Financials vs. Real Estate

Comparison in profitability, efficiency and inventory/total assets

Amber Maglia

Inventory Analytics

Rutgers University - Coursera

DATA COMPARISON

In total revenue, Diversified Financial has the highest number followed by Banks, Insurance and then Real Estate. In Median revenue however, Insurance is higher although it has a negative operating margin x 100% and a lower median net margin x 100% compared to the other categories. The banking sector is the winning category in proportion of profitable enterprises x100%. 

In median inventory days, for the Real Estate sector it usually takes around 40 days whereas for diversified financial services it is more volatile, ranging from 20 days in 2019 with a peak of +80 days in 2020 and lowering down again to 65-70 days in 2023. As for the median return on assets, The Diversified Financials sector generates the highest ratio during 2021 with almost 7%, meaning almost 7 cents per dollar of assets used. By 2023 the 3 sectors were having about the same ratio levels between 0 - 0.2. Regarding the Median Cash Cycle, Banking sector had -800 because during the pandemic it was expected than more people would be saving money (putting it in the bank) rather than taking it out.

Lastly, on our table with the Inventory/Total Assets ratio, we can see that both industries have a relatively high ratio of 0.42 for financials and 0.62 for real estate. Which means 42% and 62% of companies' assets are invested in inventory. This is because of the nature of the operations of both industries and the type of products they deal with.

VALUE DRIVER ANALYSIS

For equity real estate and real estate management we can see a normal behavior of Inventory Turnover vs. Inventory Days: As inventory turnover increases, the days decrease, which is normal. In the second scatter plot for Gross Margin, it is 0 as Inventory Turnover increases in a straight line because the inventory turnover does not impact profitability for the companies, since most companies in both industries have different business units and products. Also, because in many cases companies in both finance and real estate do not exactly produce something that could mean they sell at the cost they produce. (0 gross margin) this makes sense on the third scatter plot, COGs is also not a common factor for many sectors and companies in Finance and Real Estate and the inventory turnover is not influenced by COGs.

ENTERPRISE DIAGNOSIS

In the enterprise ranking, we can see that Fortitude Gold Inc has the highest inventory days (+600 days) vs. Compass materials, the lowest ranked with 150 days. In the next graph I compared 3 companies: DuPont, Celanese and PPG. Celanese with the highest change in inventory and inventory days, while PPG has the highest inventory turn over and DuPont is second in inventory days. Next, I compare PPG and DuPont. PPG has as mentioned before, lower inventory days and less labor productivity although almost reaching DuPont in 2023. PPG's CCC since 2019 and although having negative numbers in 2020, is lower. Which means it takes less days for PPG to convert investments in inventory, etc. As for payable days/receivable days DuPont has a lower ratio. Lastly, compared to Celanese, PPG has higher Raw Materials and Work in Process inventory levels and lower finished goods inventory. Overall I would say they could implement a couple of improvements to lower their inventory levels and other KPIs.