GRAEME RANKINE FINANCIAL STATEME ENT ANALYSIS- IDENTIFY THE INDUSTRY Since apportunities and constraints tend to be different across industries, companies in different indus tries tend to make different investment, dividend, and financing decisions. Thus, firms in different industries exhibit different financial characteristics, and, hence, report different financial ratios. For example, "old economy" businesses with large amounts of tangible assets may have higher leverage ratios. Service or trading firms may have large amounts of intangible assets such as knowledge assets or a large and loyal customer base, and, hence, have low leverage ratios because "growth options" can evaporate. On the other hand, companies within the same industry tend to exhibit similar financial characteristics, as measured by financial ratios. With some knowledge of the different operating, invest- ing, and financing decisions across industries, financial ratios can be used to identify an industry (se Exhibit 1 for the definition of ratios used). Balance sheets and income statements for the most recent three years are provided for 10 compa- nies from 10 different industries. Common-sized balance sheets (all items scaled by total assets), com- mon-sized income statements (all items scaled by net sales), and selected financial ratios for the most recent three years are also provided. Since unusual deviation from target values may occur in any given year, the values for the items were averaged over three years. The three-year average common-sized balance sheet, common-sized income statement, and financial ratios are reported in Exhibits 2, 3, and 4, respectively The 10 companies are drawn from the following 10 different industries Commercial airline Commercial banking (items fitted into the same categories as the non-financial firms) Computer software Integrated oil and gas IT service provider Liquor producer and distributor Mobile phone service provider Pharmaceutical preparations Retail grocery stores Semiconductor manufacturer Assignment Using the financial statement data provided in Exhibits 2, 3, and 4, match the companies with their industry Copyright2007 Thunderbird School of Global Managewment. All rights reserved This case wa prepared by Professer Gae Renkine for she purpse ofalauroom discusian only and nor to indicase either effeezive or inefectise manage- ment Purchased by David Costa (desn@olege.ch) on October 05, 2011 Exhibit 1 Definitions of Some Key Financial Ratios LIQUIDITY RATIOS: Cash & Marketable Securities To Total Assets (Cash Market Securities) Total Assets + (Cash Market Securities Receivables) / Current Liabilities Acid Test Ratio + Current ratio Current Assets /Current Liabilities ASSET MANAGEMENT Day's Receivables Day's Inventory Asset Turnover 365/ (Sales Receivables) 365/ (Cost of Sales / Inventory) Sales /Total Assets FINANCIAL LEVERAGE Long-term Debt to Total Assets (Convertible Debt Long-term Debt Non-current Capital Leases Non-current Long-term Debt) / Total Assets (Convertible Debt Long-term Debt Non-current Capital Leases Non-current Long-term Debt)/ Stockholders Equity (Income Before Tax Interest Expense) / Interest Expense + + Long-term Debt to Stockholders' Equity Coverage Ratio PROFITABILITY Gross Margin Ratio Return on Sales Gross Profit Sales Net Income /Sales Net Income Total Assets (Net Income Interest Expense) /Total Assets Net Income / Stockholders Equity Return on Assets (1) Return on Assets (2) Return on Equity DUPONT ANALYSIS Return on Equity Return on Sales Asset Turnover Leverage (Net Income Sales) x (Sales Assets) x (Assets/ Stockholders' Equity) II II TBO069 n October 05, 2011 Purchased by David Costs (dean@college.ch) IS'61 66 S 98 6 06 t 0007 9L0 NOONI JIN 000 00'0 (S00 000 000 (S81 000 SE0 Sdo SIaSNLI X I561 986 SL91 000 000 000 000 000 000 000 INOONI HLO SassoiSNIVD SAN ONID INI ALINONIN 000 000 000 000 000 000 000 660 000 000 000 000 000 00'0 000 LI'8 LSII 96S SIt ES9 866 (600x SIXVLONI Od AOd 9L 69 86 67 SNadx SdaN ONI ONLIVdO NON 060 600 000 8IO 66 0 EEI (191 t6'S LEO (60s) 86 E6 t90 ZL91 92+ 00'0 000 000 OSt 000 8IT 000 ONVNOLLVIDEdaa Jo9 LL'ZE 6TE LL17 69 LS 9SSI 20'S9 LL'SE O91 tstl EIST 16'68 LIO SE61 dX NINCY NED TTES 000 STLLIINddX 19 619 IS'E 000 000 STLI 000 000 L628 089 8E' 6888 JONd SSO8D 985 E89 E0LI 07E7 LLTS 8L6 79'9 6L 00001 00001 0000 00001 00001 00001 00001 000 0000 000 STIVS EN 01 S (ea aau paea tadesuauad) uuas auuou aziS-uouruoy y uwayt asens RIBOM IaN gVIIOL AUn0a 831OHENYHS SLLIO0 HLO arim 00T 00T 67 t6 787A 6t 79 991 tsrol EFu 0018 XOS AE1SVL StNIN NIMY t6E1 18 I8E are SE IST evrD INAIHONI saLvITTVIO 00u 4St JU7 001m EYINL T saSY 4vB1NON aru 001 SLE EId NELLEND 180 o011 NISIDEVHD 001u 0011 001 VnINSH813 TVIOR EVr IN 860 SISE ECL 90% LlNCN INT SIT 001R 001R 001R TYAVd SNIKOY EVAYd SLLON SES $206 SP 001KI 0018 00T00 00T00 SIaSSV IYILDL 001 CST 9t SIDNVINE 91 T SST It tET 91 STE ST EST 1S DL AY 15aNI NET EL2 055 dIna SIassy IN EECE 813 TVIOIL IS 13 00n NI XNOW seavocsa STVIELIVW Mv SOLNSNN (60 ELTW 61 tsw 766 EE ESt 91 911 S9 INE SHLURS 1SVANS RSVT 811 (sIra aa ao padeaae taSeuasdp usureg S-uouo TB0069 Purchased by David Costa (dean@collage.ch) on October 05, 2011 u uy lasmog ES I aea 9E 60 6t 8I2 8EL 16 861 Ett 650 ESO 79 0 SL0 8L0 200 (90) 90'0 STO Or0 1O0 sars uo uay 200 6l0 9E0 Kmbg uo unaa (600) EZO SISATVNVINOdna mb uo uma z)sssy uo una D) sassy uo unga saes uo uaa ou ssou (600 00 610 (900) SIo 90 910 S00 (900) 600 ST0 90 90 100 Z00 (90) 900 LTO 970 Oro [O0 EC E80 680 o adeao mba Sapo s 01 qa uu-uo assy oa a -uo 3ov VIONVNI (6t9) SI'SI I OLSE OAICH SIPEL 9LC Et'0 10 910 000 90 000 900 600 650 ESO SL0 10 8L0 omasK SLOFS LE'8 60 EL9L 9092 661 1019 ST 99 6IL tS 62 Zz6s 9991 o uaun o sa Py (90 9ZE 8t2 IS 192 01'I SI'I 19'0 9L'0 t6'1 EIT 68 0 ST'o 950 SEO 900 sassy oo1asiauey SOLLVN no 01 (sa aa aa paa) sopey pueu paas GRAEME RANKINE FINANCIAL STATEME ENT ANALYSIS- IDENTIFY THE INDUSTRY Since apportunities and constraints tend to be different across industries, companies in different indus tries tend to make different investment, dividend, and financing decisions. Thus, firms in different industries exhibit different financial characteristics, and, hence, report different financial ratios. For example, "old economy" businesses with large amounts of tangible assets may have higher leverage ratios. Service or trading firms may have large amounts of intangible assets such as knowledge assets or a large and loyal customer base, and, hence, have low leverage ratios because "growth options" can evaporate. On the other hand, companies within the same industry tend to exhibit similar financial characteristics, as measured by financial ratios. With some knowledge of the different operating, invest- ing, and financing decisions across industries, financial ratios can be used to identify an industry (se Exhibit 1 for the definition of ratios used). Balance sheets and income statements for the most recent three years are provided for 10 compa- nies from 10 different industries. Common-sized balance sheets (all items scaled by total assets), com- mon-sized income statements (all items scaled by net sales), and selected financial ratios for the most recent three years are also provided. Since unusual deviation from target values may occur in any given year, the values for the items were averaged over three years. The three-year average common-sized balance sheet, common-sized income statement, and financial ratios are reported in Exhibits 2, 3, and 4, respectively The 10 companies are drawn from the following 10 different industries Commercial airline Commercial banking (items fitted into the same categories as the non-financial firms) Computer software Integrated oil and gas IT service provider Liquor producer and distributor Mobile phone service provider Pharmaceutical preparations Retail grocery stores Semiconductor manufacturer Assignment Using the financial statement data provided in Exhibits 2, 3, and 4, match the companies with their industry Copyright2007 Thunderbird School of Global Managewment. All rights reserved This case wa prepared by Professer Gae Renkine for she purpse ofalauroom discusian only and nor to indicase either effeezive or inefectise manage- ment Purchased by David Costa (desn@olege.ch) on October 05, 2011 Exhibit 1 Definitions of Some Key Financial Ratios LIQUIDITY RATIOS: Cash & Marketable Securities To Total Assets (Cash Market Securities) Total Assets + (Cash Market Securities Receivables) / Current Liabilities Acid Test Ratio + Current ratio Current Assets /Current Liabilities ASSET MANAGEMENT Day's Receivables Day's Inventory Asset Turnover 365/ (Sales Receivables) 365/ (Cost of Sales / Inventory) Sales /Total Assets FINANCIAL LEVERAGE Long-term Debt to Total Assets (Convertible Debt Long-term Debt Non-current Capital Leases Non-current Long-term Debt) / Total Assets (Convertible Debt Long-term Debt Non-current Capital Leases Non-current Long-term Debt)/ Stockholders Equity (Income Before Tax Interest Expense) / Interest Expense + + Long-term Debt to Stockholders' Equity Coverage Ratio PROFITABILITY Gross Margin Ratio Return on Sales Gross Profit Sales Net Income /Sales Net Income Total Assets (Net Income Interest Expense) /Total Assets Net Income / Stockholders Equity Return on Assets (1) Return on Assets (2) Return on Equity DUPONT ANALYSIS Return on Equity Return on Sales Asset Turnover Leverage (Net Income Sales) x (Sales Assets) x (Assets/ Stockholders' Equity) II II TBO069 n October 05, 2011 Purchased by David Costs (dean@college.ch) IS'61 66 S 98 6 06 t 0007 9L0 NOONI JIN 000 00'0 (S00 000 000 (S81 000 SE0 Sdo SIaSNLI X I561 986 SL91 000 000 000 000 000 000 000 INOONI HLO SassoiSNIVD SAN ONID INI ALINONIN 000 000 000 000 000 000 000 660 000 000 000 000 000 00'0 000 LI'8 LSII 96S SIt ES9 866 (600x SIXVLONI Od AOd 9L 69 86 67 SNadx SdaN ONI ONLIVdO NON 060 600 000 8IO 66 0 EEI (191 t6'S LEO (60s) 86 E6 t90 ZL91 92+ 00'0 000 000 OSt 000 8IT 000 ONVNOLLVIDEdaa Jo9 LL'ZE 6TE LL17 69 LS 9SSI 20'S9 LL'SE O91 tstl EIST 16'68 LIO SE61 dX NINCY NED TTES 000 STLLIINddX 19 619 IS'E 000 000 STLI 000 000 L628 089 8E' 6888 JONd SSO8D 985 E89 E0LI 07E7 LLTS 8L6 79'9 6L 00001 00001 0000 00001 00001 00001 00001 000 0000 000 STIVS EN 01 S (ea aau paea tadesuauad) uuas auuou aziS-uouruoy y uwayt asens RIBOM IaN gVIIOL AUn0a 831OHENYHS SLLIO0 HLO arim 00T 00T 67 t6 787A 6t 79 991 tsrol EFu 0018 XOS AE1SVL StNIN NIMY t6E1 18 I8E are SE IST evrD INAIHONI saLvITTVIO 00u 4St JU7 001m EYINL T saSY 4vB1NON aru 001 SLE EId NELLEND 180 o011 NISIDEVHD 001u 0011 001 VnINSH813 TVIOR EVr IN 860 SISE ECL 90% LlNCN INT SIT 001R 001R 001R TYAVd SNIKOY EVAYd SLLON SES $206 SP 001KI 0018 00T00 00T00 SIaSSV IYILDL 001 CST 9t SIDNVINE 91 T SST It tET 91 STE ST EST 1S DL AY 15aNI NET EL2 055 dIna SIassy IN EECE 813 TVIOIL IS 13 00n NI XNOW seavocsa STVIELIVW Mv SOLNSNN (60 ELTW 61 tsw 766 EE ESt 91 911 S9 INE SHLURS 1SVANS RSVT 811 (sIra aa ao padeaae taSeuasdp usureg S-uouo TB0069 Purchased by David Costa (dean@collage.ch) on October 05, 2011 u uy lasmog ES I aea 9E 60 6t 8I2 8EL 16 861 Ett 650 ESO 79 0 SL0 8L0 200 (90) 90'0 STO Or0 1O0 sars uo uay 200 6l0 9E0 Kmbg uo unaa (600) EZO SISATVNVINOdna mb uo uma z)sssy uo una D) sassy uo unga saes uo uaa ou ssou (600 00 610 (900) SIo 90 910 S00 (900) 600 ST0 90 90 100 Z00 (90) 900 LTO 970 Oro [O0 EC E80 680 o adeao mba Sapo s 01 qa uu-uo assy oa a -uo 3ov VIONVNI (6t9) SI'SI I OLSE OAICH SIPEL 9LC Et'0 10 910 000 90 000 900 600 650 ESO SL0 10 8L0 omasK SLOFS LE'8 60 EL9L 9092 661 1019 ST 99 6IL tS 62 Zz6s 9991 o uaun o sa Py (90 9ZE 8t2 IS 192 01'I SI'I 19'0 9L'0 t6'1 EIT 68 0 ST'o 950 SEO 900 sassy oo1asiauey SOLLVN no 01 (sa aa aa paa) sopey pueu paas