Introduction
CBRE Group is a real estate company that is based in California though it has more than 300 offices in different parts of the globe. In 2003, it was the highest ranked real estate company by the fortune 500 (Orr 1). The author would like to work for the company in the future, and that is why he is interested with its financial performance. The financial performance of CBRE group Inc. has not changed much in the last few years despite the growth in revenue (CBRE Group Inc. Annual Report 2013). The management of the company has attributed this little change in profit due to the increased cost of goods sold.
Financial analysis
The net income for the group has increased from $ 200 million in 2010 to $ 239.2 million in 2011. The income continued to grow and reached to $ 315.6 million in 2012 but remained almost constant 2013 since it slightly increased to $ 316.5 million despite growth in sales. The cost of goods sold has continued to grow constantly from $ 2.16 billions in 2010 to $ 3.0 billions in 2013. Total revenues for the group have also increased constantly from $ 5.12 billions in 2010 to $ 7.19 billions last year. The total operating expenses for the group have also increased with income from $ 1.69 billions in 2010 to $ 2.28 billions in 2013. The simultaneous growth of total revenue and total income over the past three years has left the profit of the group almost constant (CBRE Group Inc. Annual Report 2013).
In terms of financial ratios analysis, return on asset for the group was 6.85% during the last financial year. This ratio shows the amount of returns that a company receives from each dollar they invest. The ROA of the group can be termed as good since it is above 5%. Any company with ROA of more than 5% is considered doing well since it is able to derive considerable amount of income from every dollar they invest. The ROA of the group is also the same as that of the other companies that are operating in the same industry. The return on capital (ROC) for the company in the last financial year was 10.15%, which was almost the same to the industry average. The ratio compares the operating income of the company with the value of invested capital in the books. It shows the ability of the company to generate cash flow from the invested capital. The ROC of the group is positive showing that its return on capital is greater than the cost of that capital. It shows that the group is creating value from the capital it has invested in the business. If the group had a less than 1 ROC, then it would be destroying its capital. Therefore, the group is generating adequate cash flow from its capital, though there is a big room for improvement. The return on equity (ROE) for the company was 21% in the financial year that ended on 31st December 2013 (CBRE Group Inc. Annual Report 2013). The ratio measures the rate of return on the shareholders equity. It shows the ability of the company to generate profit from each and every unit of the shareholders has invested in it. A good ROE ranges between 15 to 20%, and the CBRE group Inc can be said to be doing well in terms of using shareholders’ equity in order to generate profit. A ROE of 21% shows that the company is efficient in the way it is using the stock of the shareholders to generate profit.
The gross margin for the group in the same period was 39.01%, which was quite good compared to the industry average. The ratio compares the revenues and the costs of the company before other costs are accounted. It relates the selling price of the company’s products compared to their costs for acquisition or production. It shows the profit that the company receives by selling one of its units of sales. In this case, the group is performing well since it is able to generate a profit of about 40% from each unit of its products that it sell before accounting for other forms of expenses. It also implies that the group is very efficient in translating its raw materials into income. The total assets turnover for the group in that period was 1.2. The ratio compares the total assets of the company with its sales revenue, and can show whether it is generating sufficient revenue from its assets (CBRE Group Inc. Annual Report 2013). The ratio of 1.2 is not too high neither too low since those companies that report high profit margin normally record low asset turnover. The ratio also shows that although there is price competition in the real estate industry, the competition is not very stiff. Companies operating in industries with cutthroat prices normally record high asset turnover ratio. The current ratio for the company for that period was 1.3, which was a little bit low compared to the recommended rates. The recommended ratio for many industries lies between 1.5 and 3.0. Although the group has ability to pay its creditors and to meet its debts within the next 1 year, the gap between its assets and liabilities is very small. Finally, the earning per share for that period was 1.43, which was quite good. The earning per share shows the profit that will be allocated to each share held by the shareholders. It also indicates the profitability of a given company.
The EBITDA margin for the company in this period was 11.77% which was close to the industry average. The ratio measures the profitability of the company in terms of operation. It compares revenue with income before put into consideration the tax, interest, amortization and depreciation. It provides the investor with a clear view of how the company performing since it excludes amortization and depreciation. Although a positive EBITDA does not necessarily means that a company is making profit it shows that it is stable in terms of operation profit and cash flow. In this case, CBRE has a positive EBITDA, a margin that shows that the company is not only making profit with its current operations, but have sufficient cash flow. A good cash flow is an important aspect in any health business since it shows that the operations of the company that are producing goods and services are generating sufficient revenue. So there is no cause for alarm to the management of CBRE Company since has sufficient cash flow to sustain its operations.
Recommendations
Although the company has continued to report increased growth in the last few years, there are several steps its management can take in order to improve its performance. First, the income for the group has remained almost constant despite its growth in revenue. It will be advisable for the group to control its costs of goods through reducing its costs of operations and acquisitions (Hui, Diego and Jie 1410). Secondly, the gap between its current assets and liabilities is very small. Therefore, the group needs to reduce its total liabilities in order to ensure it is able to meet its creditors’ obligation in the future. This is so important given that real estate industry was one of the businesses that were worst by the recent recession. Finally, investing more resources in technology and systems will help it to improve its global operations and to reach more customers in the unreached markets.
Work Cited
CBRE Group Inc. Annual Report (2013). Web. Nov 25, 2014. Retrieved from: http://annualreport.cbre.com/
Hui Li, Diego Andina, and Jie Sun. Multiple proportion case-basing driven CBRE and its application in the evaluation of possible failure of firms. International Journal of Systems Science, 44.8(2013):1409-1425.
Orr, Hunter. CBG - CBRE Group Inc - Company Analysis and ASR Ranking Report. Alpha Street Research Reports, (2013):1-9.
