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Comparative study between two real
estate companies (DB and JAYPEE)
Submitted by
Hemant Dwivedi 10
Prakash Hajare 16
Ramesh Yadav 48
Farook Khan 49
Submitted to: Prof. Deepa Mam
ABSTRACT
The real estate is one of the fast growing paths in India and also other countries. The
development in the real estate market encompasses growth in the both commercial residential
areas. The Real Estate is a very wide concept and it is highly affected by the macro-economic
factors like GDP, FDI, per capital income, Interest rates and employment in the nation. The most
important factor in the case of Real Estate is location which affects the value and returns from
the Real Estate.
This research paper help to understand the financial position of two companies through the
financial ratios .This study helps to evaluation the performance of Real Estate Company. It also
helps to understand how well the company performs, and also by using financial ratios in order
to evaluate companies’ financial conditions and various types of financial ratios have been
devised. The data collection from the annual financial reports of Jaypee & DB construction .
Different financial ratio are evaluated such liquidity ratios, profitability ratios, activity analysis,
capital structure analysis, capital market analysis, and finally measure the best performance
between two companies.
Introduction
Real estate refers “Land plus anything permanently fixed to it, including buildings, sheds
and other items attached to the structure. Although, media often refers to the "real estate market"
from the perspective of residential living, real estate can be grouped into three broad categories
based on its use: residential, commercial and industrial. Examples of real estate include
undeveloped land, houses, condominiums, townhomes, office buildings, retail store buildings
and factories.
This report will provide a financial comparison of two companies real estate companies Jaypee
& DB construction. This comparison will be done using a selection of accounting ratios and
looking at other relevant data to evaluate the company’s performance. Any factors whether it
being financial or not that affected the company’s performance during the periods under review
will be discussed. Ratio analysis is regarded as an extremely useful and powerful tool to interpret
financial statements, however this type of financial comparison is subject to a number of
limitations. Some ratios lack in definition and may be defined in more than one way, therefore
some of the stakeholders in the company could interpret the ratios differently. This is because
figures in the statement of financial position show only a snapshot of the company, which could
be misleading when used to compare via ratio analysis; also two companies under review may
use different accounting policies, and therefore could have a significant impact when comparing
and make it difficult to get a full conclusion of the companies concerned.
The financial statements are mirror which reflects the financial position and strengths or
weakness of the concern. The analyses of financial statements are useful to:
* Management,
* Investors,
* Creditors,
* Bankers, Shareholders,
* Government.
History Of Jaypee
With a single minded focus in mind, to achieve pioneering myriads of feat in
civil engineering Shri. Jai Prakash Gaur, Founder Chairman of Jai Prakash
Associates Limited after acquiring a Diploma in Civil Engineering in 1950 from
the University of Rookie, had a stint with Govt. of U.P. and with steadfast
determination to contribute in nation building, branched off on his own, to start
as a civil contractor in 1958, group is the 3rd largest cement producer in the
country. The groups cement facilities are located in the Satna Cluster (M.P.),
which has one of the highest cement production growth rates in India.
1979 Jai Prakash Associates Pvt Ltd formed and sets foot in
Iraq.
1981 Commenced Hotel Business with first hotel in Delhi –
Siddharth
1982 Hotel Vasant Continental was set up
2010 Commissioning of 2.00 MnTPA Jaypee Himachal
Cement Grinding and Blending Plant, Bagheri (H.P.).
Commissioning of 1.20 MnTPA Jaypee Wanakbori
Cement Grinding Unit, Wanakbori, Gujarat.
Commissioning of 2.2 MnTPA Bhilai Jaypee Cement
Ltd., Satna (Madhya Pradesh) & Bhilai (Chattisgarh).
1.2 million tonnes Jaypee Roorkee Cement Grinding
Unit (JRCGU) at Roorkee, Uttarakhand.
Jaypee Infratech Limited listed on NSE/BSE.
Jaypee Rewa Cement Plant and Jaype Bela Cement
Plant in Madhya Pradesh of the Group have been
awarded with renowned and most prestigious
“SWORD OF HONOUR” award by the British Safety
Council, UK. This is a well acclaimed and celebrated
international award in the field of Health and Safety
management system. 3.00 MnTPA Rewa and 2.40
MnTPA Bela are the only cement plants to be
bestowed with this honour in India.
2011 Amalgamation of Jaypee Karcham Hydro Corporation
Limited (JKHCL) and Bina Power Supply Company
Limited (BPSCL) with Jaiprakash Power Ventures
Limited (JPVL) with effect from April 1, 2010, being
the Appointed Date.
The Group was awarded two contracts relating to
construction of the 990 MW Punatsangchhu II Hydro-
electric Project, Bhutan. This hydro-electric project
will be jointly implemented by the Royal Government
of Bhutan and the Government of India.
Commissioning of 1.00 MnTPA capacity cement
grinding plant at Sikandrabad, Uttar Pradesh.
Commissioning of cement grinding plant of 2.10
MnTPA capacity at Bokaro, Jharkhand, set in JV with
SAIL (Bokaro Jaypee Cement Ltd.).
1000 MW Karcham-Wangtoo Hydropower Station of
JPVL commissioned and begins power generation.
Hosted the first Indian Formula OneTM Grand Prix
on 30th October at Buddh International
D B Realty Ltd.
Company was originally incorporated as a public limited company in the name of D B Realty
Limited, under the Companies Act, on January 8, 2007 and received certificate for
commencement of business on February 28, 2007. Company was converted to a private company
and the name was changed to D B Realty Private Limited, pursuant to a shareholders resolution
dated May 14, 2007 and received a fresh certificate of incorporation on July 9, 2007.
Subsequently, the Company was converted to a public company and the name was change to D
B Realty Limited, pursuant to a shareholders resolution dated September 5, 2009 and received a
fresh certificate of incorporation on September 23, 2009. Company has been engaged in the
business of real estate development and there has been no change in the activities being carried
out by the company since its incorporation. Changes in the Registered Office at the time of
incorporation, the registered office of our Company was Dynamix House, Gen. A.K. Vaidya
Marg, Goregaon (East) Mumbai 400 063.
Pursuant to change in the name of the premises where our Company’s registered office is
situated, the details of the registered office were amended to reflect the present registered office
at DB House,
VARIABLES:
Current ratio, quick ratio, cash ratio, market to book , debt/equity ,debt/assets , gross margin ,
operating margin ,EBIT margin ,NET margin ,asset turnover ratio ,cash conversion ratio ,return
on assets ,return on equity ,return on common equity ,profit margin, earning per share ,assets
turnover ratio ,account receivable turnover ratios ,inventory turnover ratio ,debt to equity ratio,
interest coverage ratio, return on equity, price earnings ratio, market to book ratio, dividend
yield, dividend payout ratio,
OBJECTIVE:-
To know the strength and weakness of both the companies Jaypee & DB construction
through financial ratio analysis.
To evaluate the performance of the company by using ratios as a yardstick to measure the
efficiency of the company.
To understand the liquidity, profitability and efficiency positions of the company during
the study period.
To evaluate and analysis various facts of the financial performance of the company.
SCOPE
This research paper help to understand the financial position of Jaypee corp. and DB ltd.
two real estate companies.
Limitations of the study:
1. Comparison not possible if different firms adopt different accounting policies.
2. Ratio analysis becomes less effective due to price level changes.
3. Ratio may be misleading in the absence of absolute data.
4. Limited use of a single data.
5. Lack of proper standards.
6. False accounting data gives false ratio.
7. Ratios alone are not adequate for proper conclusions.
RESEARCH METHODOLOGY
Secondary Data:-
o Most of the calculations are made on the financial statements of the company provided
statements
o Data has been collected through internet, company’s website, financial books etc.
LITERATURE REVIEW
1.Prospects & Problems of Real Estate in India (Vandna Singh
Head-MBA DepartmentSeth Jai Prakash Mukand Lal Institute of Engeenring &Technology
(JMIT) Radaur, Yamunanagar)
The Real Estate is a very wide concept and it is highly affected by the macro-economic factors
like GDP, FDI, per capital income, Interest rates and employment in the nation. The most
important factor in the case of Real Estate is location which affects the value and returns from
the Real Estate. the investment in Real Estate in India is a very good investment opportunity. But
one should be very careful while taking decision in this direction due to rising inflation and
interest rates. Legal issues should also be kept in mind while choosing a property.
2.Dynamic Linkages among Macroeconomic Factors and Returns on the
Indian Real Estate Sector (2010) by Vijay Kumar Vishwakarma & Joseph J.
French
Overall results indicate the increasing importance of macroeconomic variables in
influencing and forecasting the future evolution of the Indian real estate market. For the period of
1996-2000 macroeconomic variables explain 10% of the variations in India’s real estate market,
this contribution increases to almost 23% for the period of 2000- 2007. These findings are
positive for the continued development of financial sector and we anticipate that the connection
between the real estate market and macro variables will increase as the Indian market develops.
Data Analysis And Interpretation
1.Current ratio:-
An indication of a company's ability to meet short-term debt obligations; the higher the ratio, the
more liquid the company is. Current ratio is equal to current assets divided by current liabilities.
If the current assets of a company are more than twice the current liabilities, then that company is
generally considered to have good short-term financial strength. If current liablities exceed
current assets, then the company may have problems meeting its short-term obligations.
DB Corp. Jaypee.
2.0639 1.54
Interpretation:
Ratio stands between the range of 1.5 to 3 which indicates that Company has the good short-
term financial strength.
2. Quick Ratio:
The quick ratio is a measure of how well a company can meet its short-term financial liabilities.
Also known as the acid-test ratio. An ideal quick ratio is said to be 1:1. If it is more, it is
considered to be better. This ratio is a better test of short-term financial position of the company.
DB Corp. Jaypee
1.6593 1.38
.
Interpretation:
The Ratio is greater than 1:1 which indicates the high liquidity of Company
3. Cash Ratio:
Cash ratio is the ratio of cash and cash equivalents of a company to its current liabilities. It is an
extreme liquidity ratio since only cash and cash equivalents are compared with the current liabilities. It
measures the ability of a business to repay its current liabilities by only using its cash and cash
equivalents and nothing else.
DB Corp. Jaypee.
0.8816 0.098
Interpretation:
Ratio shows that DB is strong in cash liquidity as compare to jaypee.
4. Net Current Asset Value (NCAV) :
NCAV equals the company’s current assets minus its total liabilities. This gives an additional
margin of safety versus book value - on this valuation measure, one is essentially paying nothing
for all the fixed assets
DB Corp. Jaypee
-569.22 -1241023
Interpretation: .
Investors will benefit greatly if they invest in companies where the stock prices are no more than
67% of their NCAV per share.
5. Market to Book:
Market/book ratio is a way of measuring the relative value of a company compared to its stock
price or market value. Market/book ratio is a useful way of measuring your company’s
performance and making quick comparisons with competitors. It is an essential figure to
potential investors and analysts because it provides a simple way of judging whether a company
is under or overvalued. If your business has a low market/book ratio, it’s considered a good
investment opportunity.
Interpretation:
The given ratio shows that both the companies have overvalued stock
6. Enterprise Value:
Enterprise value (EV), Total enterprise value (TEV), or Firm value (FV) is an economic measure
reflecting the market value of a whole business. It is a sum of claims of all the security-holders:
debt holders, preferred shareholders, minority interest, common equity holders, and others.
DB Corp.Jaypee.
0.035
DB Corp.Jaypee.
26.585 1676307
Interpretation:
The enterprise value of Jaypee is much higher than DB Corp. which has lesser value.
7. Debt / Equity:
Debt-Equity Ratio is also known as External-Internal Equity Ratio. This ratio is calculated to
measure the relative claims of outsiders and owners against the firm’s assets. The ratio
shows the relationship between the external equities (outsiders’ funds) and internal equities
(shareholders’ funds).
Debt-Equity Ratio indicates the extent to which debt financing has been used in business. This
ratio shows the level of dependence on the outsiders.
DB Corp.Jaypee.
0.18 2.31
Interpretation:
This shows the dependency of the company(lower the better)
8. Debt / Assets:
Debt Ratio is a financial ratio that indicates the percentage of a company's assets
that are provided via debt. The higher the ratio, the greater risk will be associated
with the firm's operation. The debt/asset ratio shows the proportion of a company's
assets which are financed through debt. If the ratio is less than 0.5, most of the
company's assets are financed through equity. If the ratio is greater than 0.5, most of the
company's assets are financed through debt.
Interpretation:
This shows the lending capacity of the company(higher the better)
9. Net Working Capital Ratio :-
Working capital is a financial measurement of the operating liquidity available to a business.
Positive working capital means that the business is able to pay off its short-term liabilities. Also,
a high working capital can be a signal that the company might be able to expand its operations.
DB.corp Jaypee
1.05766682 0.7
Negative working capital means that the business currently is unable to meet its short-term
liabilities with its current assets.
DB.corp Jaypee
0.280652 0.14
Interpretation:
This indicates the better performance of the company(higher the better)
10. Gross Margin = Gross Profit / Sales:
This ratio measures the margin of profit available on sales. The higher the gross profit ratio, the
better it is. No ideal standard is fixed for this ratio, but the gross profit ratio should be adequate
enough not only to cover the operating expenses but also to provide for deprecation, interest on
loans, dividends and creation of reserves.
Interpretation:
This ratio helps to control its production cost.(higher the better)
11. Operating Margin = Operating Profit / Sales
DB.corp Jaypee
0.212609697 4.95
Operating Ratio is a measurement of the efficiency and profitability of the business enterprise.
The ratio indicates the extent of sales that is absorbed by the cost of goods sold and operating
expenses. Lower the operating ratio is better, because it will leave higher margin of profit on
sales.
Interpretation:
It is a proportion of fund left after deducting direct & overhead cost.
12. EBIT Margin = Earnings before interest and taxes / Sales;-
A profitability measure equal to EBIT divided by net revenue. This value is useful when
comparing multiple companies, especially within a given industry, and also helps evaluate
how a company has grown over time. This margin allows investors to understand true
business costs of running a company. Lower EBIT Margins indicate lower profitability from
a company.
Interpretation:
DB.corp Jaypee
0.2447 0.50
DB.corp jaypee
0.20841844 0.1
This ratio helps to evaluate how a company has grown over time.
13.NET Margin;-
This ratio measures the rate of net profit earned on sales. It helps in determining the overall
efficiency of the business operations. An increase in the ratio over the previous year shows
improvement in the overall efficiency and profitability of the business.
Interpretation:
This ratio helps to indicates how efficient a company is and how well it controls its costs
14. Asset Turnover = Sales / Assets:
Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the
higher the number the better. It also indicates pricing strategy: companies with low profit
margins tend to have high asset turnover, while those with high profit margins have low asset
turnover
DB.corp Jaypee
0.14459 0.08
DB.corp jaypee
0.131 0.32
Interpretation:
The total asset turnover ratio measures the ability of a company to use its assets to efficiently
generate sales.
.
15. Return on Assets (ROA):-
Return on Assets (ROA) is an indicator of how profitable company's assets are in generating
profit. Return on Assets ratio gives an idea of how efficient management is at using its assets
to generate profit. Higher return on assets is, the better, because the company is earning
more money on its assets. A low return on assets compared with the industry average
indicates inefficient use of company's assets.
Interpretation:
This ratio indicates that how efficient management is at using its assets to generate profit.
16. Return on Equity :
Return on Equity (ROE) is an indicator of company's profitability by measuring how much
profit the company generates with the money invested by common stock owners. Return on
DB.corp jaypee
0.5236 0.05
equity measures a corporation's profitability by revealing how much profit a company
generates with the money shareholders have invested.
Interpretation:
This ratio indicate how much profit the company generates with the money invested by common
stock owners.
17. Return on Common Equity (ROCE) :
Return on common equity, is a measure of how well a company uses its investment to
generate profits. It tells investors how effectively their capital is being reinvested. A
company with high return on equity is more successful in generating cash internally.
Investors are always looking for companies with high and growing returns on common
equity. However, not all high ROE companies make good investments. The higher the ratio,
the better the company.
Interpretation:
The return on common equity ratio shows the return to common stockholders after factoring out
preferred shares.
DB.corp jaypee
0.800471585 0.17
DB.corp jaypee
0.2858 4.83
18. Profit Margin
The net profit margin ratio is the most commonly used profit margin ratio.A low profit margin
ratio indicates that low amount of earnings, required to pay fixed costs and profits, are generated
from revenues. A low profit margin ratio indicates that the business is unable to control its
production costs. The profit margin ratio provides clues to the company's pricing, cost structure
and production efficiency. The profit margin ratio is a good ratio to benchmark against
competitors.
Interpretation:
This ratio is a key financial indicator used to assess the profitability of a company.
19. Earnings Per Share (EPS) :
EPS simply shows the profitability of the firm per equity share basis. EPS calculation, over the
years, indicates how the firm’s earning power, per share basis, has changed over the years. EPS
of the firm is to be compared with the industry and its immediate competing firm to understand
the relative performance of the firm. As a profitability index, it is widely used ratio.
Interpretation:
DB.corp jaypee
1.015988226 0.08
DB.corp jaypee
11.37 4.83
This ratio tells investors in what stock their investment money should go
20. Assets Turnover Ratio :
Interpretation:
This ratio measures the ability of a company to use its assets to efficiently generate sales
21. Accounts Receivable turnover:
The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its
assets.
This ratio measures the number of times receivables
are collected, on average, during the fiscal year.
22. Inventory Turnover Ratio :
Inventory turnover ratio shows the velocity of stocks. A higher ratio is an indication that the firm
is moving the stocks better so profitability, in such a situation, would be more. However, a very
high ratio may show that the firm has been maintaining only fast moving stocks. The firm may
DB.corp jaypee
1.95 0.64
DB.corp jaypee
58.93843764 9.15
not be maintaining the total range of inventory and so may be missing business opportunities,
which may otherwise be available.
Interpretation:
This ratio measures the number of times, on average, the inventory is sold and replaced during
the fiscal year.
23. Interest Coverage Ratio
This ratio indicates how many times the interest charges are covered by the profits available to
pay interest charges. This ratio measures the margin of safety for long-term lenders. This higher
the ratio, more secure the lenders is in respect of payment of interest regularly. If profit just
equals interest, it is an unsafe position for the lender as well as for the company also, as nothing
will be left for shareholders. An interest coverage ratio of 6 or 7 times is considered appropriate.
Interpretation:
This ratio helps to measure the number of times a company would be able to make the interest
payments on its debt using its EBIT.
DB.corp jaypee
0.1218 3.31
DB.corp Jaypee
NIL 1.86
24. Price Earnings (PE) Ratio:
This is the ratio that establishes the relationship between the market price of a share and its EPS.
This ratio indicates the number of times the earnings per share is covered by its market price.
Price-earning ratio helps the investor in deciding whether to buy the shares of a company, at a
particular market price, or book profit by selling at that rate.
Interpretation:
This ratio helps to calculate the company's current share price compared to its per-share earnings.
25. Market to Book Ratio:
This ratio indicates market price of the share to the book value of the share, this is calculated to
know the right price means to know the higher price which an investor is ready to spend for the
particular share of the company
Interpretation:
This ratio helps to measure the relative value of a company compared to its stock price or market
value.
DB.corp Jaypee
20.36 10.42
DB.corp Jaypee
25.18
26. Dividend Yield:
Shareholders are the true owners, interested in the earnings distributed and paid to them as
dividend. Therefore, dividend yield ratio is calculated to evaluate the relationship between the
dividends paid per share and the market value of the share.
Interpretation:
This ratio helps to measure how much cash flow you are getting for each dollar invested in an
equity position
27. Dividend Payout Ratio
Dividend pay-out ratio is calculated to find out the proportion of dividend distributed out of
earnings per share. Dividend per equity share is calculated by dividing the profits, after tax, by
the number of equity shares outstanding.
Interpretation:
The dividend payout ratio is a company's dividends paid to shareholders expressed as a
percentage of total earnings.
DB.corp Jaypee
2.08 0.01
DB.corp Jaypee
0.347579119 0.12
28. ROE
ROE indicates how well the firm has used the resources of owners. Earning a satisfactory return
is the most desirable objective of a business. This ratio is of greatest interest to the management
as it is their responsibility to maximize the owners’ welfare. This ratio is more meaningful to
equity shareholders as they are interested to know their return. Interpretation of this ratio is
similar to return on investments. Higher the ratio, better it is to equity shareholders.
Interpretation:
This ratio indicate how much profit the company generates with the money invested by common
stock owners.
Conclusion:
From the above data analysis we come to known that both companies has good short term
financial strength .DB has strong cash liquidity as compare to Jaypee cont. Net current assets
DB.corp Jaypee
11.03 0.08
value of DB is greater than Jaypee which indicates that performance of DB is better than the
Jaypee. The gross margin of Jaypee is higher than the DB, which helps to control its production
cost. The enterprise value of Jaypee is much higher than DB Corp. which has lesser value..
Both the companies are performing well in the market however on the basis of the analysis we
can conclude that Jaypee, a mature real estate company is not performing as expected while DB,
on the other hand, is a promising company having good faith from the investors as well as
performing well in the market. At the last we conclude by saying that both the companies are
expanding their branches overall and coming up with new infrastructure, ideas and technology to
sustain in this competitive world.
References:
Vijay Kumar Vishwakarma & Joseph J. French (2010) Dynamic Linkages
among macroeconomic Factors and Returns on the Indian Real Estate
Sector, International Research Journal of Finance and Economics,
http://www.eurojournals.com/finance.htm
Vandana Singh & Komal (2009) , International Research Journal of Finance
and Economics, http://www.eurojournals.com/finance.htm
Dr. N Kathirvel & John .V. Sugumaran (March 2012) Emerging trend in
Real Estate Investment in India, International journal of Social Science &
Interdisciplinary Research,