two case study

Finance Term Project Part 1:

Financial Analysis

Construction and real estate sector in the UAE

Read the following extract from Gulf News Article (2008) and answer the required questions below:

“In the last five years, the GCC has experienced a record boom in the infrastructure sector. Construction projects in the GCC exceeded $1 trillion, with two-thirds of the projects being undertaken in the UAE. The construction and real estate sector in the UAE posted double-digit growth on a year-on-year basis and contributed 15% to GDP. The unprecedented growth in the

UAE’s construction and real estate sector had Dubai and Abu Dhabi observing the highest increase in the number of construction projects. Dubai has seen a major boom in the construction and real estate sector, making it a hub for some of the world’s biggest construction companies, including Nakheel PJSC and Emaar Properties PJSC. Abu Dhabi is also a major hub for construction companies, including Aldar Properties PJSC. Significant construction projects have also been carried out in other emirates.

Diversification remains the key to achieving sustainable growth in the UAE and the government is firmly focused on encouraging the non-oil sector to maintain its major role in the country’s economy.

Proof of the massive boom in economic activity throughout the country is apparent in the high concentration of cranes in Abu Dhabi and Dubai. It is no surprise, therefore, that the construction sector grew by an impressive 25.6% in 2007, compared to 2006.

The United Arab Emirates (UAE) accounts for 23% of the GCC’s economy. It remains the driving force behind the economic transformation of the GCC into a global hub.

In nominal terms, the CAGR of UAE’s real estate and business services sector witnessed record growth of 20% during the 2003-2007 period.

The sector’s key drivers include, among others: a growing expatriate population, ample liquidity and a friendly regulatory environment. Moreover, as a regional hub for investments, the UAE attracts international companies to establish offices.

Abu Dhabi, Dubai and Sharjah have been the main beneficiaries of the exceptional growth in

construction and real estate projects, mainly due to the liberalization of real estate and property

laws, which has generated unprecedented development in this sector.

The creation of free zones has also acted as a major catalyst for local and foreign investment by

offering incentives such as 100% foreign ownership, one-stop locations for paperwork and other

procedures, exemption from import duties and taxes, full repatriation of capital and profits, and,

in some cases, subsidized water and energy prices…” (Gulf News, 2008)

Required:

1- Choose two companies in the construction Industry in the UAE.

2- Find the financial Data of these two firms (for the same period of time. I.e. you can use data from any of the following years:

2007, 2008, 2009, 2010, 2011, 2012, 2013)

3- Write, using financial Ratios, a report (1500 words) comparing between the two firms in terms of:

· Profitability

· Solvency

· Liquidity

· Investments

You need to show all your calculations. (Calculations and formulae are not part of word count)

Then, explain, based on your calculations and the information presented in the above article, the characteristics of the business environment in which these two firms operate.

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