Via analyzing and discussing the interrelated financial ratios over these three years, the performance and developing trend of Essex Property Trust Inc. Will be measured and understood. Moreover, this study illustrates what the two rivals BRE Properties and Brandywine Realty Trust’s positioning were in property industry. 1. 3 Methodology The companies’ official website has comprehensive information like histories and backgrounds of company, internal and external environment that influencing business running, every detail of financial data and even critical issues.
Therefore, it is the most critical resource. In addition, there are other useful methods such as academic reports, journal articles, books and electronic database that provide theoretical knowledge’s about each metric. 1. 4 Limitations However this report has some vital limitations because it is based on the financial statements which reflected historical facts are open to human accruals, error, interpretation and estimation like refunds accounts and depreciation accounts. In order to attract more investors, the economic performance can be inflated by intentionally manipulating figures on inancial reports (Dennis, 2010). Furthermore, besides the financial factors in financial reports, other several elements including economic, social, and environment can also influence an enterprise’s financial position.
Thus, due to ignorance of other factors, the financial position disclosed by accountants may be inaccurate. Last but not the least, the financial statement only took quantitative factors into account but fails to disclose information like integrity of management, prestige and reputation of the business with public, customer’s satisfaction, employees’ loyalty and efficiency, etc. hat also impacts business decision making (Dennis, 2010). 2. Real estate investment trust (REIT) Industry and company’s historical background George M. Marcus as the real estate entrepreneur formed Essex Property Corporation in 1971 and after 23years the company became Essex Property Trust, Inc. when it gained the portfolio of 16 multifamily communities. Essex is a self-managed and self-administered integrated real estate investment trust (REIT) in West Coast of America.
In 1960, REITs created by congress is a type of real estate firm that provides opportunities for all Americans to invest in income-producing real estate not just for affluent. The method of this investment is similar to the bonds and stocks investments through mutual funds by many Americans (REIT, 2012). Essex develops, manages and acquires multifamily residential properties in the specific provinces like the San Francisco, Southern California and the Seattle metropolitan area and Essex relates to land and its appreciation on it like offices, apartments and hotels.
Essex’s Property Portfolio so far Multi-family: [pic] Office: [pic] Retail: other unclassified [pic] Specialty: unclassified [pic] According to the above table charts published by Essex in March of 2013, there are 166 communities comprising 29,506 apartment units and total approximately 315,900 square feet of four commercial buildings which are located in major regions of California and Washington under the property portfolio. Besides the existing markets, Essex intended to evaluate some new markets by identifying new areas and developing new unconsolidated joint venture projects. . Conceptual framework Marketing metric can be defined as a measuring framework which quantifies a dynamic, trend, or characteristic and also can be used by practitioners in marketing monitoring and business planning to explain diagnose causes, phenomena, project the results of future events and share findings in order to justify marketing programs, decide on financial allocations and evaluate their marketing performance (Farris et al. 2010).
It’s more effective to use a portfolio of metrics because it can assist managers with maintenance of productive focus on markets and customers and identification of weaknesses and strengths in both execution and strategies (Bazley et al. 2004). [pic] There are seven specific metrics adapt to measure Essex company’s performance and analyze competitors’ positions. According to the above figure, they are return on equity (ROE), Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA), year-on-year growth revenue, return on investment, profitability metrics, efficiency calculations and capital structure ratios.
Gross profit margin, net profit margin and cash flow to sales ratio are three critical basic figures that will be used to measure entity’s profitability (Bazley et al. 2004). Then, in order to identify company’s business efficiency, Return on asset and asset turnover ratio will be calculated as well. Finally, there are three capital structure ratios including equity ratio, debt ratio and debt equity ratio(Mcdonald and Mouncey, 2009).
The most vital reason to choose those metrics is that they can maximize the accuracy of measurement about an entity’s heath and estimation on the basis of other data. Moreover, they are also interrelated to each other (Birt et al. 2010). 4. Marketing metrics Briefly, The critical purposes of using following particular metrics are judging business performance, evaluating plans, quantifying market opportunities, identifying leverage points for improvement for Essex and recognizing its peers’ threats for the past three years and predict the trend in near future(Farris et al. 010). 4. 1 Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) As an alternative for a cash-based profit measure, EBITDA can be also defined as the profit before interest, taxation and depreciation and amortization expense. Because it excludes financing and tax charge besides asset diminution, its main aim is to measure entity’s raw operating earnings compare and analyze profitability between companies (Birt et al. 2010). Figures in US$ and ‘000 |2010 |2011 |2012 | |Essex |277,861 |338,679 |456,888 | |BRE |228,219 |255,066 |306,542 | |Brandywine |370,880 |379,556 |383,484 |
Based on the above chart, it apparently illustrates that both of them tried to raise their EBITDA and therefore decline their operating cost. Among them, Essex had the most dramatic increasing trend in EBITDA by changing amount of US$179,027,000 during three years. 4. 2 Profitability metrics Under this category, there are three basic metrics: gross profit margin, net profit margin and cash flow to sales ratio to calculate entity’s profit.
Gross profit margin refers to the percentage of sales revenue that results in gross profit which measures profitability in selling, producing and buying goods before other expenses are taken into account (Birt et al. 2010). Higher value means better likelihood of success to divide more satisfactory return to owners and cover more other expenses (Atrill et al. 2008). Net profit margin reveals the proportion of sales revenue results in profit before interest and tax (Birt et al. 2010).
This ratio is the most appropriate measure of profit from trading operations which is before took any costs of servicing long-term finance into account (Atrill et al. 2008). Cash flow to sales ratio reflects a proportion of cash flow from operating activities compared to its net sales revenue can be used to measure an entity ability to convert its sales into cash. Higher value means more efficient productivity and creditworthiness and indicates the firm has more ability to grow (Business Dictionary, 2012).