Company Analysis for Investment Purposes: Alberta Investment Management Corporation in Focus

1. Introduction

Investment is one thing that everyone should consider doing. This is because getting into investment lets an individual build his or her financial strength. This makes it important to be very careful when contemplating going for investment. An investor should ensure that he or she goes the first steps towards an investment project (Pangarkar, 2011). Firstly, the purpose of investment is very important to identify. This is because it determines the type of business entity or company to invest in. The purpose of investment may range from safety, income or growth. With this already determined, the investor should look for a company which will help him or her achieve the investment purpose. According to Pangarkar (2011), there is also need to understand the risk involved in various investment considerations. This will alleviate the risk of entering into an investment which will leave a feeling of dissatisfaction in the mind of the investor. The money required to enter into a given investment option is also important to consider.

1.1 Investor Profile

My client is interested in earning income as well as growing his income. This means that it is important to choose a company for him which fits his needs. It is important to go for a company which shows significant growth in its earnings. It is also important to consider the stability of the company to invest in. The profitability of the company is also a major point of interest for the investor so as to consider investing. It is also important to consider the liquidity of the company selected. The investor is also interested in knowing how the future of the company might be, putting into consideration the company’s past performance. This should be supported by the company’s aspect of paying returns to the investors. The returns may be in terms of dividends among others.

2.0 The Company

Alberta Investment Management Corporation (AIMCO) is a company in the United States which is listed in the New York Stock Exchange. This company operates in the real estate industry. It specializes in apartment communities in the United States. This company boasts of more than 260 communities in the areas it operates in. It is worth noting that the company houses more than 250,000 people. It has interests in 24 states in the United States and also parts of Columbia and Puerto Rico.

AIMCO has its headquarters in Denver Colorado. This company’s initial public offer took place in the year 1994. It carries out its business in the New York Stock Exchange under the code AIV. On its development and growth, the company went into acquisitions and mergers. For example, the company bought a company known as Homecorp. At the time of acquisition, Homecorp had more that 5,300 housing units. This strengthened AIMCOS business foundation. This took place in the year 1994. In terms of mergers, an example involves the Insignia management Group which took place in the year 1995. This made AIMCO enjoy benefit from 65,000 housing units. Thereafter, the company made more acquisitions including Walters Management Company, Winthrop and Balcor Asset Management among others. It is worth noting that the company has continued carrying out moves which have made it grow in leaps and bounds.

2.1 Brief history, development and growth AIMCO

Alberta Investment Management Corporation is a company in the United States which is listed in the New York Stock Exchange. This company operates in the real estate industry. It specializes in apartment communities in the United States. This company boasts of more than 260 communities in the areas it operates in. It is worth noting that the company houses more than 250,000 people. It has interests in 24 states in the United States and also parts of Columbia and Puerto Rico. This company boasts of a good number of apartment communities which have been able to offer comfort to the residents.

AIMO has its headquarters in Denver Colorado. This company’s initial public offer took place in the year 1994. It carries out its business in the New York Stock Exchange under the code AIV. On its development and growth, the company went into acquisitions and mergers. For example, the company bought a company known as Homecorp. At the time of acquisition, Homecorp had more that 5,300 housing units. This strengthened AIMCO’s business foundation. This took place in the year 1994. In terms of mergers, an example involves the Insignia management Group which took place in the year 1995. This made AIMCO enjoy benefit from 65,000 housing units. Thereafter, the company made more acquisitions including Walters Management Company, Winthrop and Balcor Asset Management among others. It is worth noting that the company has continued carrying out moves which have made it grow in leaps and bounds.

2.1 The Rationale of choosing AIMCO (Alberta Investment Management Corporation.)

Since investment decisions have to be done with many considerations, settling on

AIMCO was directed by such. One main reason for selecting this company is the fact that it is in the real estate industry. The real estate industry has been recognized as the best in terms of giving income and growth to an investor. This fitted well with the profile of the client which is to earn large amounts of income and grow his financial strength from a viable investment. Secondly, the choice of AIMCO as a good company for investment was driven by the need to satisfy my investors need to get consistent returns from the investment. This was based on the fact that AIMCO’s financial goal is driven by the need to give predictable and attractive returns to the investors. This means that the objectives of the investor will be supported by investing in AIMCO.

The other reason for settling on AIMCO was that it has an aspect of diversification. This was informed by the company’s business objective of owning and operating well-diversified portfolio of apartment communities. This means that the company’s business would be attractive to a wide client base for the benefit of the investors. The other reason is the fact that the company is wholly committed to making it possible for the investors to achieve the objectives set out. This is driven by the specified need of the company to work towards increasing the level of profitability and long-term sustainability of the company which would be very beneficial to the achievement of the company’s objectives. This makes an idea to invest in the company necessary to consider going ahead with.

In the selection of this company for the purpose of my client’s investment, the mission and vision statement of the company were very useful. It is worth noting that the mission and vision statement of a company tell a lot about what to expect from the company. For AIMCO, the mission statement is ‘To consistently provide quality apartment homes in a respectful environment delivered by a team of people who care’. This means that the company’s products will never lack market. This is a good indicator that the investors should expect good returns from their investment. With this supported by the vision statement ‘To be the best owner and operator of apartment communities, inspired by a talented team committed to exceptional customer service, strong financial performance, and outstanding corporate citizenship’, the returns to the investors would be very attractive thus cementing the need to invest in AIMCO. Another reason for going for this company for investment is the fact that credit analysts have been reflecting the company as stable. This is important since the company means that it has not been swallowed by high amounts of debt. With a stable state of ranking, te investor will be able to put his money in the company without fear of the company getting tied in loads of debts with financial institutions.

3.0 Financial Ratio Analysis

To make the process of selecting a company complete and efficient, carrying out financial ratio analysis of the company is very important. Financial ratio analysis refers to the process of establishing the relationship between two or more values of an organization’s financial statements for a given period of time. Financial ratio analysis is usually important in investment decision making because it helps in breaking down the complex financial statements, making comparisons f companies easy even if they are not of the same size, analyzing a company’s performance trend over a given period and makes obtaining of information quite easy(Monks & Lajoux, 2011). After carrying out financial ratio analysis for the company, the decision to settle on AIMCO as the best investment option was made.

For AIMCO, the financial ratio analysis is as follows:

3.1 Liquidity ratios

To come up with proper decision regarding investing in AIMCO, the liquidity of the company was important to consider. The liquidity of a company refers to ability of a company to take care of the short term financial obligations. This is usually through cash or assets or portfolio which can be easily converted to cash. Some of the commonly used in liquidity analysis of an organization include the current and quick ratio.

From Appendix 2 which shows the balance sheet of AIMCO, the current assets and current liabilities of AIMCO for the three years give the following ratios.

3.1.1 Current Ratio

This is one of the commonly used liquidity ratios in financial ratio analysis. The current ratio is usually derived by dividing the total current assets of an organization by the current liabilities of the company. It is one of the easiest ratios to calculate since the process is not complex at all.

Current ratio= Current Assets/ Current Liabilities

For AIMCO, The current ratio is as follows

Year	Current Asset	Current Liabilities	Current Ratio
2012	888,726	349,416	2.54
2011	1,281,533	315,058	4.07
2010	769,526	324,444	2.37

 

The current ratio of the company seems to be impressive. From the year 2010 up to 2012, the company has experienced tremendous growth in the current asset ratio. The current ratio of AIMCO stands at 2.54. This means that the company is able to pay its shorter obligations with ease. This means that the company is not going to look for more financing outside its current assets. Even though the current ratio for the year 2012 is lower than that of the year 2011, it is still attractive since it is above 1. It is worth noting that the higher the value of the current ratio, the better for a company.

3.1.2 Quick ratio

The quick ratio of a company measures the ability of a company to pay for its short term obligations without relying on its inventory as part of the source of financing. This means that when deriving the quick ratio of an organization, the stock or inventory value is excluded from the current assets total. Therefore for AIMCO, the figure for total current assets for the year 2011 and 2010 will have to change. This will be after excluding the values for assets held for sale which represent the company’s inventory.

To derive the quick ratio for the company, the current assets schedule will be as follows after excluding the assets held for sale.

Year	2012	2011	2010
Current Asset	Amount ($000)	Amount ($000)	Amount ($000)
Cash and cash equivalents	84,413	91,066	111,325
Restricted Cash	146,859	183,970	199,190
Accounts Receivable	34,020	41,796	49,855
Notes Receivable	102,897	111,205	116,726
Other Current assets	520,537	382,949	194,740
Deferred income tax assets	58,736
Investment in unconsolidated real estate partnerships	59,282
Deferred financing costs	45,387
Total current assets	888,726	810,986	730,572

 

Therefore after the adjustment of the current assets, the quick ratios for the company are as follows.

Year	Current Asset	Current Liabilities	Quick ratio
2012	888,726	349,416	2.54
2011	810,986	315,058	2.57
2010	730,572	324,444	2.25

 

As per the calculations for the tree years, the company is also liquid enough to take care of its financial obligations in the short-term. This means that the company can pay its cash obligations in the near future without considering the input of the company’s inventories.

4.0 Profitability ratios

4.1 Return on Assets

=Net Income/Total assets

	Net Income/ Loss	Total assets	Return on Assets
	Amount ($000)	Amount ($000)
2012	195,361	6401380	0.030518576
2011	-58,164	6871862	-0.008464081
2010	-89,624	7378566	-0.012146534

 

For AIMCO, the company is experiencing a positive return on Assets currently. In the years 2010 and 2011, the return on assets was negative. In the year 2012, this trend changed and a positive return on assets has been experienced. This means that the company is currently using the company is using its assets in the right way towards the company’s profitability.

5.0 Stock Market ratios

These ratios are calculated from a company’s stock market performance. This ratio gives an indication of the company’s shares performance in the stock market. These ratios are usually calculated from the information obtained from the company’s daily performance in the stock market. The commonly used stock market ratios include the earning per share and Price earnings ratio.

5.1 Earnings per share

Earnings per share are derived so as to determine how much the company is affording each share in terms of earnings (Monks & Lajoux, 2011). This helps in calculating how much an investor will be able to earn from the investment in a given amount of shares.

The formula for deriving earnings per share is as shown below:

EPS = (net income – preferred dividends) / common shares outstanding

For AIMCO, earnings per share for the three years are as follows;

Year	Net Income	Preferred dividends	Net Income less preferred Dividends	common shares outstanding	Earnings per share
	Amount in $000	Amount in $000	Amount in $000
2012	195,361	2,315	193,046	145,038	1.33
2011	-58,164	14,037	-72,201	120,433	-0.60
2010	-89,624	14,346	-103,970	117,063	-0.89

From the calculations, to date the company is doing fine. The earnings per share for the years 2010 and 2011 were negative. This shows a very negative aspect of the business capable of discouraging investors. With the current earnings per share standing at 1.33, the company is making good returns to the investors something which should be integral in encouraging investors to be interested in the company’s stock.

5.2 Price earnings ratio

This is a ratio which measures a company’s share price against the earnings per share of the company. This ratio is derived by dividing a company’s market price per share by the earnings per share.

P/E = market price per share / earnings per share

For AIMCO limited, the price earnings ratios for the three years are as follows.

Year	common shares outstanding	Market Price Per share	Earnings per share	Price Earnings Ratio
2012	145,038	27.06	1.33	20.33
2011	120,433	21.24	-0.60	-35.43
2010	117,063	24.50	-0.89	-27.59

 

It is worth noting that the high the price earnings ratio, the better for the investors of a company. For the price earnings ratio calculated above for AIMCO, it is evident that the shareholders of the company will be able to earn more from their investment in the company. This cements the decision that it is prudent to invest in AIMCO. Additionally, the price earnings ratio has shown that the company has experienced tremendous growth which has enabled it to move from negative price earnings to posting a positive one of 20.33. It is important to note that the higher the price earnings the better for an organization (Jones & Hill, 2009). When the price earnings are high for a company, it gives an indication that the investors should wait for bigger returns in future from their investment. It is also very useful in showing the amount interested investors are willing to pay per dollar of earnings.

6.0 Risk level of the Company

In business, risk is one thing that exists as the business continues with its operations. It is always important to evaluate the risk associated with a company being considered for investment purposes. This is because the risk analysis helps in determining the negative uncertainties which might occur in the process of company’s operations. It is usually useful for an investor so as to make the final decision on whether to invest or not in a given company. In the case of AIMCO, the risk level seems to be very low. This is because the company shows a very strong foundation and a strong balance sheet. The company has also started posting positive results as indicated by the financial statements of 2012. Additionally, the company’s reputation does not seem to be negative. There are no cases which seem to be undermining the company’s name in the eyes of investors and customers. This means that through the image of the company, the risk is reduced. This means that it is prudent to invest in this company. The only risks which can face the company are loss of confidence of customers and loss of market share to competitors. These risks can be prevented by the application of strategies which handle the situation properly.  Proper strategies are known to be the solution to several business risks (Johnson, Whittington & Scholes, 2011).

To prevent the risk of lack of customer service, it is important to use proper product development and design strategies. These strategies will ensure that the quality of the products of the company remains attractive to the customers. This will ensure that the customers do not have a reason to shift their loyalty from the company. This will be supported by proper product differentiation. It will ensure the products of the company stand out among those of competitors.

To prevent the risk of losing share of the market to competitors requires better strategizing regarding external aspect of the business (Jones & Hill, 2009). This is because market competition is war which requires rounded planning. Pricing strategies would come in handy when trying to win over the market share in the market. It is important for the company to ensure the pricing decisions are made with a lot of caution. It is important for AIMCO to set prices which are attractive to the customers. The risk of losing share of the market to competitors will be done away with if the company sets slightly lower prices as compared to competitors for the similar products. This will ensure that the current customer base is maintained as well as acquiring on new ones.

From the obtained information regarding AIMCO, it is worthwhile to put money in the company. This is because from the look of things, the investor will not end up losing any of his hard earned money. From the history and development of the company, there is an indication that the company is headed for great things. The pace at which the company grew to become one of the largest owners and operators of apartment’s communities in the United States and the Puerto Rico as well as Columbia districts. The objectives of the company are quite impressive an in line with the profile of the investor. This means that the purpose of investment of the investor will be supported fully. The fact that the company is fully committed to delivering high rates of returns to the investors is quite encouraging. Fr example, the purpose of growth and income generation will fully be supported by the company’s commitment. With all these facts supported by the strong mission and vision statement of the company, there is reason enough to invest I AIMCO. Additionally, the company has revealed that it is liquidity. In fact, the liquidity level as shown by the derived liquidity ratios is very impressive. It means that once an investment has been done in AIMCO, there will be no complications concerning handling of short-term financial facilities. The profitability of the company has also shown great improvement as shown in the financial statements and ratios of the year 2012 as compared to those of previous years. This is made better by the increase in prices of the company’s stock. According to Fama (1976) a rise in prices of a company’s stock is an indicator of market efficiency which is instrumental in the success of a company. With the risk level of the company being low, it makes the decision to invest in AIMCO reasonable.

 

 

 

 

 

 

 

 

 

References

Fama, F. (1976). Foundations of Finance: Portfolio Decisions and Securities Prices, Basic Books, New York.

Johnson, G., Whittington, R. & Scholes, K. (2011). Exploring corporate strategy, 9th ed., Harlow: Pearson Education Limited.

Jones, R. & Hill, W. (2009). Strategic Management Essentials. 2nd ed. SouthWestern: Cengage Learning.

Monks, A. & Lajoux, R. (2011). Corporate Valuation for Portfolio Investment: Analyzing Assets, Earnings, John Wiley & Sons.

Pangarkar, N. (2011). High Performance Companies: Successful Strategies from the World’s Top Achievers, John Wiley & Sons.

 

 

 

 

 

 

Appendices

Appendix 1: The Current assets of AIMCO for the tree years (2012, 2011 and 2010)

Year	2012				2011	2,010
Current Asset	Amount ($000)				Amount ($000)	Amount ($000)
Cash and cash equivalents	84,413				91,066	111,325
Restricted Cash	146,859				183,970	199,190
Accounts Receivable	34,020				41,796	49,855
Notes Receivable	102,897				111,205	116,726
Other Current assets	520,537				382,949	194,740
Assets held for sale	470,547	38,954
Deferred income tax assets	58,736
Investment in unconsolidated real estate partnerships				5 9,282
Deferred financing costs			4 5,387
Total current assets			888,726		1,281,533	769,526
Appendix 2: The Current assets of AIMCO for the tree years (2012, 2011 and 2010)
Year		2012			2011	2,010
Current Liability		Amount ($000)			Amount ($000)	Amount ($000)
Accounts Payable		30,747			32,607	27,323
Accrued liabilities		318,669			282,451	297,121
Total current liabilities		349,416			315,058	324,444

 

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