Discuss the salient qualitative features of each company and the differences in the pharmaceutical and newspaper industries. Try to follow the Dupont System when discussing/comparing ratios - start with ROE=NPM*Asset Turnover*Equity Multiplier and then investigate one/several ratios from three components of returns (usually margin first, then efficiency, and leverage at last). Most importantly, you should clearly identify which company follow what strategy in each industry after analyzing ratios (using one or several key ratios that may differ because of difference in strategies).

Newspapers

Companies I and J are newspaper companies. One company owns and operates two newspapers in the southwestern United States. Due to the transition of customer preference from print to digital, the company

has begun offering marketing and digital-advertising services and acquiring firms in more profitable industries. The company has introduced cost controls to address cost-structure issues such as personnel expenses.

Founded in 1851, the other company is renowned for its highly circulated newspaper offered both in print and online formats. This paper is sold and distributed domestically as well as around the world. Because the company is focused largely on one product, it has strong central controls that have allowed it to remain profitable despite the fierce competition for subscribers and advertising revenues.

Pharmaceuticals

Companies K and L manufacture and market pharmaceuticals. One firm is a diversified company that sells both human pharmaceuticals as well as health products for animals. This company's strategy is to stay ahead of the competition by investing in the discovery and development of new and innovative drugs.

The other company focuses on generic pharmaceuticals and medical devices. Most of this company's growth has been inorganic?the growth strategy has been to engage in highly leveraged acquisitions, and it has participated in more than 100 during the past eight years. The goal of acquiring new businesses is to enhance the value of the proven drugs in the company's portfolio rather than gamble on discoveries of new drugs for the future.

Exhibit 1 THE FINANCIAL DETECTIVE, 2016 Common-Sized Financial Data and Ratios Airlines computers Hospitality Newspapers Pharmaceutical Power Retail A B C D E F G H K L M N ASSETS (%) Cash & ST Investments Receivables Inventory Current Assets Other Current Assets-Total Net Property, Plant, & Equipment Long-Term Marketable Securities Goodwill & Intangibles Assets Other Assets-Total 100 100 100 100 100 LIABILITIES & EQUITY (%) Accounts Payable Debt in Current Liabilities Current Liabilities Other 24 Current Liabilities-Total 33 Long Term Debt 13 Deferred Taxes 0 Liabilities Other 34 15 Liabilities-Total 80 89 Stockholders' Equity 20 Total Liabilities & Equity 100 00 100 100 INCOME/EXPENSES (%%) Revenue 100 100 00 100 100 100 10 100 100 Cost of Goods Sold 70) 63) Finance Div. Operating Exp. 0 0 Interest Expense - Finance Division Gross Profit 30 40 SG&A Expense (4) R & D Exp. 0 Depreciation & Amort. (5) (5) Other Operating Expense Earnings before Interest and Taxes 16 Net Interest Expense Other Pretax Income Income Tax Expense Earnings of Discontinued Ops. Extraord. Itern & Account. Change Minority Int. in Earnings Net IncomeMARKET DATA Beta 1.20 1.10 0.95 0.95 0.95 1.20 1.15 1.15 1.15 0.95 1.15 0.75 1.15 1.50 1.05 1.00 Price/Earnings 10.0 10.9 24.2 34.0 12.8 22.0 59.8 24.0 34.9 mmmif 18.3 22.9 27.2 9.7 mmmif 19.2 Price to Book 3.9 2.4 4.2 3.9 5.0 2.8 0.3 nmif 2.7 0.8 5.5 6.1 1.8 1.2 25.5 6.4 Dividend Payout (9%) 7.9 0.0 88.2 0.0 21.8 0.0 0.0 29.5 41.8 (39.4) 0.0 18.7 91.5 0.0 0.0 197.5 LIQUIDITY Current Ratio 0.52 0.60 0.64 2.01 1.11 3.50 1.02 0.43 1.53 3.17 1.04 1.53 0.99 3.48 1.08 1.04 Quick Ratio 0.31 0.44 0.41 1.35 0.90 2.45 0.72 0.37 1.45 2.82 0.62 1.03 0.63 2.49 0.77 0.30 ASSET MANAGEMENT Inventory Turnover 37.0 85.4 5.9 8.5 62.8 3.9 109. nmif 61.2 2.3 1.6 17.6 4.6 7.7 4.9 Receivables Turnover 16.5 43.3 13.0 25.3 13.6 5.3 8.8 13.1 7.1 8.3 4.3 5.9 5.8 9.3 17.8 11.7 Fixed Assets Turnover 1.9 1.0 2.2 2.4 10.8 22.0 0.6 14.1 2.4 4.8 7.6 2.5 0.6 2.5 5.5 4.1 DEBT MANAGEMENT Total Debt/Total Assets (%) 79.6 62.9 66.0 28. 58.9 29.1 47.4 159.0 65.7 45.7 87.7 59.0 83.0 24.2 79.5 88.7 LT Debt/Shareholders' Equity (%%) 62.4 43.5 95.2 0.1 44.8 0.0 26.2 nmif 29.3 0.0 501.9 54.6 292.5 5.2 61.5 320.9 Interest Coverage 13.6 10.0 6.5 nonif 97.2 mmif 4.8 8.1 4.2 nmif 1.7 23.2 1.9 74.1 4.9 10.2 DuPONT ANALYSIS Net Profit Margin (%%) 11.1 10.6 19.0 10.3 22.8 3.8 4.9 30.1 4.0 (6.6) (2.8) 12.1 2.0 15.3 0.6 4.2 Asset Turnover 0.8 0.8 0.3 1.5 0.9 1.1 0.3 2.4 0.6 1.0 0.3 0.G 0.4 0.5 1.8 1.7 Return on Equity (7%) 46.0 23.6 19.7 21.9 46.2 5.8 29 8.1 (14.8) (5.0) 16.1 11.2 10.4 40 36.2 nmif = not a meaningful figure Data source: S&P Research Insight, Capital Q, and Value Line Investment Survey