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CSI FINANCIAL STATEMENTS 2014 USING FINANCIAL RATIOS TO IDENTIFY COMPANIES

Different industries, different business models, and different operating strategies all lead to different financial relationships on the balance sheet and income statement. Some companies may be more capital intensive and carry high amounts of fixed assets, while others actively engage in mergers & acquisitions and may have significant amounts of goodwill. Commodity businesses often operate with razor-thin profit margins, while companies that offer a more differentiated product tend to generate higher margins. Not every characteristic of a firms strategy or business model is directly revealed in the financial statements, but patterns in the financial ratios do tend to emerge.

At the top of the next page is a list of 13 companies representing widely different industries. On the following page are the 2014 common-size balance sheets and selected ratios for these same companies. Your task is to match each company with the appropriate balance sheet/list of ratios. As you complete this task, you will be forced to think carefully about both industry and company characteristics and how these may be reflected in the financial statements and ratios. You should also keep in mind whatever effects the 2013/2014 economy may have had on each company.

An initial strategy might be to try to identify the easiest matches first. For example, two companies carry no inventories and only six companies conduct significant amounts of R & D. This approach will help you narrow down the remaining companies, which in turn will make those matches easier to complete. Be prepared to discuss the assignments you make and the reasons for your choices.

The industries and companies are as follows:

1. Clothing Retailer/Department Store Nordstrom

2. Internet Technology Yahoo

3. Grocery Store Kroger

4. Airline Singapore Airlines (Singapore)

5. Steel Manufacturing Kobe Steel (Japan)

6. Electronics Manufacturing Siemens (Germany)

7. Pharmaceutical Eli Lilly

8. Electric Utility Duke Energy

9. Computer Software Microsoft

10. Consumer Products Coca Cola

11. Commercial Bank Deutche Bank (Germany)

12. Computer Technology and Consulting - IBM

13. Computer Networks and Software - CISCO

Figure 1. Common size balance sheet/financial ratios for selected companies computed from 2014 annual reports/1oKs 3 Fixed Assets/PPE (net) LT Investment in Affiliated Co.'s 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Income 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Total liabilities &O.E 4 679% Total Debt Total Assets 3 3 10.5% 13.9%