Residential property development and financial ratio analysis : a South African perspective

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dc.contributor.author Le Roux, Felix
dc.contributor.author Lowies, G.A. (Gert Abraham)
dc.date.accessioned 2009-12-07T07:21:10Z
dc.date.available 2009-12-07T07:21:10Z
dc.date.issued 2009
dc.description.abstract Financial statements are read, analysed and interpreted by a diverse group of interested parties, among whom are owners, directors and managers who read financial statements to utilise the information for planning and control purposes. It is imperative that they uncover underlying or evolving trends and/or other salient features in order to assess the business’ progress towards achieving its strategic goals (as determined through its planned objectives). Financial ratio analysis promises to be a simple but effective way of analysing financial statements for interpretation. It is, however, not a ‘complete’ method of analysis as it is directed at measuring financial objectives only. The ‘traditional’ method of analysis and interpretation of financial statements evolved over a period of approximately a century (mainly due to major developments in management concepts). Thereafter industrious researchers explored the possibility of effecting changes to these existing methods, formulae and uses of financial ratios to explore their predictive abilities. It was assumed to be an inherent attribute of ratio analysis. Although there is no real consensus, the conclusion is that failure-or-success-prediction-models suffer from poor predictive abilities. Therefore this study was directed at the principles of applying the ‘traditional’ approach to financial ratio analysis. The references to the ‘modern’ models, techniques and their applications are made for contextual purposes only. The aim of this study is twofold. The first aim is to determine whether residential property developers apply financial ratio analysis in analysing the financial information contained in their financial statements. Developers indicated that they do use ratio analysis for this purpose. The second aim is to illustrate how important the acquisition of knowledge and understanding of the basic principles and techniques of financial ratio analysis is to non-accountants (such as the average property developers and built environment professionals) in applying financial ratio analysis in their decision-making. Section 8 in this study serves as guideline to practitioners, based on results and conclusions of the empirical study of the article. There is no internationally accepted theoretical framework or standard for applying and using financial ratio analysis to assist managers in the assessment of business performance. This should not create the perception that ratios are merely an accumulation of tools and techniques. Each ratio is an integral link in a chain of financial ratios. Managers in the built environment should be encouraged to gain knowledge and apply financial management tools and techniques to enhance their financial management expertise. Non-financial managers and directors can no longer avoid financial management responsibilities by deferring these to the financial professionals. Rather, managers and directors need to adopt an attitude of the buck stops here. en
dc.description.abstract Finansiële state word gelees, ontleed en vertolk deur ’n diverse groep belanghebbendes. Een groep is die eienaars, direkteure en bestuurders wat finansiële state bestudeer ten einde die inligting aan te wend vir beplanning- en kontrole-doeleindes. Dit is van uiterste belang om onderliggende of ontluikende tendense of ander kenmerkende eienskappe te identifiseer, ten einde te bepaal of ’n besigheid se strewe na bereiking van sy strategiese mylpale, soos vasgestel deur die onderneming se doelwitte, bereik word. Finansiële verhoudingsontleding beloof om ’n eenvoudige maar effektiewe metode te wees om ontledings vir die vertolking van finansiële state te doen. Dit is egter nie ’n volledige metode van prestasie meting, ontleding, interpretasie en bestuur nie, aangesien dit slegs meting van finansiële doelwitte aanspreek. Oor die tydperk van ongeveer ’n eeu het die metode van ontleding genaamd ‘tradisioneel’ ontstaan (hoofsaaklik weens vooruitgang in bestuurstegnieke). Daarna het navorsers die moontlikheid ondersoek om die voorspellingsmoontlikhede van verhoudingsontleding te ontgin deur geringe veranderings aan die ‘tradisionele’ metodes aan te bring. Daar is nie algemene ooreenstemming nie, maar dit blyk die gevolgtrekking te wees dat mislukking- en sukses-modelle min voorspellingswaarde inhou. Daarom was hierdie studie daarop gerig om die toepassing van die ‘tradisionele’ metode van ontleding van finansiële state te ondersoek. Verwysing na die ‘moderne’ modelle, tegnieke en hulle toepassing word slegs gemaak vir kontekstuele doeleindes. Die doel van die studie is tweevoud. Eerstens om te bepaal of residensiële eiendomsontwikkelaars verhoudingsontleding gebruik in die vertolking van hulle ondernemings se resultate. Eiendomsontwikkelaars het aangetoon dat hulle inderdaad van finansiële verhoudingsontleding gebruik maak. Tweedens om te illustreer hoe belangrik kennis en begrip van finansiële verhoudingsontleding asook die basiese beginsels en tegnieke van verhoudingsontleding vir nie-finansiële bestuurders (soos die gemiddelde eiendomsontwikkelaar en bou-omgewing professionele persone) is in die toepassing van finansiële verhoudingsontleding met betrekking tot besluitneming. Punt 8 van die artikel word daaraan gewy om advies te verskaf aan gebruikers van verhoudingsontleding in die bouomgewing. Daar bestaan geen internasionaal aanvaarde teoretiese raamwerk of standaard vir die gebruik en toepassing van finansiële verhoudingsontleding om bestuurders te ondersteun in die evaluering van hulle ondernemings se resultate nie. Dit moet egter nie die indruk skep dat verhoudings bloot ’n versameling van verhoudings en tegnieke is nie; elke verhouding is ’n integrale skakel in ’n ketting van verhoudings. Bestuurders in die bou-omgewing behoort aangemoedig te word om die nodige kennis in te win en toepassings van gebruike en tegnieke van verhoudingsontleding te beoefen aangesien dit die enigste manier van verkryging van ondervinding is. Nie-finansiële bestuurders durf nie langer die finansiële bestuursverantwoordelikhede vermy deur dit aan rekeningkundige persone oor te dra nie. Bestuurders en direkteure moet ’n houding van die verantwoordelikheid eindig hier inneem. af
dc.identifier.citation Le Roux, F & Lowies, B 2009, 'Residential property development and financial ratio analysis: a South African perspective', Acta Structilia, vol. 16, no. 1, pp. 1-31. [http://www.uovs.ac.za/faculties/content.php?id=5174&FCode=04&DCode=115] en
dc.identifier.issn 1023-0564
dc.identifier.uri http://hdl.handle.net/2263/12245
dc.language.iso en en
dc.publisher The Physical Development Sciences, University of the Free State en
dc.rights The Physical Development Sciences, University of the Free State en
dc.subject Property development en
dc.subject Eiendomsontwikkeling af
dc.subject Ratio analise af
dc.subject Residential property en
dc.subject.lcsh Ratio analysis en
dc.subject.lcsh Financial statements -- South Africa en
dc.subject.lcsh Residential real estate -- South Africa en
dc.title Residential property development and financial ratio analysis : a South African perspective en
dc.type Article en


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