The_Unidentified_Industries_CaseIntroductionIndustries_differ_on

The Unidentified Industries Case

Introduction

Industries differ on both internal and external dimensions. Internal issues such as culture and operating models are often specific to industries, while the external issues of the marketplace and competition will vary from industry to industry. Financial accounting provides managers with the tools to quantify these issues, and financial ratio analysis can provide the astute manager with insights into these industry differences. In this case, you are given a list of nine industries and a table of nine sets of common sized statements and financial ratios. Your task is first to consider each industry—the typical operating models of the business, the market and customer factors, and the competitive nature of the industry, and how these characteristics might manifest themselves in the selected financial ratios. Starting with these qualitative issues, then match the industries with the appropriate column of financial information. Please note that not every general industry characteristic will apply to every company in that industry. Why?

Required

1. Match each industry described to a set of financial statement information (company letters A through I); and

2. Write your answers down in bullet point format, three reasons for each industry, addressing why you matched that industry to a particular set of financial information.

Industry

Retail Stores

Pharmaceuticals

Home Builders

Grocery Stores

Semiconductor Manufacturers

Electric Utilities

Apparel Manufacturers

Steel Industry

Automobile Manufacturers

Exhibit 1: Common Size Financial Statements

Exhibit 2: Selected Financial Information

INCOME STATEMENT

Net Sales

100.0%

Cost of Goods Sold

75.5%

60.4%

89.1%

80.9%

34.9%

75.6%

21.4%

64.9%

65.7%

Depreciation & Amortization

7.2%

11.1%

5.7%

0.7%

9.1%

1.4%

7.4%

5.3%

3.5%

Gross Profit

17.3%

28.5%

5.2%

18.4%

56.0%

23.0%

71.2%

29.8%

30.8%

R&D Expense

0.0%

8.7%

0.0%

16.2%

0.0%

Selling, Gen'l & Admin Exp

8.9%

1.8%

2.3%

10.5%

11.1%

19.5%

27.1%

15.4%

27.3%

Other Operating Expense

0.0%

6.4%

9.9%

1.1%

0.0%

1.1%

0.0%

Operating Income

8.4%

20.2%

(7.0%)

6.8%

36.2%

3.4%

27.9%

13.3%

3.4%

Non-Operating Income

(0.8%)

0.0%

0.1%

0.5%

1.9%

0.0%

3.7%

(1.5%)

2.9%

Interest Expense

3.5%

6.4%

1.1%

2.6%

0.1%

1.2%

3.9%

4.2%

0.9%

Pretax Income

4.1%

13.8%

(8.0%)

4.7%

38.1%

2.3%

27.6%

7.6%

5.5%

Taxes

1.1%

5.3%

(1.4%)

1.0%

13.3%

0.9%

6.9%

1.4%

2.2%

Other Income

0.0%

Net Income

3.0%

8.5%

(6.6%)

3.7%

24.7%

1.4%

20.7%

6.2%

3.3%

BALANCE SHEET

Assets

Cash

10.0%

0.2%

2.7%

1.4%

33.7%

0.0%

6.7%

0.7%

1.0%

Receivables

28.9%

7.2%

6.1%

3.0%

15.7%

5.6%

12.1%

6.6%

26.4%

Inventories

5.4%

1.5%

19.9%

74.9%

5.4%

29.4%

6.2%

24.3%

26.6%

Other Current Assets

0.0%

1.2%

0.4%

12.6%

2.8%

5.4%

2.2%

1.5%

2.6%

Total Current Assets

44.2%

10.1%

29.1%

91.9%

57.7%

40.4%

27.2%

33.1%

56.7%

Net Property, Plant & Equip

30.4%

79.3%

47.4%

0.0%

35.8%

52.6%

30.1%

35.3%

42.6%

Other Long Term Assets

25.3%

10.6%

23.5%

8.1%

6.6%

7.0%

42.7%

31.6%

0.7%

Total Assets

100.0%

Liabilities

Short Term Debt

38.4%

8.2%

1.0%

4.5%

1.6%

0.4%

8.5%

0.7%

8.0%

Accounts Payable

6.4%

3.6%

8.0%

10.2%

4.1%

28.3%

5.8%

4.4%

11.5%

Other Current Liabilities

0.0%

4.4%

9.7%

7.6%

14.8%

17.9%

15.2%

7.7%

9.7%

Total Current Liabilities

44.8%

16.2%

18.7%

22.3%

20.5%

46.6%

29.5%

12.8%

29.1%

Long Term Debt

0.0%

28.4%

9.7%

38.3%

3.1%

62.8%

17.6%

34.1%

12.2%

Other Long Term Liabilities

44.7%

22.2%

52.6%

0.0%

5.4%

10.9%

10.3%

11.3%

4.2%

Total Liabilities

89.5%

66.8%

81.1%

60.6%

28.9%

120.3%

57.4%

58.2%

45.5%

Stockholders' Equity

Minority Interest

0.0%

Preferred Stock

0.0%

5.4%

0.3%

0.0%

Common Shareholders Equity

10.5%

27.8%

18.6%

39.1%

71.1%

(20.3%)

42.6%

41.8%

54.5%

Total Liabilities and Stockholders' Equity

100.0%

KEY RATIOS

Net Profit Margin

3.02%

8.49%

-6.60%

3.71%

24.74%

1.40%

20.74%

6.18%

3.31%

Asset Turnover

0.74

0.45

0.92

1.26

0.88

4.32

0.51

0.96

1.65

Return on Assets

2.23%

3.80%

-6.04%

4.66%

21.73%

6.06%

10.65%

5.94%

5.46%

Return on Equity

21.19%

11.43%

-31.97%

11.82%

30.57%

-29.85%

24.98%

14.20%

10.01%

Current Ratio

0.99

0.62

1.55

4.13

2.81

0.87

0.92

2.58

1.95

Quick Ratio

0.87

0.53

0.49

0.76

2.55

0.24

0.71

0.69

1.03

Operating Cash Flow/Current Liabilities

0.19

0.59

0.36

-0.19

1.80

0.18

0.47

1.57

0.32

A/R Days Sales Outstanding

142.62

58.69

24.31

8.59

65.18

4.70

86.30

24.95

58.57

Inventory Days on Hand

31.99

17.48

83.69

266.40

51.50

32.27

151.87

131.34

85.26

A/P Days Outstanding

41.89

48.64

35.94

36.60

48.61

31.63

192.20

25.71

38.73

Financial Leverage

9.49

3.01

5.29

2.54

1.41

-4.93

2.35

2.39

1.83

Total Debt/Common Equity

3.64

1.31

0.57

1.09

0.07

-3.11

0.61

0.83

0.37

Interest Coverage

2.41

3.14

NMF

2.64

302.12

2.89

7.09

3.14

3.89

Operating Cash Flow/Capital Expenditures

1.88

1.75

1.32

-14.95

2.89

0.65

4.49

11.54

1.22

MARKET DATA

P/E Ratio

9.09

11.67

NMF

9.75

23.97

19.86

NMF

15.94

30.22

Equity Beta

0.79

0.53

0.79

1.38

1.49

0.44

1.23

0.26

1.32

Fiscal Year End

December

January

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