Case 1. Can you identify industry characteristics? If you were asked to visualize (in income statement and balance sheet form) the financial structure of a typical firm in one particular industry, do you think you could do it? How close to your "vision" do you think the "reality" would be? What if you were asked to do the same experiment covering 14 firms drawn from 14 different industries? How many of the 14 do you think you would get right? You may be surprised by how much you already know! Attached Exhibit I presents the balance sheets (in percentage form) and other selected financial data for 14 firms drawn from 14 different industries. While there are clear differences in the financial structures of different firms within a single industry, the firms selected have figures that are broadly typical of those in their industry. Try to match the 14 firms operating in the 14 industries named below with the 14 sets of financial data presented in Exhibit 1. Use any approach you find helpful. 1. Advertising agency (about half of total revenue derived from commissions that equal 15% of media purchases for clients) 2. Airline 3. Bookstore chain 4. Commercial bank (fitted into the most nearly comparable balance sheet and ratio categories of the nonfinancial companies) 5. Computer software developer 6. Department store chain (with its "own brand" charge card) 7. Electric and gas utility (with 72% of its revenue from electricity sales and 28% of its revenue from natural gas sales) 8. Family restaurant chain 9. Health maintenance organization 10. Online bookseller 11. Online direct factory to customer personal computer vendor (with more than half of sales to business customers and most manufacturing outsourced) 12. Pharmaceutical manufacturer Retail drug chain Retail grocery chain 13. Retail drug chain 14. Retail grocery chain Exhibit 1 Balance Sheet Percentages and Selected Financial Data for Unidentified Industries Line Balance Sheet Percentages A B S D E 1. Cash and marketable securities 12. 2. Accounts receivable 3. Inventories 4. Other current assets 6. Plant & equipment (net) 6. Other assete 7. Total ass 8. Noles payable 9. Accounts payable 10. Accrued theme 11. Other current liabilities Long-term debt 13. Other Babies 14. Preferred stock 16. Common stock ******* 54 12 7 15 42 25 **********98 10 boza ... 14 40 100 10 ******** 40 100 30 0020420,043 G H 11 3 13 61 0 7 22 3 7 55 25 32 100 2 11 25 13 10 .... -- 4 33 13 0 az 41 21 10. Tetal Fables and net worth Selected Financial Data 17. Current assets/current Babilities 1.62 1.23 1.11 1.05 .92 2.10 1.10 37 .00 1.34 1.00 .05 .94 18. Cash, MS, and ARa/ourrent labies 1.10 31 01 1.12 02 1.04 1.10 .00 21 38 50 37 72 10. Inventory tumover (X) 1134 2.7 79.0 1.6 NA 5.2 NA 22.3 10.2 2.3 5.7 19.0 NA 21. 20. Receivables collection period (days) Total debtotal assets 12 7 30 60 2011 77 00 41 16 40 12 41 .00 .02 .15 21 .00 .10 23 35 31 .00 30 .14 22. Long-term debt/capitalization .06 .00 .11 .08 33 .00 .14 20 57 37 .00 47 .10 23. Revenue/total assets 2.207 1.013 2.419 439 078 630 2.070 1.00 2.950 675 2.707 423 542 24. Net profirevenus 042 .020 .064 160 074 205 022 .050 .010 .003 .007 .000 072 25. Net profitotal assets 097 040 .160 .000 050 181 045 112 047 042 .102 020 .000 26. Total assets/net worth 15.02 2.84 5.00 1.70 4.03 1.74 2.74 2.45 4.67 2.45 1.00 3.30 2.10 27. Net profihat worth 1.450 .131 805 .123 200 .123 314 275 210 104 173 .000 .082 100 100 100 100 100 Shosos ..- 100 41 24 -8 =- L M N B 18 12 2 2 10 100 22 10 10 15 100 Source Compiled from company annual reports NA-Not applicable "Column totala may not add to 100 due to rounding. Write down the industry name next to the Financial Statement identifier. Industry A B C D E F G H I J K L M N Industry Name Exhibit 1 Balance Sheet Percentages and Selected Financial Data for Unidentified Industries Line Balance Sheet Percentages A B 1. Cash and marketable securities 54 12 2. Accounts receivable 7 3 3. Inventories 15 42 4. Other current assets 2 2 5. Plant & equipment (net) 9 25 6. Other assets 11 16 DI E F 24 2 9 15 19 8 8 37 5 0 8 5 14 4 23204 49 13 6 46 46 25 7. Total assets 100 100 100 100 100 100 8. Notes payable 0 0 9. Accounts payable 37 26 10. Accrued items 15 22 11. Other current liabilities 0 12. Long-term debt 41 13. Other liabilities 17 14. Preferred stock 15. Common stock v- 43 26 0 2 11 18 p 10 6 2 39 1 1 11 9 5 15 14 6 0 0 56 25 p 0 58 16. Total liabilities and net worth 100 100 100 100 100 100 Selected Financial Data 17. Current assets/current liabilities 1.52 1.23 1.11 1.65 .92 2.18 18. Cash, MS, and ARs/current liabilities 1.18 .31 .91 1.12 .82 1.94 19. Inventory turnover (X) 1114 2.7 79.8 1.6 NA 5.2 20. Receivables collection period (days) 12 7 36 68 201 77 21. Total debt/total assets .41 .00 .02 .15 .21 .00 22. Long-term debt/capitalization .86 .00 .11 .08 .33 .00 23. Revenue/total assets 2.297 1.613 2.419 .439 .675 .636 2.0 24. Net profit/revenue .042 .029 .064 .158 .074 285 25. Net profit/total assets .097 .046 .155 .069 .050 .181 26. Total assets/net worth 15.02 2.84 5.60 1.78 4.03 1.74 27. Net profit/net worth 1.459 .131 .865 .123 200 .314 . G H I 11 51 46 2008 O 1 7 22 3 81 55 _6 13 100 100 j w G w N w w 1 3 36 33 8 6 3 4 7 17 16 2 8 4 0 0 13 9 3 7 16 33 27 0 9 10 0 0 0 0 37 41 41 100 100 100 01588 CHOOS K L M N 8 12 17 35 2 41 3 69 18 2 0 6 66 05268 18 100 100 100 4 24 7 59 8 5 5 0 0 29 48 *p2 4 19 10 15 0 oooo 860008N 0 0 0 100 100 100 100 1.10 .37 .96 1.34 1.69 .95 .94 1.17 1.10 .08 .21 .36 .59 .37 .72 1.17 NA 22.3 10.2 2.3 5.7 19.8 NA NA 89 2 4 41 16 40 12 4,071 .16 .23 .35 .31 .00 .33 .14 .88 .14 .26 .57 .37 .00 .47 .16 .15 2.079 1.90 2.956 .675 2.767 .423 .542 .081 .022 .059 .016 .063 .037 .068 .072 .204 .045 .112 .047 .042 .102 .029 .039 .016 2.74 2.45 4.67 2.45 1.69 3.30 2.10 13.28 .123 .275 .218 .104 .173 .096 .082 .218