I need to identify the Industry by matching 10 companies to the respective industry utilizing exhibit 2, 3 & 4 with an explanation of my rationale. Please see below.. Thanks for the assistance.
FINANCIAL STATEMENT ANALYSIS- IDENTIFY THE INDUSTRY Since opportunities 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 (see 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. Exhibit 1 Definitions of Some Key Financial Ratios LIQUIDITY RATIOS Cash & Marketable Securities To Total Assets - (Cash + Market Securities)/Total Assets Acid Test Ratio - (Cash + Market Securities + Receivables)/Current Liabilities Current ratio Current Assets / Current Liabilities ASSET MANAGEMENT Day's Receivables 365/(Sales/ Receivables) Day's Inventory 365/(Cost of Sales / Inventory) Asset Turnover 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 Long-term Debt to Stockholders' Equity - (Convertible Debt +Long-term Debt + Non-current Capital Leases + Non-current Long-term Debt) / Stockholders Equity Coverage Ratio (Income Refore Tax + Interest Expense) / Interest Expense PROFITABILITY Gross Margin Ratio Return on Sales Return on Assets (1) Return on Assets (2) Return on Equity DUPONT ANALYSIS Return on Equity Gross Profit/Sales Net Income / Sales Net Income / Total Assets (Net Income + Interest Expense) / Total Assets Net Income / Stockholders' Equity Return on Sales Asset Turnover Leverage (Net Income / Sales) x (Sales / Assets) x (Assets/ Stockholders' Equity) 7 100,00 23:20 76.80 20.01 100.00 17.03 82.97 17.18 33.02 32.77 100.00 6841 31.57 0.00 15.56 16.01 Exhibit 2 Commen Sie Income Statement (percentage averaged over three years) 1 4 s NET SALES 100.00 100.00 100.00 100.00 100.00 COST OF GOODS 2012 36.62 49.78 52.27 GROSS PROFIT 20.68 88.89 6338 50.22 47.23 R&D EXPENDITURES 0.00 0.00 0.00 032 0.00 SELL GEN & ADMIN EXP 19.38 20.17 39.91 25.13 1454 INC BEF DEP & AMORT 1.30 68.72 23:47 24.77 DEPRECIATION & AMORT 0.00 1.18 0.00 4.50 NON-OPERATING INC (1923) 1.98 (5.09) 184 INTEREST EXPENSE 0.99 0.18 0.00 INCOME BEFORE TAX 0.27 29.98 2447 16.39 30.04 PROV FOR INC TAXES (0.09) 9.98 7.72 6.53 4.18 MINORITY INT (INC) 0.04 0.00 0.00 0.00 0.07 INVEST GAINS LOSSES 0.00 0.00 0.00 0.00 021 OTHER INCOME 0.10 0.00 0.00 0.00 (0:21) NET INC BEF EX ITEMS 0.41 20.00 16.75 9.86 25.78 EX ITEMS & DISCOPS 0.35 0.00 (1.85) 0.00 NET INCOME 0.76 20.00 14.90 9.86 25.99 Source: Thumbur Own 100.00 43.81 56:19 14.61 1601 25.58 0.00 215 0.09 27.64 8.12 0.00 0.00 0.00 19.51 0.00 19.51 10 100.00 58.46 41.54 0.00 57.09 (16.14) 16.72 22.45 2.37 (12.78) 8.17 0.99 0.00 0.00 21.03 0.00 0:37 0.87 20:52 5.96 0.00 0.00 0.00 1457 (0.05) 1452 090 5.94 0.00 38.71 11.57 0.00 0.00 0.00 3.40 0.00 0.00 27.14 0.00 5.84 0.00 5.84 (25.78) Exhibit 3 Common Size Balance Sheet (percentage averaged over three years) 8 10 10:47 15:42 0.00 10.16 20.51 15.99 6.75 19.77 16.09 0.00 9.07 0.99 10-26) 0.00 12.02 0.73 0.00 4.01 0.00 0.97 3.54 1.09 031 0.78 1 0.25 0.00 0.00 0.28 0.00 3.10 0,00 0.00 0.00 12.50 6.81 3141 33.72 15.99 3357 119.20 66.32 21.30 0.00 37.33 5.29 000 55.18 21.95 33.33 35.62 34.85 8.50 20.30 72.75 1.56 16.70 005 0.00 0.00 3.02 12.95 054 0.74 0.00 3.27 100.00 0.71 0.61 9:41 61.39 0.16 7.70 100.00 100.00 0.00 25 15.25 457 5078 CASIT MAKTABLE SECURITIES RECEIVABLES INVENTORIES RAW MATERIALS WORK IN PROGRESS FINISHED GOODS NOTES RECEIVABLE OTHER CURRENT ASSETS TOTAL CURRENT ASSETS PROP.PLANT & EQUIP ACCUMULATED DEP NET PROPA BOLIP INVEST & ADV TO SUBS OTHER NON CUR ASSETS DEFERRED CHARGES INTANGIBLES DEPOSITS & OTH ASSET TOTAL ASSETS NOTES PAYABLE ACCOUNTS PAYABLE CUR LONG TERM DEBT CUR PORT CAPLEASES ACCRUED EXPENSES INCOME TAXES OTHER CURRENT LIAB TOTAL CURRENT LIAB MORTGAGES DEFERRED CHARGES INC CONVERTIBLE DERT LONG TERM DEBT NON-CUR CAP LEASES OTHER LONG TERM LIAB TOTAL LIABILITIES MINORITY INT (LIA) PREFERRED STOCK COMMON STOCK NET CAPITAL SURPLUS RETAINED EARNINGS TREASURY STOCK OTHER EQUITIES SHAREHOLDER EQUITY TOT LIAB & NET WORTH 29 1.9 0.00 0.00 0.00 8.86 0.00 8.19 1.79 0.01 611 0.01 5.34 2.93 0.00 0.00 7.32 1.79 0.70 0.00 5.18 12:55 5.06 22.18 11.73 0.00 0.91 10 0.00 0.00 15.45 0.18 1.33 1.31 25.09 6.93 0.00 0.00 0.00 0.00 8.17 0.00 19.14 (1.16) 0.00 0.00 0.00 0.50 2.07 0.08 1.42 45.69 762 031 54.06 31.71 1.07 0:00 6320 0.00 0.74 1.37 54.35 0.00 0.00 2:51 0.00 78.79 0.43 86.45 0.01 13.94 12.93 0.00 7662 0.00 0.00 0.00 620 4.70 3337 0.00 3.56 0.42 0.00 40.65 100.00 10.11) 0.15 14.11 4322 0.00 13.94 45.94 000 52.49 100.00 74.03 100.00 Source: Theme Banker Outlyi 10 0.35 0.28 0.23 1.33 1.83 0.56 3.01 1.24 1.51 0.15 0.76 0.95 0.03 0.61 2.40 2.48 62.12 29.54 71.39 21.55 DIV/0 1.01 32.25 76.73 0.75 66.25 230.14 40.77 11.99 10.79 0.59 0.21 0.00 0:21 0.12 Exhibit Selected Financial Ratios (averaged over three years) 2 LIQUIDITY RATIOS Cash & Market See to Total Assets 0.06 0.23 0.12 Acid Test Ratio 0.89 Current Ratio 1.15 1.10 2.61 ASSET MANAGEMENT Day's Receivable 16.66 2.540.75 Days Inventory 24.18 DIV Asset Tumever 0.07 0.75 FINANCIAL LEVERAGE Long-term Debe to Total Assets 0.09 0.21 Long-term Debe to Stockholders' Equity 1.71 1.01 Coverage Ratio 0.76 4,05 23.92 PROFITABILITY Gross Margin Ratio 0.89 Return on Sales 0.01 0:20 0.15 Return on Assets (1) 0.02 0.01 0.11 Return on Act (2) 0.05 0.03 0.12 Return on Equity 0.07 0.15 0.22 DUPONT ANALYSIS Return on Equity 0.07 0.15 0.22 Return on Sales 0.01 0:20 0.15 Asset Tuover 0.07 0.78 Leverage 11.53 1.95 0.06 134.15 DIV/0! 35.70 DIVO! 18.15 0.16 (649) 0.50 0:47 0.77 0.10 015 0.06 0.16 0.16 0:31 0.56 0.20 0.15 0.15 0.19 0.09 0.10 0:30 0.83 0.27 0.15 0.15 (0.26) (0.05) (0,05) (0.09) 0.04 0.07 096 016 0.31 0.10 1.01 0.19 0:20 0.75 1.30 0.15 0.62 2.18 0.27 0:53 0.07 0.06 0.59 2.09 (0.26) 0.21 1.36 191 Source: The Besker er altid FINANCIAL STATEMENT ANALYSIS- IDENTIFY THE INDUSTRY Since opportunities 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 (see 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. Exhibit 1 Definitions of Some Key Financial Ratios LIQUIDITY RATIOS Cash & Marketable Securities To Total Assets - (Cash + Market Securities)/Total Assets Acid Test Ratio - (Cash + Market Securities + Receivables)/Current Liabilities Current ratio Current Assets / Current Liabilities ASSET MANAGEMENT Day's Receivables 365/(Sales/ Receivables) Day's Inventory 365/(Cost of Sales / Inventory) Asset Turnover 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 Long-term Debt to Stockholders' Equity - (Convertible Debt +Long-term Debt + Non-current Capital Leases + Non-current Long-term Debt) / Stockholders Equity Coverage Ratio (Income Refore Tax + Interest Expense) / Interest Expense PROFITABILITY Gross Margin Ratio Return on Sales Return on Assets (1) Return on Assets (2) Return on Equity DUPONT ANALYSIS Return on Equity Gross Profit/Sales Net Income / Sales Net Income / Total Assets (Net Income + Interest Expense) / Total Assets Net Income / Stockholders' Equity Return on Sales Asset Turnover Leverage (Net Income / Sales) x (Sales / Assets) x (Assets/ Stockholders' Equity) 7 100,00 23:20 76.80 20.01 100.00 17.03 82.97 17.18 33.02 32.77 100.00 6841 31.57 0.00 15.56 16.01 Exhibit 2 Commen Sie Income Statement (percentage averaged over three years) 1 4 s NET SALES 100.00 100.00 100.00 100.00 100.00 COST OF GOODS 2012 36.62 49.78 52.27 GROSS PROFIT 20.68 88.89 6338 50.22 47.23 R&D EXPENDITURES 0.00 0.00 0.00 032 0.00 SELL GEN & ADMIN EXP 19.38 20.17 39.91 25.13 1454 INC BEF DEP & AMORT 1.30 68.72 23:47 24.77 DEPRECIATION & AMORT 0.00 1.18 0.00 4.50 NON-OPERATING INC (1923) 1.98 (5.09) 184 INTEREST EXPENSE 0.99 0.18 0.00 INCOME BEFORE TAX 0.27 29.98 2447 16.39 30.04 PROV FOR INC TAXES (0.09) 9.98 7.72 6.53 4.18 MINORITY INT (INC) 0.04 0.00 0.00 0.00 0.07 INVEST GAINS LOSSES 0.00 0.00 0.00 0.00 021 OTHER INCOME 0.10 0.00 0.00 0.00 (0:21) NET INC BEF EX ITEMS 0.41 20.00 16.75 9.86 25.78 EX ITEMS & DISCOPS 0.35 0.00 (1.85) 0.00 NET INCOME 0.76 20.00 14.90 9.86 25.99 Source: Thumbur Own 100.00 43.81 56:19 14.61 1601 25.58 0.00 215 0.09 27.64 8.12 0.00 0.00 0.00 19.51 0.00 19.51 10 100.00 58.46 41.54 0.00 57.09 (16.14) 16.72 22.45 2.37 (12.78) 8.17 0.99 0.00 0.00 21.03 0.00 0:37 0.87 20:52 5.96 0.00 0.00 0.00 1457 (0.05) 1452 090 5.94 0.00 38.71 11.57 0.00 0.00 0.00 3.40 0.00 0.00 27.14 0.00 5.84 0.00 5.84 (25.78) Exhibit 3 Common Size Balance Sheet (percentage averaged over three years) 8 10 10:47 15:42 0.00 10.16 20.51 15.99 6.75 19.77 16.09 0.00 9.07 0.99 10-26) 0.00 12.02 0.73 0.00 4.01 0.00 0.97 3.54 1.09 031 0.78 1 0.25 0.00 0.00 0.28 0.00 3.10 0,00 0.00 0.00 12.50 6.81 3141 33.72 15.99 3357 119.20 66.32 21.30 0.00 37.33 5.29 000 55.18 21.95 33.33 35.62 34.85 8.50 20.30 72.75 1.56 16.70 005 0.00 0.00 3.02 12.95 054 0.74 0.00 3.27 100.00 0.71 0.61 9:41 61.39 0.16 7.70 100.00 100.00 0.00 25 15.25 457 5078 CASIT MAKTABLE SECURITIES RECEIVABLES INVENTORIES RAW MATERIALS WORK IN PROGRESS FINISHED GOODS NOTES RECEIVABLE OTHER CURRENT ASSETS TOTAL CURRENT ASSETS PROP.PLANT & EQUIP ACCUMULATED DEP NET PROPA BOLIP INVEST & ADV TO SUBS OTHER NON CUR ASSETS DEFERRED CHARGES INTANGIBLES DEPOSITS & OTH ASSET TOTAL ASSETS NOTES PAYABLE ACCOUNTS PAYABLE CUR LONG TERM DEBT CUR PORT CAPLEASES ACCRUED EXPENSES INCOME TAXES OTHER CURRENT LIAB TOTAL CURRENT LIAB MORTGAGES DEFERRED CHARGES INC CONVERTIBLE DERT LONG TERM DEBT NON-CUR CAP LEASES OTHER LONG TERM LIAB TOTAL LIABILITIES MINORITY INT (LIA) PREFERRED STOCK COMMON STOCK NET CAPITAL SURPLUS RETAINED EARNINGS TREASURY STOCK OTHER EQUITIES SHAREHOLDER EQUITY TOT LIAB & NET WORTH 29 1.9 0.00 0.00 0.00 8.86 0.00 8.19 1.79 0.01 611 0.01 5.34 2.93 0.00 0.00 7.32 1.79 0.70 0.00 5.18 12:55 5.06 22.18 11.73 0.00 0.91 10 0.00 0.00 15.45 0.18 1.33 1.31 25.09 6.93 0.00 0.00 0.00 0.00 8.17 0.00 19.14 (1.16) 0.00 0.00 0.00 0.50 2.07 0.08 1.42 45.69 762 031 54.06 31.71 1.07 0:00 6320 0.00 0.74 1.37 54.35 0.00 0.00 2:51 0.00 78.79 0.43 86.45 0.01 13.94 12.93 0.00 7662 0.00 0.00 0.00 620 4.70 3337 0.00 3.56 0.42 0.00 40.65 100.00 10.11) 0.15 14.11 4322 0.00 13.94 45.94 000 52.49 100.00 74.03 100.00 Source: Theme Banker Outlyi 10 0.35 0.28 0.23 1.33 1.83 0.56 3.01 1.24 1.51 0.15 0.76 0.95 0.03 0.61 2.40 2.48 62.12 29.54 71.39 21.55 DIV/0 1.01 32.25 76.73 0.75 66.25 230.14 40.77 11.99 10.79 0.59 0.21 0.00 0:21 0.12 Exhibit Selected Financial Ratios (averaged over three years) 2 LIQUIDITY RATIOS Cash & Market See to Total Assets 0.06 0.23 0.12 Acid Test Ratio 0.89 Current Ratio 1.15 1.10 2.61 ASSET MANAGEMENT Day's Receivable 16.66 2.540.75 Days Inventory 24.18 DIV Asset Tumever 0.07 0.75 FINANCIAL LEVERAGE Long-term Debe to Total Assets 0.09 0.21 Long-term Debe to Stockholders' Equity 1.71 1.01 Coverage Ratio 0.76 4,05 23.92 PROFITABILITY Gross Margin Ratio 0.89 Return on Sales 0.01 0:20 0.15 Return on Assets (1) 0.02 0.01 0.11 Return on Act (2) 0.05 0.03 0.12 Return on Equity 0.07 0.15 0.22 DUPONT ANALYSIS Return on Equity 0.07 0.15 0.22 Return on Sales 0.01 0:20 0.15 Asset Tuover 0.07 0.78 Leverage 11.53 1.95 0.06 134.15 DIV/0! 35.70 DIVO! 18.15 0.16 (649) 0.50 0:47 0.77 0.10 015 0.06 0.16 0.16 0:31 0.56 0.20 0.15 0.15 0.19 0.09 0.10 0:30 0.83 0.27 0.15 0.15 (0.26) (0.05) (0,05) (0.09) 0.04 0.07 096 016 0.31 0.10 1.01 0.19 0:20 0.75 1.30 0.15 0.62 2.18 0.27 0:53 0.07 0.06 0.59 2.09 (0.26) 0.21 1.36 191 Source: The Besker er altid
