Emaar Properties: Financial Management

Executive Summary

The present report aimed at conducting an analysis of the financial statements of Emaar Properties. First, the report discusses the importance of financial statement analysis for the decision-making process of the internal and external stakeholders. Second, the report applies a ratio analysis framework, capital asset pricing model (CAPM), and weighted average of the cost of capital (WACC) to assess the financial health of the company. The analysis revealed that the central problem of the company is the decrease in revenues and an increase in the relative cost of revenue due to the pandemic. Finally, recommendations are provided based on the results of the analysis.


The present report aims at conducting financial analysis of Emaar Properties, an international real estate development company. The company has diversified interests in both commercial and residential properties. The company also has an interest in malls and hospitality projects. In 2020, Emaar Properties experienced a significant decline in profitability due to the pandemic (Emaar Properties, 2021a). However, it managed to maintain positive profitability with AED 2.617 ($712 million) in net profit (Emaar Properties, 2021a).

This report utilizes ratio analysis, capital asset pricing model (CAPM), and the weighted average of the cost of capital for the analysis. The present paper uses the company’s annual reports as the main source of data for analysis. First, the paper discusses the critical role of financial statements in decision-making and investor relationships. Second, a comprehensive financial appraisal of the company is conducted using relevant theories. Finally, recommendations are provided based on the results of the analysis.

Literature Review: Role of the Financial Statements

Financial statement analysis is a process of assessment of financial statements for the purpose of decision-making (Kenton, 2021). Financial statement analysis is used by both internal and external stakeholders for different purposes. Internal stakeholders use financial statement analysis to evaluate the financial performance of the company to ensure adequate decision-making concerning investment (Marra, 2021). Financial statements allow identifying several aspects of financial performance, including profitability, liquidity, leverage, and efficiency (Robinson et al., 2015). This knowledge may be useful for different purposes depending on the company’s needs.

Internal analysis of liquidity demonstrates if the company may need additional funds to cover its current expenses (Schmidlin, 2014). Profitability analysis is helpful for understanding if the current strategy of business development is appropriate for the current situation in the internal and external environment (Schmidlin, 2014). Financial leverage assessment allows understanding if the company utilizes debt efficiently to finance its operations and decide if the additional debt should be taken (Marra, 2021). Finally, efficiency analysis allows understanding if the management team utilizes the company’s assets effectively to create wealth for the shareholders (Marra, 2021).

External stakeholders use financial analysis to evaluate the company and understand if they should invest in it. Along with the four aspects of analysis mentioned above, external stakeholders also put a significant emphasis on the market performance of the company to understand if the price of shares is adequate considering the company’s performance (Schmidlin, 2014). Additionally, banks utilize financial statement analysis to understand if any additional debt can be issued to the company. There are several types of financial statement analysis, including horizontal, vertical, and ratio analysis (Kenton, 2021). Financial statements are also used to assess the cost of capital.

The horizontal analysis evaluates the performance of the company during a specific time period. Horizontal analysis is also known as trend analysis, as it helps to understand the tendency in the changes of the key performance indicators (Robinson et al., 2015). The vertical analysis states the percentage of each line in the financial statement as compared to the base value (Robinson et al., 2015). Applying the vertical analysis to income statements helps to see how much of the revenue is spent on different costs.

There are several factors that contribute to the sustainable assessment of financial statements. These factors include relevance, objectivity, reliability, and sufficiency (Heng-Jie, 2018). The primary purpose of the analysis of financial statements of outside stakeholders is to understand if the current price of shares is adequate as compared to the company’s value. If the value of the company is perceived higher than the current price of shares, investors seek to invest in the company (Schmidlin, 2014). Therefore, managers and accountants may have conflicting interests when preparing financial statements. This conflict of interests may have a negative effect on different aspects of financial statements.

While there are numerous benefits of financial statements for decision-making, there are several drawbacks that should be mentioned. As mentioned above, managers and accountants may be tempted to manipulate the financial statements to ensure that the company looks favorable when compared to the competitors (Heng-Jie, 2018). Such manipulations can be achieved through legal and illegal activities. There are two major problems with manipulations with financial statements. On the one hand, manipulation may cause significant outside problems, such as legal prosecution and decreased trust among investors. On the other hand, manipulations may lead to problems with internal decision-making, as the managers will use irrelevant data for internal decision-making (Heng-Jie, 2018). Thus, when analyzing financial statements, one should keep in mind that the provided information may be irrelevant.

Analysis of Emaar Properties

Ratio Analysis

Ratio analysis is one of the common methods to assess financial statements that can help to determine profitability, financial leverage, liquidity, and efficiency. While there are numerous ratios that can be used, the present paper focuses on six of them, including gross profit margin, net profit margin, debt-to-assets ratio, current ratio, asset turnover ratio, and Du Pont analysis. The calculated values for these ratios, along with selected financial data, are provided in Table 1 below.

Table 1. Ratio analysis (Emaar Properties, 2021b)

2020 2019
Selected Financial Data
Revenue 19,710,456 24,585,931
Cost of Revenue 12,710,163 13,023,507
Gross Profit 7,000,293 11,562,424
Net Income 3,384,076 8,209,345
Total Assets 116,435,604 116,870,404
Current Assets 31,200,737 32,112,330
Total Liabilities 50,519,209 53,420,981
Current Liabilities 21,505,846 22,947,484
Equity 65,916,395 63,449,423
Gross Profit Margin 0.36 0.47
Net Profit Margin 0.17 0.33
Debt to Assets Ratio 0.43 0.46
Current Ratio 1.45 1.40
Asset Turnover 0.17 0.21
Du-Pont Analysis
Net Profit Margin 0.17 0.33
Asset Turnover 0.17 0.21
Equity Multiplier 1.77 1.84
Du-Pont Coefficient 0.05 0.13

According to the analysis provided above, Emaar Properties experienced a significant decline in profitability in 2020 in comparison with 2019, as seen in the gross profit margin and the net profit margin. The decline in the gross profit margin demonstrates the cost of revenue increased significantly in 2020. The rise in the cost of revenue was associated with the consequences of the COVID-19 pandemic, as the company had to establish and maintain systematic cleaning, disinfection, and disease prevention measures (Emaar Properties, 2021a). Additionally, the occupancy levels in the commercial property sector in 2020 were lower than in 2019 (Emaar Properties, 2021a). Thus, the cost of revenue increased, reducing the gross profit margin. The changes in the net profit margin could also be explained by the fluctuations in the cost of revenue and decreases in revenue.

The company’s financial leverage, as well as liquidity, remained almost unchanged in 2020 in comparison with 2019. This implies that the company did not experience any changes in asset management. No loans were taken, and no property was acquired. Even though the company Emaar Malls started new projects, including Foundry (co-working space), Downtown Kitchens, and Dubai South Village Mall, they did not affect the company’s reported assets column (Emaar Properties, 2021a). Both liquidity and financial leverage are considered the company’s strengths, as they remained adequate in 2020 (Brigham & Ehrhardt, 2020).

Asset turnover and Du Pont coefficient decrease in 2020 in comparison with 2019. The central problem issue with these ratios was the decrease in revenues. The revenues decreased due to a drop in demand and unfavorable market trends due to the COVID-19 pandemic (Emaar Properties, 2021a). However, despite the negative market trends, the company’s performance in terms of asset turnover and Du Pont coefficient remained adequate.


CAPM is an equity valuation model used to calculate the cost of equity component for estimating WACC. The formula for CAPM is demonstrated below.



  • r = cost of equity
  • rf = risk-free rate
  • Formula = company’s beta
  • EMPR = expected rate of return

Cost of equity is a crucial metric that demonstrates how much the company should receive in exchange for an internal investment project. The cost of equity is also known as the expected compensation for owning the equity (Robinson et al., 2015). An alternative to CAPM is the dividend capitalization model, which requires a company to pay dividends. Since not all companies pay dividends, CAPM is a more common way to estimate the cost of equity (Robinson et al., 2015). Even though Rossi (2016) states that the assumptions of CAPM are unrealistic and estimations of its components are often biased, it is still the most widely used model for calculating the cost of equity.

The risk-free rate is often seen as the constant 10-year treasury maturity rate. Since this value was not available for the United Arab Emirates, the US constant 10-year treasury maturity rate was used for calculations, which was 1.71% (Guru Focus, 2022). According to Yahoo Finance (2022), Emaar Properties’ beta is 0.93. Finally, Guru Focus (2022) suggests using 6% as the expected rate of return. Thus, the company’s cost of equity can be calculated as below:


Cost of Capital

The cost of capital is the minimal rate of return required to encourage investors to finance a project. The cost of capital takes into consideration both debt and equity, and it is also called WACC (Robinson et al., 2015). WACC is calculated using the formula provided below:



  • E = market capitalization;
  • V = Total Debt +E – total market value of the firm’s financing;
  • Rd – cost of debt;
  • Recost of equity;
  • Tcthe effective tax rate for the company

According to Yahoo Finance (2021), the company’s market capitalization is AED39.67 billion. The cost of debt was estimated by Guru Focus (2022) at 3.57%. The company’s total book value of debt was AED23.22 billion (Guru Focus, 2022). The effective corporate tax rate was reported to be 0% (Guru Focus, 2022). The cost of equity was estimated in Section 3.2 of the present report at 7.29%. Thus, the WACC of the Emaar Properties is the following:



The analysis provided of Emaar Properties financial statements generated the following recommendations:

  1. Increase revenues. The decrease in sales in 2020 was drastic in comparison with 2019 due to the COVID-19 pandemic. Even though the company’s financial performance demonstrated resilience, Emaar Properties still needs to search for a way to increase its revenues to increase profitability. One of the possible ways to increase revenues is to invest more in the international projects, as, despite the economic recession due to the pandemic, the revenues from the international projects increased by 10% in 2020 in comparison with 2019.
  2. Optimize the cost of revenue. In 2020, the cost of sales increased significantly due to the establishment of a new routine concerning disinfection associated with the pandemic. As a result, the gross profit margin decreases significantly. Thus, the company needs to search for ways to decrease its cost of revenues, such as searching for new suppliers and contractors or revising the terms of the current contracts with suppliers and contractors.
  3. Use debt. The company’s current risks are low due to the low leverage level and adequate liquidity. Moreover, the WACC analysis demonstrated that the cost of debt is lower than the cost of equity. Thus, if the company decides to start new projects, it should use debt to finance them.
  4. Use 5.92% as the required rate of return. In the decision-making concerning capital investments in the new projects, it should use 5.92% for calculations, as it is the most recent estimation of WACC. ​

Reference List

Brigham, F.E., & Ehrhardt, C.M. (2020). Financial Management: Theory and Practice. (16th ed.). Cengage Learning.

Guru Focus. (2022). 10-Year Treasury Constant Maturity Rate. Web.

Emaar Properties. (2021a). Annual report 2020. Web.

Emaar Properties. (2021b). Emaar Properties PJSC and Its Subsidiaries: Consolidated Financial Statements. Web.

Heng-Jie, X. (2018). Educating Users on the Key Factors that Contribute to the Usefulness of Financial Statement Analysis. In Proceedings of the 3rd Annual International Conference on Education and Development (ICED 2018) (pp. 87-92). Web.

Kenton, W. (2021). Financial Statement Analysis. Investopedia. Web.

Marra, A. (2021). Financial statement analysis: Firms’ analysis and valuation. McGraw Hill.

Robinson, T., Henry, E., Pirie, W., Broihahn, M., & Cope, A. (2015). International Financial Statement Analysis (3rd ed.). Wiley.

Rossi, M. (2016). The capital asset pricing model: a critical literature review. Global Business and Economics Review, 18(5), 604-617.

Schmidlin, N. (2014). The art of company valuation and financial statement analysis. Wiley.

Yahoo Finance. (2022). Emaar Properties PJSC. Web.

Find out your order's cost