were merged with other companies. .
   Good, adequate and appropriate disclosure in the financial statements and reports of companies
and information on the risks that may be exposed to the company helps users of accounting data
to assess or anticipate risks, which helps them to make their decisions on a clear basis, and this
corresponds to the qualitative characteristics of data in the financial statements, These
characteristics are appropriate and comprehensible, comparable and timely in addition to two
important characteristics namely reliability and reliability.
Many studies have shown at the global and local level that providing good information about the
company's situation and the risks it is exposed to or has a direct impact on determining stock
prices and predicting the returns of those shares and thus directing investors towards good
investment.

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About company:
 2002 - The company was founded under the name of DAMAC Properties
 January 12, 2015 - The listing and commencement of trading on the Company's shares on
the Dubai Financial Market.
 No of employees: 4800.
 As a public shareholding company.
 It is listed on the Dubai Financial Market.

Company Activities:
 Investment, management and development of real estate.
 the main activity of the company is to provide real estate investment services, manage
and implement real estate projects, and provide residential apartments.
 Providing real estate investment services, managing and implementing real estate projects
and providing residential apartments.
 DAMAC Properties has been a leader in luxury real estate in the Middle East since 2002,
offering luxury residential, commercial and leisure properties across the region in the
United Arab Emirates, Saudi Arabia, Qatar, Jordan, Lebanon and the UK.

markets :
 Development of luxury real estate with completion of projects across the GCC, the
Middle East and the UK.

major competitors :
1) Emaar Properties.
2) ALDAR Properties.

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Analysis of Risks:
Exposure to financial risk arises from a number of factors, including the severity of exchange
rate fluctuations, interest rates and commodity prices. As well as complex financial instruments,
such as derivative instruments, as well as loan instruments used in the capital structure. Each
type of business dictates a particular sensitivity to different types of risk.
The risk of a possible future change in one or more interest rates, the price of a financial
instrument, foreign exchange rate, price or rate index, solvency score, credit score, or other
variables,
that companies are expected to seek risk information so that users of this information can
develop strategies to control these risks (Lajili and Zaghal,2005).

1- Credit risks:
  The company basically adopts a sales approach in real estate on the map; there is a risk of
customers failing to pay the money.
Credit risk The Company incurs financial losses
Reduce these risks:
o By collecting the installments of buyers by 20% of the value of the property contributes
to the collection of advance payments from customers and this reduces the risk of financial
stumbling.
o Transfer of title deeds to properties sold only when full payments are made.
o Reliance on bank loans in case of financial default.
o The Company has to assess the credit risk on a permanent basis over the financial
position of all financial liabilities of the financial debt.
o Completion of debt deals with institutions with high efficiency and financial solvency.
o Develop regulations and agreements with preconditions to authorize lending.
o Determination of specific ceilings and specific powers for each party authorized to lend
within the institution.
o     Monitor customer balances on a regular basis.

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2- Interest rate risk:

There is a risk of interest rate changes, for example, as a result of a 50-point reduction in interest
rates, with all fixed variables held (the company's profit in 2016 may decline or rise by AED 5.4
million and the company's profit in 2015 will rise or fall by AED 3.6 million ).
This change in profit and as a result of the risk in the exposure of the company to financial
instruments in the change in interest rates.
Reducing of risk:
There are many ways that an entity can use it to hedge against interest rate risk, including:
   1. A mix of fixed and variable interest loans.
   2. Use swap contracts if possible.
   3. Use of future purchase and sale contracts.
   4. Set up precautionary provisions.

3- Foreign exchange risk:

  Foreign exchange fluctuations pose a risk in a volatile exchange rate environment, as the
company has projects in the Middle East and the majority of revenues, costs and capital
expenditures are denominated in UAE dirhams or US dollars, which is unstable due to political
instability in the Middle East, Currency rates lead to financial risks to the company.
Reducing of risk:
To avoid ( Foreign exchange) currency risk, companies must take many measures to protect
themselves against currency fluctuations, which are considered systemic risks. These include:
       1 - Develop a strategy that enables the company to adjust the prices of goods and services
provided by the company in the event of a sharp drop in currency exchange rates.
       2 - Trade contracts for goods and services with foreign companies.
       3 - Formulation of contracts containing options that protect the real values of purchase in the
event of change in foreign exchange rates.
      4 - The retention of several types of currencies as well as borrowing in several types of
currencies.
      5 - Signing future agreements for sale and purchase.

4- Liquidity risk:
Liquidity risk is the lack of sufficient liquidity for the Company's operating requirements and is
characterized by poor liquidity. The company's liquidity crisis occurs when the company does

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not have the liquid assets (ie, cash) required to meet its short-term obligations such as repaying
its loans, paying bills, and paying wages to its employees. If the liquidity crisis is not resolved,
the company will then have to declare bankruptcy.
Reduce liquidity risk
The Group manages liquidity risk by maintaining adequate reserves, bank facilities and
borrowing facility balances, as well as continuous monitoring of actual and forecast cash flows
and matching of financial asset maturities with financial liabilities.

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Ratio Analysis
2015-31 Dec(million) 2016-31 Dec(million)
Cash & Short-Term Investments 4.50 5.34

Accounts Receivable 12.59 2.72

Other Current Assets 39.65 45.22

Total Current Assets 56.74 53.28

Liquidity Ratio = Current Assets  ÷ Current Liabilities

Current Assets :

Current Liabilities:

2015-31 Dec(million) 2016-31 Dec(million)

Accounts Payable 14.54 10.94

Short-Term Debt 2.77 4.85

Other Short-Term Liabilities 27.33 22.33

Total Current Liabilities 44.65 38.11

Current Ratio

2015-31 Dec(MIL) 2016-31 Dec(MIL)

Current Assets  56.74 53.28

Current Liabilities 44.65 38.11

Current Ratio 1.27 1.39

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Quick Ratio:
Quick Ratio = (Current Assets – Inventories) ÷ Current Liabilities

2015-31 Dec(MIL) 2016-31 Dec(MIL)

Current Assets  56.74 53.28

Current Liabilities 44.65 38.11

Quick Ratio 0.38 0.56

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Efficiency Ratios :
Efficiency Ratio = Expenses* ÷  Revenue "*not including interest expense"

2015-31 Dec(MIL) 2016-31 Dec(MIL)

Expenses 3,856 3,484
Revenue 8,536 7,156
Efficiency Ratios 0.451733833 0.48686417
Efficiency Ratios 45% 49%

This Means That It Costs Company 0.45 AED To Generate 1 AED Of Revenue, In Year 2015
This Means That It Costs Company 0.49 AED To Generate 1 AED Of Revenue, In Year
2016
Efficiency 2015-31 Dec 2016-31 Dec
Days Sales Outstanding 106.96 92.36

Payables Period 333.88 352.58

Receivables Turnover 3.41 3.95

Fixed Assets Turnover 137.88 116.72

Asset Turnover 0.40 0.30

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Solvency Ratios
Solvency ratio = (net income + depreciation) / liabilities
Depreciation:

Depreciation(year 2015, ),( AED’000) Depreciation(year 2016),( AED’000)

(12,630) 15,265

Total liabilities :

Total liabilities (2015),( AED’000) Total liabilities (2016),( AED’000)

13,616,584 12,007,722

Net income
Net income (2015), MIL (AED) Net income (2016), MIL(AED)
4,515 3,695

Solvency ratio - (2015) Solvency ratio - (2016)

0.332508506 0.308989915

33% 30%
The solvency ratio measures the company's long-term viability, so lenders and owners are
concerned about this ratio because it helps to know the sustainability of the firm and its long-
term obligations.
The ratio of solvency gives an idea of the degree of leverage and the degree of risk associated
with debt. These ratios show the extent to which both owners and other creditors contributed to
the financing of the company and the ability to repay. The owners of the company also showed
the extent of the possibility of borrowing as well as the possibility of control of creditors on
decisions It should be noted here that the failure of enterprises to rely on long-term debt-
producing interest in financing their investments and operations the company does not benefit
from the financial leverage,

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Profitability Ratios:

UINT 2015 2016

Sales 8, 536 7, 156
MILL (AED)

EBITDA MILL (AED) 4 ,556 3 ,732

Operating profit (EBIT) MILL (AED) 4, 544 3 ,717
Pre-Tax Profit (EBT) 4, 515 3, 695
MILL (AED)

Net income MILL (AED) 4, 515 3 ,695

Gross Margin 59.36 55.85

Operating Margin 53.18 51.31

EBT Margin 52.89 51.63

Operating Profit Margin:

  UINT 2015 2016

8,536
Net Sales (Revenue) MIO (AED) 7,156
Operating Profit MIO (AED) 4 ,544 3 ,717

Operating Profit Margin=( Operating Profit/ Net Sales

0.532334 0.519424
(Revenue)
53% 52%

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NET Profit Margin

UINT 2015 2016

Net Income MIO
4,515.00 3,695.00
(AED)
Net Sales (Revenue) MIO
8,365.00 7,156.00
(AED)
NET Profit Margin = Net Income/ Net Sales
(Revenue) 0.539749 0.51635

53.9 51.6

PRETAX Profit Margin

UINT 2015 2016
PRETAX Profit MIO (AED) 4,515.00 3,695.00
Net Sales (Revenue) MIO (AED) 8,365.00 7,156.00
Pre-tax Profit Margin= Pre-tax Profit/ Net Sales (Revenue) 0.52893
6 0.51635
52.89 51.6

  Gross Profit Margin: UINT 2015 2016

8,536
Net Sales (Revenue) MILL (AED) 7,156
Gross Profit MILL (AED) 799.1 339.2
0.093615 0.047401
Gross Profit Margin= ( Gross Profit/ Net Sales (Revenue)
 
9.3% 4.7%

We note that this ratio measures the extent of an entity's ability to generate profits, and
profitability indicators are an important means of evaluating the efficiency of the company's
economic management of its resources and achieving profitable returns on those resources.
In general, we note that the profitability rate of the company in 2015 is higher than the
profitability rate of the company in 2016, but by a small difference.

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Evaluation:

DAMAC Properties has revenues of AED 7.16 billion in 2016 with a gross profit margin of 56%.
The company's net profit during the fiscal year was AED 3.69 billion, while the net profit margin
was 52%.
DAMAC Properties has revenues of AED 8.365 billion in 2015.
The company's net profit during the fiscal year was AED 4.515 billion, while net profit margin
was 53%.
Total assets increased by 5% to AED 24.63 billion by the end of 2016 compared to AED 23.45
billion in 2015
The comparison shows that net profit is very close between 2015 and 2016.

REVENUE AED MILLION

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GROSS MARGINS %

NET PROFIT AED MILLION

NET PROFIT MARGIN %

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Conclusion:
 The company should focus on the financial ratios, as the study of these ratios avoid the
dangers that may occur in the company in the future.
 Multiple risks within the company, so the management of the company to identify these
risks well, and the need to manage the company's risks based on the ratios and indicators
necessary and this allows to ensure the survival and continuity of the company in the future.
 The process of financial analysis and financial ratios of the company contributes to the
knowledge of the development of the company.
 The company must control financial decisions by analyzing financial ratios.
 The Company has to disclose the risks under IFRS.
 The company should provide a concise and clear model, and provide a complete picture
of the risk potential for different aspects of the company, as well as the effectiveness of
managing these risks.
 The company should disclose the risks to which it is exposed. The type of risk, such as
currency risk, and the disclosure should be qualitative and quantitative. Companies should
disclose the size of the loans, mention the lenders, the value of the loans, the interest rate for
each loan and the repayment period of the loan in detail.
 The Company's financial report should include a clear indication of the risks to which the
Company may be exposed or liable.

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References:
1) Lajili and Zeghal , (2005) , "A Content Analysis of Risk Management Disclosures in Canadian
Annual Reports " , Canadian Journal of Administrative Sciences,Vol-22-Issue 2 : Jun, P 125-142

2) https://www.damacproperties.com/ar/about-damac
3) http://financials.morningstar.com/ratios/r.html?t=DAMAC
4) https://www.dailyfx.com/arabic/tadawul_forex_news/education/2016/09/05/Liquidity-crisis-of-
companies-and-what-is-its-impact-on-economy-5127.html
5) http://www.4-traders.com/DAMAC-PROPERTIES-DUBAI-CO-20127624/financials/
6) https://www.investing.businessweek.wallst.com/research/stocks/financials/ratios.asp?
ticker=DAMAC:UH
7) https://www.indexsignal.com/community/threads/158742/

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