salhia - report

8/3/2019 Salhia - Report

1/20

Salhia Real Estate Company KSC - Ratio Analysis

[Type the document subtitle]

author

[Pick the date]


2/20

Contents

Salhia Real Estate Company KSC .................................................................................................. 3

1. Introduction ................................................................................................................................. 3

2. Ratio Analysis ............................................................................................................................. 3

List of Ratios used for analysis ................................................................................................... 4

3. Financial AnalysisSnapshot of ratios ...................................................................................... 6

Profit and Loss statement ............................................................................................................ 6

Balance Sheet .............................................................................................................................. 7

Snapshot of ratios ........................................................................................................................ 8

4. Analysis of various Financial Ratios .......................................................................................... 9

Short Term Liquidity Ratios ....................................................................................................... 9

Long Term Solvency Ratios ..................................................................................................... 12

Profitability Ratios .................................................................................................................... 14

Market price & dividend ratios ................................................................................................. 18

5. Conclusion: ............................................................................................................................... 20

6. References ................................................................................................................................. 20


3/20

Salhia Real Estate Company KSC

1. Introduction

Salhia Real Estate Company KSC is involved in creation, ownership and management of fine

commercial real estate1. It is a major player in Kuwaits retail and leisure, hotels and office

markets. The company has consistently achieved market-leading returns. The Company's

services are structured into three segments, namely Real Estate Operations, Hotel Operations and

Care Home Operations. The Real Estate Operations segment consists of development and leasing

of properties. The Hotel Operations segment consists of the hotel hospitality services provided

through the joint-ventures Marriott Hotel - Kuwait, Courtyard Marriott Hotel - Kuwait and

Arraya Ball Room - Kuwait. The Care Home Operations segment consists of care home

activities provided by subsidiary companies. It also offers property management services through

its subsidiaries located in Kuwait, Germany and the United Kingdom. The Company's project

portfolio includes retail and leisure, offices, hotels, residential, industrial and logistics, and care

for the elderly. It stands as the fourth largest developer in Kuwait and has recently been involved

in Al Asima. Its other major projects are Farnborough town centre in Hampshire, a multipurpose

project in the centre of Birmingham and a major residential development planned for the

Midlands town of Rugby. The company has been involved in various M&As over the period

and has two long standing and successful joint ventures: Key Property Investments and

Drawbridge Securities. The present market price of the companys stock is 208.00 Kd.3

2. Ratio Analysis

It is a method of analyzing the operations of a company. It uses the financial statements of the

company and calculates various ratios based on the various terminologies involved. It gives a

quantitative understanding which helps to compare the operations of one company with other. It


4/20

also helps to compare companies of different sizes. Several ratios are involved in this technique

but the actual no of ratios calculated depends on the purpose and objectives of analysis.

It helps in evaluating the firms performance: The financial health, efficiency and profitability

of the company can be estimated. It tells whether management is utilizing all the assets in a

proper and optimized way or not, which must to increase investors wealth is.

It helps in inter-firm comparison: A small company can be compared with a large company as

the ratio analysis removes the size factor. It gives a platform for relative comparison between

different types of companies.

It helps in determining the financial position of the concern: The trends can be judges to

examine whether the company is rising or is falling. The profits may be positive but if they are

reducing, then it is a point of concern for the investors. Ratio analysis can suggest the reasons for

the same.

It is helpful in budgeting and forecasting: A manager can analyze the ratio and forecast its

sales or plan the budgets to improve the ratio and hence the financial conditioned the company.

The ratios provide a good platform to start the strategic discussions.

Liquidity position: The liquidity position of the company defines its relations with the other

business partners or members of the value chain. Hence ratios give an over view of the same and

proves beneficial for the suppliers as well, as they can understand a compare the liquidity of the

company and can have an idea about the payment cycle.

Help in investment decisions: The investment decisions taken by investors and lending

decisions taken by bankers are influenced by financial ratios of the company. It helps them to

take right decisions.

List of Ratios used for analysis

Short Term Liquidity Ratios2


5/20

Current ratio = Current assets / Current liabilities

Quick ratio = Current assets minus inventories / Current liabilities

Accounts receivable turnover = Sales / Average accounts receivable

Average collection period = 365 / Accounts receivable turnover

Inventory turnover = Cost of goods sold / Average inventory at cost

Long-term solvency ratios:

Total-debt-to-total assets = Total liabilities / Total assets

Total-debt-to-total-equity = Total liabilities / Stockholders' equity

Interest coverage = EBIT / Interest expense

Profitability ratios

Return on common stockholders' equity = Net income / average common stockholders' equity

Gross profit rate = Gross profit / Sales

Return on sales = Net income / Sales

Asset turnover = Sales / Average total assets

EBIT to sales = EBIT / Sales

Return on assets = EBIT / Average total assets

Earnings per share =Net income less dividends on preferred stock, if any / Average common

shares outstanding

Market price & dividend ratios

Price-earnings =Market price of common share / Earnings per share

Book value per common share =Common stockholders' equity / Number of common shares

outstanding

Market-to-book =Market price of common share / Book value per common share

Dividend-yield =Dividends per common share / Market price of common share

Dividend-payout =Dividends per common share / Earnings per share


6/20

3. Financial Analysis Snapshot of ratios

Profit and Loss statement

2005 2006 2007 2008 2009

Revenues 33,777,609 36,503,370 40,802,911 44,146,975 44,213,336 42,995

Operating Costs

-

13,667,315 -16,179,798 -17,225,126 -18,799,472 -17,249,380 -17,894

Gross Profit 20,110,294 20,323,572 23,577,785 25,347,503 26,963,956 25,100

Share in joint venture

results 1,497,748 1,667,576 755,382 2,544,012 -271,773 1,163

Share of associates -447,996 -2,031,962 -1,389,735 -1,427

General and administrative

expenses -5,204,004 -5,322,741 -7,385,664 -5,884,649 -4,372,819 -4,535

Depreciation -5,198,216 -5,200,448 -5,201,549 -5,180,805 -5,042,706 -6,238

Sales an marketing

expenses -2,140,232 -986,940 -978,591 -1,023,621 -856,746 -823EBIT 9,065,590 10,481,019 10,319,367 13,770,478 15,030,177 13,238

Investment income 11,467,025 884,544 6,129,855 8,606,288 7,773,641 8,878

Gain on sale of properties 4,911,750 49,056,614 26,780,863 0 0

Foreign exchange gain 286,233 30,282 2,364,837 -704,612 -856,859 -331

Interest income 69,011 131,375 781,140 175,447 75,734 245

Other income 101,764 285,219 157,909 391,768 1,169,948 206

Provision for impairment -123,105 -200,000 -4,861,886 -47,894,714 -9,513,832 -4,157

- -3,673,427 1,059,157 -2,541

Finance costs -7,144,652 -8,846,378 -7,500,382 -7,158,296 -6,263,287 -4,719

Profit before tax 18,633,616 51,822,675 34,171,703 -36,487,068 8,474,679 10,820

Foreign tax -455,854 -971,917 -1,715,775 -47,629 -1,075,728 -461

(LOSS) PROFIT BEFORE

CONTRIBUTION TO KFAS,

NLST, ZAKAT AND

DIRECTORS FEES 18,177,762 50,850,758 32,455,928 -36,534,697 7,398,951 10,359

Contribution to KFAS -163,985 -457,657 -290,167 - -35,015 -97

NLST tax -403,114 -1,271,269 -789,129 - -202,295 -264

Zakat -19,703 - -76,514 -107Directors fees -110,000 -165,000 -165,000 - -135,000 -120

PROFIT for the year 17,500,663 48,956,832 31,191,929 -36,534,697 6,950,127 9,769

Attributable to:

(Loss) profit attributable to

equity holders of the parent

company 17,543,488 49,030,836 30,976,727 -35,494,609 7,248,686 10,203

Minority interest -42,825 -74,004 215,202 -1,040,088 -298,559 -434


7/20

17,500,663 48,956,832 31,191,929 -36,534,697 6,950,127 9,769

Basic and diluted (loss)

earnings per share

attributable

to equity holders of the

parent company 57.9 163.2 81 -90 19 Total no of shares

outstanding 314,923,698 362,162,253 398,378,478 399,221,255 405,925

Dividend 50 50 50 15

Balance Sheet

2005 2006 2007 2008 2009 2010

Cash and bank

balance 2,540,085 2,458,249 4,459,505 6,472,316 7,472,144 7,384,622

Fixed deposit - 20,000,000 5,886,303 1,162,900

Inventories 430,222 462,308 350,717 366,565 336,880 305,110

Accounts receivable 7,107,680 8,369,777 43,026,740 6,387,309 9,627,574 6,434,726

Available for sale

investments 28,098,958 36,819,030 102,672,764 71,829,726 63,798,084 23,405,050

Investment in

associates - - - - - -

Investment in joint

venture 15,446,824 18,575,195 14,407,638 10,956,432 9,040,006 10,290,764

Investment

properties 64,158,563 51,812,449 35,985,414 39,030,846 68,786,388 66,078,372

Current assets 117,782,332 138,497,008 206,789,081 136,206,094 159,061,076 113,898,644

Property, plant and

eqp 99,281,129 103,955,924 117,907,102 127,803,454 103,280,478 95,785,162

Total assets 217,063,461 242,452,932 324,696,183 264,009,548 262,341,554 209,683,806

Liabilities, Deferred

Gain And Total Equity

Liabilities

Due to banks and

financial institution 19,477,462 6,925,347 62,276,228 44,964,253 33,015,794 1,399,085

Accounts payable and

other liabilities 10,769,952 11,559,613 19,848,731 18,662,082 17,148,147 17,304,659

Long-term loan 83,910,926 79,875,419 80,735,805 82,586,066 77,921,038 64,376,959

Total liabilities 114,158,340 98,360,379 162,860,764 146,212,401 128,084,979 83,080,703

Deferred gain - 9,056,614 9,504,610 11,536,572 12,926,307 14,354,122

Equity

Share capital 31,492,370 31,492,370 36,216,226 39,837,848 39,922,126 40,592,531


8/20

Share premium 27,524,906 27,524,906 27,524,906 27,524,906 27,524,906 27,524,906

Treasury shares -8,745,531 -9,439,596 -7,093,274 -1,072,354 -2,428,530 -3,439,031

Treasury shares

reserve 994,242 994,242 1,033,002 1,807,235 1,807,235 1,807,235

Statutory reserve 9,942,579 15,035,055 18,259,091 18,259,091 18,648,149 19,727,484

Voluntary reserve 9,942,579 15,035,055 18,259,091 18,259,091 18,648,149 19,727,484

General reserve 4,250,000 4,250,000 4,250,000 4,250,000 4,250,000 -

Foreign currency

translation reserve 1,897,798 3,376,005 3,758,396 -2,131,003 -1,448,555 -2,472,526

Cumulative changes

in fair value -66,452 -2,695,527 -4,302,706 3,135,277 10,767,888 -1,425,588

Employee share

options plan reserve - 227,549

Retained 24,732,713 48,537,767 53,217,737 -3,806,930 2,282,984 9,667,784

Equity Attributable To

Equity Holders Of The

Company

Parent Company 101,965,204 134,110,277 151,122,469 106,290,710 119,974,352 111,710,279

Minority interest 939,917 925,662 1,208,340 -30,135 1,355,916 538,702

Total Equity 102,905,121 135,035,939 152,330,809 106,260,575 121,330,268 112,248,981

Total Liabilities,

Deferred Gain And

Total Equity 217,063,461 242,452,932 324,696,183 264,009,548 262,341,554 209,683,806

Snapshot of ratios

Name of the Ratio 2006 2007 2008 2009 2010

Short Term Liquidity Ratios

Current Ratio 7.49 2.52 2.14 3.17 6.09

Quick Ratio 7.47 2.51 2.13 3.16 6.07

Accounts receivable turnover 4.72 1.59 1.79 5.52 5.35

Average collection period 77.38 229.88 204.27 66.10 68.18

Inventory turnover 36.26 42.37 52.42 49.04 55.75

Long Term Solvency Ratios

Total-debt-to-total assets 0.41 0.50 0.55 0.49 0.40

Total-debt-to-total-equity 0.73 1.07 1.38 1.06 0.74

Interest Coverage 1.18 1.38 1.92 2.40 2.81

Profitability Ratios


9/20

Gross Profit Margin (%) 0.56 0.58 0.57 0.61 0.58

Return on sales 0.00 0.11 -0.83 0.16 0.23

Asset turnover 0.16 0.14 0.15 0.17 0.18

EBIT to sales 0.29 0.25 0.31 0.34 0.31

Return on assets 0.05 0.04 0.05 0.06 0.06

Return on common stockholders' equity 0.37 0.21 -0.34 0.06 0.09

Earnings per share 163.20 81.00 -90.00 19.00 26.00


Price-earnings

Book value per common share 0.43 0.42 0.27 0.30 0.28

Market-to-book

Dividend-yield

Dividend-payout 0.31 0.62 -0.56 0.79 0.77

4. Analysis of various Financial Ratios

Short Term Liquidity Ratios

Current Ratio:

The ratio is used to advice about the ability of the company to pay back the liabilities (short-

term) from assets (short-term). It is good for a company to have a high current ratio. It also tells

little about the operational efficiency of the company. It speaks about the liquidity of the

company. It should not be very high than the industry average.

0.00

2.00

4.00

6.00

8.00

2004 2006 2008 2010 2012

Current Ratio

Current Ratio


10/20

This ratio decreased up to 2008 and then increased again till 2010. The recent increase is due to

lower current liabilities (loans due to banks and financial institution) especially in year 2010.

It has been greater than 1 for last 5 years which is a good sign.

Quick Ratio

It is similar to current ratio except it does not include inventories in calculation.

It is also having the similar trend as the current ratio has. Hence, it is positive for the company.

Accounts Receivable Turnover

It is important to understand how a company making sales on credit terms. This ratio is a short

term liquidity measure.

0.00

2.00

4.00

6.00

8.00

2004 2006 2008 2010 2012

Quick Ratio

Quick Ratio

0.00

5.00

10.00

2004 2006 2008 2010 2012

Accounts receivable

turnover

Accounts

receivable

turnover


11/20

This ratio increased in recent years. It is expected as due to recessionary pressure, company had

to make more sales on credit terms. A sharp change is trend in 2008, when global financial

recession happened, supports the above argument.

Average collection period

The average collection period follows the reverse trend to Accounts Receivable Turnover ratio.

Inventory turnover

It tells us about the number of times a company sells its inventory or replaces its inventory over a

period.

As this ratio is increasing over the last five years, it means the company is controlling the

inventory and is trying to reduce it to improve the ratio. Investment in inventory is good when

prices are increasing. In recent recessionary period, real estate has been facing loses and less no

0.00

100.00

200.00

300.00

2004 2006 2008 2010 2012

Average collection period

Average

collection

period

0.00

10.00

20.00

30.00

40.00

50.00

60.00

2004 2006 2008 2010 2012

Inventory turnover

Inventory

turnover


12/20

of projects are getting executed due to lower demand. Hence, lowering the inventory levels is a

positive trend.

Long Term Solvency Ratios

Total-debt-to-total assets

It is used to examine the financial risk of the company. It tells us as in how much assets have

been financed by debt. It should be as per industry average. A higher ratio will increase the risk

and a lower ratio may affect the profitability f the company. If debt is taken low, and internal

capital is used for purchasing assets, due to liquidity crunch the company may not be able to

invest in all the required assets and it will impact the profitability and competitiveness.

The company was not performing well in earlier years. The ratio was increasing from 2005-

2008. The global recession in 2008 has changed the market dynamics and the process of running

the business for this company. In recent years, company is following a low debt policy. It may be

due to reduced demand of real estate and hence it would not be good to have increased debt to

invest in assets. Secondly, low debt will reduce the finance cost of the company and hence will

increase profitability. The profit for the year 2010 is 25% of that of 2006-07. Hence, the

company should first focus on increasing the profitability and hence low debt policy is better.

Total-debt-to-total-equity

0.000.10

0.20

0.30

0.40

0.50

0.60

2004 2006 2008 2010 2012

Total-debt-to-total assets

Total-debt-to-

total assets


13/20

This ratio tells the financial leverage of the company. Equity is costlier than debt as a company

gets tax rebate on interest paid on debt. A high debt/equity ratio generally means that a company

has been aggressive in financing its growth with debt. This can result in volatile earnings as a

result of the additional interest expense. Hence, there should be proper value for this ratio and

should be in sync with industry.

It is on similar lines to debt-to-asset ratio. The company has reduced the debt outstanding from

2008-2010 and the equity capital is almost same for these years. Hence the overall ratio has

decreased.

Interest coverage ratio

this ratio tells whether a company can pay its outstanding debt through the profit it earned or not.

Hence, it says whether a company can satisfy the creditors or not. It should be greater than 1 for

a good company.

0.00

0.50

1.00

1.50

2004 2006 2008 2010 2012

Total-debt-to-total-equity

Total-debt-to-

total-equity


14/20

This ratio is increasing for last 5 years as company is reducing its debt portfolio and the

improvement in profitability improves the EBIT component. Hence, overall it is good for thecompany to follow this trend.

Profitability Ratios

Gross Profit Margin (%)

This ratio should be high. It tells how much gross profit a company gets by unit sales of its

product.

0.00

1.00

2.00

3.00

2004 2006 2008 2010 2012

Interest Coverage

Interest

Coverage

0.550.56

0.57

0.58

0.59

0.60

0.61

0.62

2004 2006 2008 2010 2012

Gross Profit Margin(%)

Gross Profit

Margin(%)


15/20

The overall trend is upward. The profit margin reduced first time in 2008 which is expected and

financial recession could have been the reason for this. In recent years again in 2010 the ratio has

reduced which is a point of concern.

Return on sales

This ratio tells the net profit a company earned from its sales. It is a better measure of analyzing

the companys performance (than Gross Profit Margin) as it uses the net income component,

which is the actual profit been distributed or earned by the stakeholders of the company.

The trend shows a huge dip in 2008 and then an increase in 2008-2010. The revenue of the

company was almost similar in last three years, but the profit increased sharply from 2008 to

2009 and by 50% from 2009 to 2010. If the company follows the same trend in profitability it

can grow in a better way. The approx same revenue in last three years is a point of concern

which suggests that company should try to expand in other countries. Europe has been facing a

debt trouble, and hence, company may not be getting many contracts in its UK operations in next

few years. Hence, expansion of business is must in this economic environment.

Asset turnoverThis ratio tells how the assets are being utilized by the company for production. This ratio should

be high for a good company.

-1.00

-0.50

0.00

0.50

2004 2006 2008 2010 2012

Return on sales

Return on sales


16/20

The company is utilizing its assets in a better way since 2007 as seen from the above graph. It is

a positive factor for the company and it shows the efficiency of management in taking proper

decisions about the usage of assets for the company.

EBIT to sales

It measures the operational efficiency of the company. It uses EBIT and not the Net income.

Hence, it advices about the performance of the company from its core operations and not the

other noncore businesses. The impact of interest and tax which are financial aspects of the

business are excluded in this calculation and the core operational work is being measured.

The operational efficiency of the company seems to be reducing in recent years 2009-2010 as the

above graph is showing a downward trend in this period. The efficiency increased from 2007 to

2009 which needs to be followed in future years as well.

0.00

0.05

0.10

0.15

0.20

2004 2006 2008 2010 2012

Asset turnover

Asset turnover

0.00

0.10

0.20

0.30

0.40

2004 2006 2008 2010 2012

EBIT to sales

EBIT to sales


17/20

Return on assets

It is similar to the Return on Sales ratio, as it tells how the assets were used to result in net profit

for the company. This ratio should be high.

The above graph shows that company was improving from 2007-2009 but in last year it has not

made any much improvement and hence, a constant line is shown in the graph.

The trend is similar to the trend observed in graph for EBIT to sales. It is expected as EBIT and

Net profit are having similar nature in usual circumstances and same applies to this company.

Return on common stockholders' equity

A company is run by its managers, but the objective is to give maximum return to the share

holders. This ratio tells how the company is performing using the money invested by its

stakeholders. This ratio should be high. More is the ratio, better is for the investor.

0.00

0.02

0.04

0.06

0.08

2004 2006 2008 2010 2012

Return on assets

Return on assets

-0.50

0.00

0.50

2004 2006 2008 2010 2012

Return on common

stockholders' equity

Return on

common

stockholders'

equity


18/20

The above graphs shows that the returns overall are reducing in a time span of five years. The

huge dip in 2008 is due to global recession which reduced the profitability of the company

severely. A closer look at the financials of the company says that the equity capital was almost

constant in last 5 years but the overall profitability reduced. The net profit was 17,500,663 in

2005 and 9,769,532 in 2010. Hence, a close to 50% dip is the major reason of the above

downward trend.

Earnings per share

This ratio shows the earning made by the company for each share issued to its investors. It

should be high for a profitable and growing company.

The above graph shows that EPS is having a similar trend as the Return on common

stockholders' equity ratio has. The overall trend is low which is not appreciable for the company.

It is due to similar reasons as mentioned above that the profitability of the company s reducing.


Book value per common share

The book value tells the valuation of the company as per the financial statements irrespective o

market perspective. It is the core value of the company and should be more.

-150.00

-100.00

-50.00

0.00

50.00

100.00

150.00

200.00

2004 2006 2008 2010 2012

Earnings per share

Earnings per

share


19/20


20/20

company as facing a financial crunch doe to recession and hence they did not follow the same

trend.

5. Conclusion:

Salhia is a major player in real estate industry of Kuwait. The company stands among the top 5

players of the industry which speaks that it is quite matured in its business and operations. The

profitability ratios are not showing a good picture as most of them have shown a small increase

in 2009 (as compared to 2008) and a decline in 2010 (as compared to 2009). The reason for

improvement in 2009 could be due to low base of 2008 which was used for comparison. The Net

profit of the company is not so impressive and the sales are also almost constant for last three

years. The asset turnover ratio was showing good trend, but overall when revenue is not

increasing it means, company is not investing more into assets. This point needs to be noted and

improvement in Revenue is must. Almost all the short term liquidity ratios are good. This shows

that company is able to meet its short term financial requirements (with debtors and creditors).

The long term debt ratios are also good. Interest coverage ratio is increasing. It means that the

company is financially strong.

On a concluding note, the short and long liquidity ratios are good, which suggests that company

is financially strong. But as the profitability ratios are not showing a satisfactory trend, which

will impact the financial condition and will hamper it progress. The company needs to improve

their sales figures, say, by expanding into new geographies or new businesses. This will improve

the profitability and hence will give more returns to the stakeholders.

6. References

1. www.salhia.com

2. www.investopedia.com

3. www.reuters.com
http://www.salhia.com/http://www.investopedia.com/http://www.reuters.com/http://www.reuters.com/http://www.investopedia.com/http://www.salhia.com/

salhia - report

Documents