Financial Condition Analysis: Duke Realty Corp (DRE)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
DUKE REALTY CORP US/
NYSE
Real Estate – REITs – REIT – Industrial USD28.74
@ 03 Jul 2018
COMPANY PROFILE Duke Realty Corp is a self-administered and self-managed REIT. The company is engaged in the ownership, management and development of industrial and medical office real estate. It also provides real estate services to third-party owners.

Duke Realty is an Indianapolis-based publicly traded REIT that owns and operates a portfolio of primarily industrial properties and provides real estate services to third-party owners. It has interest in 144 million square feet across 486 facilities in 21 major U.S. logistics markets.

Stock Code DRE
Financial Condition Analysis Below
It is important to analyze the financial condition of the company you want to invest in because if a company goes bankrupt, the chances are high that you will lose all your investment. Even if the company does not go bankrupt, the deterioration in financial condition will cause more and more investors to avoid the company and valuation will drop. Weak financial condition also limits the opportunities that a company has to grow its business.
For non-financial institutions, the Altman Z-score is used to determine the financial condition of the company. For banks and credit institutions, the Bank Z-Score is used to measure of the company’s solvency risk. It measures the buffer (capitalization and returns) the company has to withstand risk (volatility of returns). There is no composite indicator to measure the financial condition of insurance companies.

Duke Realty Corp Altman Z-Score

Z-score has been improving since 2012. The main reasons for this are:
* higher working capital
* higher retained earnings as a proportion of total assets
* higher EBIT as a proportion of total assets
* lower level of borrowings

The latest Z-Score of the company as at Dec 2017 was 2.3, which is in the grey area.

The various components that go into the Z-Score are shown below:

Duke Realty Corp Sales Turnover

This is the Revenue Turnover ratio and it reflects the amount of revenue the company is able to generate from the use of its assets.  Companies that have difficulty generating revenue cannot generate consistent cash flow to pay its bills.
The amount of revenue generated from assets has been on a downtrend since 2009.

Duke Realty Corp Retained Earnings

The more profits are retained within the firm, the greater the buffer of reserves for the company to weather difficult times.
The level of retained earnings relative to assets has been on a downtrend since 2000. Currently, the company still has accumulated losses at 9.2% of total assets.

Duke Realty Corp ROA

This measures the ability of the company to generate EBIT (earnings before interest and taxes) from its assets.
EBIT as a % of assets has been on an uptrend since 2012. Currently, EBIT is at 5.1% of total assets.

Duke Realty Corp Market Cap to EBIT

This is an indication of the level of borrowings of the firm. A high level of borrowings will affect survivability as it may not have enough cash flows to meet its debt obligations.
The level of borrowings has been on a downtrend since 2008.

Duke Realty Corp Working Capital

Working capital is essential to the operations of the company and a low level of working capital may result in liquidity problems. This ratio is not relevant for financial institutions because they do not have working capital.
Financial condition analysis is an important part of stock analysis because an investor will make a loss on a stock if it goes bankrupt. The financial condition of a company is also important because investors will attribute a discount to the theoretical fair valuation of the company depending on how bad the financial condition is. ProThinker uses multiple valuation indicators to value a stock and then attribute a discount when necessary depending on the financial condition.
The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Charts are from ProThinker Stock Report. Company description, historical financial statements data and price data are from gurufocus.com. Estimates are from gurufocus and/or 4-traders.com – Thomson Reuters.
Disclaimer: This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither ProThinker nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of ProThinker. Copyright(c) 2018. All rights reserved.

 

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