Company Analysis: Financial Strength Of Kennedy-Wilson Holdings Inc.

Company Analysis: Kennedy-Wilson Holdings Inc. Name Institution Company Analysis: Kennedy-Wilson Holdings Inc. Abstract The real estate industry in the U.S generates revenues of the tune of billions annually. Entrepreneurs in this industry make a lot of profits. The purpose of this report is to examine Kennedy-Williams Holdings to determine how it performs in the real estate industry including its financial health. The task was achieved through looking at financials of the company. The results of the analysis show that the company is becoming more profitable with each year but their liquidity is increasingly low. The company should ensure that they lower their debt to equity ratio to make them look less riskier to investors. Kennedy-Wilson Holdings Inc. Brief History Kennedy-Wilson Holdings company was founded in the year 1997 as a “real estate auction” company in the United States. Come the year 1988, William McMorrow and his partners purchased the company. During this period, the company had approximately eleven employees who were all located in a single office. It was also during this period that auction marketing evolved in a globally recognized business that was characterized by “high-end” property sales. In the year 1992, the company went public on Nasdaq and by the year 1993, the company made its firms commercial acquisition when it bought 520 Broadway that was located in Santa Monica, California. The company started expanding to other parts of the globe by the year 1994 and they opened their first office in Japan. Kennedy-Wilson acquired Heitman Properties Limited in the year 1998. In the same year, the company acquired Kawasaki Tech Center thereby launching their acquisition platform. The company then went ahead to launch their “fund management” business in the year 2000.the company went private in the year 20004 and then went public in the year 2009 on New-York Stock Exchange. The company expanded their reach in Europe in the year 2012 by acquiring “real estate investment management” of the Bank of Ireland. The company has since gone ahead to expand their reach in Europe. Much of the revenue that the company generates is from rental income. The Company’s Current Financial Strength The financial strength of a company is vital to the owners, lenders, corporate managers, and investors. Businesses need to be operating efficiently within manageable costs. Understanding the financial strength of a company requires knowing the profitability and liquidity. Profitability Rations Profitability ratios are used to determine the ability of a firm to generate profits at give investment levels (Lesakova, 2007). A company that is never profitable faces the risk of liquidation. Return on assets shows how profitable a company is with respect to the assets it has (Lesakova, 2007). As of 31st December, 2017, the company’s return on assets stood at 1.31 (Morningstar.com, 2018). The implication is that for every dollar that was invested in the assets during the period, a return of $1.31 of net income was realized. This is a positive sign and shows that the company is using its assets well to realize profits. Return on equity determines how much capable a firm is in generating profits from the investments by the shareholders (Lesakova, 2007). The companies ROE stood at 8.33% (Morningstar.com, 2018). This was a positive sign showing that the company is giving investors returns. Liquidity Ratios Liquidity rations are used to show how a company uses the resources at its disposal to meet its short-term financial obligations (Breuer et al., 2012). Current ratio (current assets/current liabilities) and debt to equity ratio (total debt/total equity) are used commonly to determine the liquidity of a company. Current ration of the company stands at 1.03 (Morningstar.com, 2018). The implication is that the company has enough current assets to settle all their current liabilities. The debt to equity ratio stood at 4.05 (Morningstar.com, 2018). The implication is that the assets of the company are funded 4 times more by debts than equity. This would present a worrying sign because the company relies more on debts. The high debt to equity ratio that exceeds 1 implies that the company is not all that financially stable. In general, the company is in good financial health underlined by its ROA, ROE, and liquidity ratios. However, its debt to equity ratio presents a worrying sign for a potential investor because it appears as if the company over relies on debts to finance its assets compared to equity. It looks like a risky company to invest in. Trends in the Financial Health (Source: (Morningstar.com, 2018)) ROA Year ROA (%) 2017 1.31 2016 0.04 2015 1.02 2014 0.34 2013 -0.94 The company has realized mixed results in terms of its ROA. However, the trend in the last 5 years shows that they are gaining more grounds in their ability to use their assets to generate income. Up to the year 2013, the company was realizing a negative ROA. But that has not happened for the last 4 years. The implication is that the company has been relatively stable in their ability to use their assets to generate income. ROE Year ROE (%) 2017 8.33 2016 0.26 2015 6.99 2014 1.65 2013 -2.27 The company recorded the highest ROE of 8.33% for the last 5 years in 2017. The mixed performances of the ROE do not give a clear picture on the trend but the fact that the company has maintained consistency in posting positive ROE for the last 5 years shows that they are getting stronger. Current Ratio Year Current Ratio 2017 1.03 2016 2.46 2015 1.90 2014 3.75 2013 2.04 The company’s current ratio has been unsteady to say the least but the figure registered in 2017 was the least for last 5 years. The company’s ability to offset their current liabilities with their current assets is declining with time showing that they are increasingly using short term debts. Debt to Equity Ratio Year Debt to Equity Ratio 2017 4.15 2016 4.67 2015 3.85 2014 3.36 2013 1.12 The company’s debt to equity ratio has been increasing over the last five years. The implication is that the activities of the company are financed more with debts compared to shareholders equity. Therefore, the company is becoming increasingly illiquid as time goes by. In general, the company’s ability to generate profits is on the rise but they are becoming increasingly risky. The company uses a lot of debts that brings questions to its ability to remain liquid in the long term. Comparison with Armanda Hoffler Properties, Inc (AHH) and the Real Estate Industry One of the main competitors of Kennedy-Wilson Holding is Armanda Hoffler properties. In terms of profitability, the two companies have the same ratio for return on assets at 1.31% whereas the industry average for the same period was 3.4% (Csimarket.com, 2018). This shows that the two companies are performing significantly below the industry average. That would present a worrying signal on their profitability compared to other competitors in the industry. The ROE for Arman...