Financial analysis is the best way the gauge the viability, stability and profitability of business. The ratios and analysis present us the key strengths and weaknesses of a certain company. Through this ratios and analysis, companies are able to maximize their key strengths and remedies if not eliminate their key weaknesses. Financial analysis and ratios aid stakeholders assess financial health of the companies. In light of this topic, we are going to compare the two largest real real estate Development in Ghana">estate company in the Philippines: Ayala Land, Inc. (ALI) and DMCI Holdings, Inc.
(DMCI) Ayala Land, Inc. is the Philippines’ largest, most diversified and fully- integrated property developer. It offers a full line of end-to-end real estate products – ranging from residential, retail and office developments, as well as hotels and island resorts, to construction and property management services. Their real estate portfolio include: Residential (Ayala Land Premier, Alveo, Avida, Amaia, BellaVita) Townships (Nuvali, Bonifacio Global City, FTI, Laguna Technopark, etc. ) Malls (Glorietta, Greenbelt, Trinoma, ATC, BHS, Marquee, Market Market, Abreeza, etc.
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Hotels and island resorts (El Nido Resorts, Holiday Inn, Seda, Marriott, Fairmont) Construction and property management services (Ayala Property Management Corporation, Makati Development Corporation) DMCI, a wholly owned subsidiary, is engaged in general construction services – the Company’s core business. It is also engaged in various construction component businesses such as production and trading of concrete products, and electrical and foundation works. It is one of the Philippines’ leading construction companies. Their real estate portfolio include: Residential (Rockwell Center Condominium Towers)
Malls & Commercial Bldgs (SM Megamall, Fareast Bank Headquarters, Ayala Triangle Tower I, Citibank Tower) Hotels and island resorts (Shangrila Mactan Island Resort, Shang Grand Towers, Shangrila Hotel Manila) DMCI, Holdings Inc. Financial Statements Horizontal Analysis It is observed that both companies have a steady increase in Net Earnings after Tax but DMCI Holdings, Inc beat Ayala Land, Inc, in terms of percentage increase from 2011 to 2012 due a minimization of Cost of Goods Sold. This reflected the efficient utilization of Assets by DMCI Holdings, Inc over Ayala Land, Inc. Vertical Analysis
In terms of vertical analysis, DMCI Holdings, Inc is better than Ayala Land, Inc in converting its Revenue to Net Income for the past 2 years. DMCI was able to do this through constant decrease of its Cost of Goods Sold from 2010 to 2012 Management Viewpoint Operation Analysis Year on year, DMCI retains higher Gross Profit percentage. With more than 50% GM starting from 2011, the company retains about P0. 50 from each peso of revenue generated. This can be put towards paying off expenses and distributions to shareholders. DMCI leads to a more profitable operation, as it has a higher EBIT Margin.
The higher the EBIT margin, the less operating expenses eat into the company’s bottom line. DMCI exceeded ALI with its OPEX percentage of 17% – 21% year on year, proving that the company’s management can effectively reduce its operating expenses without significantly affecting the firm’s ability to compete with its competitors. Resource Management Asset turnover measures a firm’s efficiency at using its assets in generating sales or revenue – the higher the number the better. DMCI has a higher ATO of around 0. 3, compared to ALI’s 0. 2. ALI surpassed DMCI with regards to Working Capital turnover exceeding year on year.
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This entails that the company is able to generate higher sales compared to the money it uses to fund the sales. DMCI is paying its creditors a lot quicker compared to ALI. On the other hand, ALI is quicker is converting its receivables to cash. It can also be noted that ALI is able to convert its inventory to sales based on the Inventory Turnover Ratio, which shows how fast ALI sold and replaced its inventory. Days of Inventory figures show how long it takes for the company to convert its inventory to sales. Resource management ratios help management see the current status of the company regarding asset management.
In this light, we can see that ALI has a shorter Number of Days in Operating Cycle. This refers to interval from the time purchases are made to their conversion back into cash. This is used to manage the working capital efficiently. Cash conversion cycle is the time needed for a cash to be generated by the company until it is used to pay the creditors. In this regard, ALI is able to sell its inventory quicker, collect receivables from its customer is less time and able to pay its creditors longer. In conclusion ALI is better than DMCI in resource management.
These ratios must also help DMCI management to assess is receivable collection effort. They must also investigate why inventories took so long to be sold. Profitability The return on assets (ROA) percentage shows how profitable a company’s assets are in generating revenue. ROAs over 5% are generally considered good. For the last three years, DMCI Real Estate has beaten Ayala Land in generating revenues. It has consistently exceeded benchmark with 2011 as its highest. Ayala Land on the other hand had decreasing ROA for the past three years. Owners’ Viewpoint DMCI has a consistent increase in ROI year on year as compared to ALI.
A steady growth year on year indicates that DMCI is able to efficiently allocate its capital to profitable investments. DMCI surpasses ALI with regards to the return on money that investors have put into the company, having a steady increase from 2010 to 2011 and 25. 5% jump in ROE for 2012. DMCI has again exceeded ALI wen it comes to its EPS numbers, averaging to 3 year on year. This indicates the portion a company’s profit is allocated to each outstanding share of common stock. Lenders’ Viewpoint Liquidity Current Ratio assesses the company’s ability to pay back its short-term liabilities with its short-term assets.
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Background Information Wal-Mart Inc. Corporate Headquarters. 702 Southwest 8 th street Bentonville, Ar 72716-8001 Top Executives. President and CEO: H. Lee Scott. Chairman of the Board: S. Robson Walton. Chairman, Executive Committee of the Board: David D. Glass. Chief Financial officer & Executive Vice President: Thomas M. SchoeweIndustry. General Merchandise, SIC code: 5399 Divisions. Wal- ...
A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. ALI has an average of 1. 6 current ratio, while DMCI shows more capability of paying its short-term obligations with a higher Current Ratio. Acid test Ratio indicates the company’s ability to cover its immediate liabilities using its short-term assets without having to sell inventory. Again, DMCI exceeds ALI with an average of 3 year on year. Financial Leverage ALI has lower debt to assets percentage indicating lower debt over assets.
Although DMCI’s Debt to Capitalization increased to 1.06 on 2012, the company still has lower ratio over Ali DMCI shows a higher Debt to Equity ratio, exceeding 100% year on year. This indicates that the company has been aggressive in financing its growth with debt. DuPont Analysis Profit Margin for both companies on upward trend, DMCI posted stronger gains. Return on Assets for both companies slipped in 2012, DMCI more efficient in utilizing its assets to generate earnings. Ayala Land’s financial leverage ratio increasing since 2010, while DMCI significantly improved in 2012. DMCI Real Estate performed better than Ayala Land.
