Introduction
Industries differ on both internal and external dimensions. Internal issues such as culture and operating models are often specific to industries, while the external issues of the marketplace and competition will vary from industry to industry. Financial accounting provides managers with the tools to quantify these issues, and financial ratio analysis can provide the astute manager with insights into these industry differences. In this case, you are given a list of nine industries and a table of nine sets of common sized statements and financial ratios. Your task is first to consider each industrythe typical operating models of the business, the market and customer factors, and the competitive nature of the industry, and how these characteristics might manifest themselves in the selected financial ratios. Starting with these qualitative issues, then match the industries with the appropriate column of financial information. Please note that not every general industry characteristic will apply to every company in that industry. Why?
Required
1. Match each industry described to a set of financial statement information (company letters A through I); and
2. Write your answers down in bullet point format, three reasons for each industry, addressing why you matched that industry to a particular set of financial information.
Industry Retail Stores Pharmaceuticals Home Builders Grocery Stores Semiconductor Manufacturers Electric Utilities Apparel Manufacturers Steel Industry Automobile Manufacturers INCOME STATEMENT Net Sales Cost of Goods Sold Depreciation & Amortization Gross Profit R&D Expense Seling. Gent & Admin Exp Other Operating Expense Operating Income Non-Operating Income Interest Expense Pretax Income Taxes Other Income Net Income A 100.0% 75.5% 7.2% 17.3% 0.0% 8.9% 0.0% 8.4% (0.8%) 3.5% 4.1% 1.1% 0.0% 3.0% B 100.0% 60.4% 11.1% 28.5% 0.0% 1.8% 6.4% 20.2% 0.0% 6.4% 13.8% 5.3% 0.0% 8.5% 100.0% 89.1% 5.7% 5.2% 0.0% 2.3% 9.9% (7.0%) 0.1% 1.1% (8.0%) (1.4%) 0.0% (6.6%) R 100.0% 80.9% 0.7% 18.4% 0.0% 10.5% 1.1% 6.8% 0.5% 2.6% 4.7% 1.0% 0.0% 3.7% E 100.0% 34.9% 9.1% 56.0% 8.7% 11.1% 0.0% 36.2% 1.9% 0.1% 38.1% 13.3% 0.0% 24.7% E 100.0% 75.6% 1.4% 23.0% 0.0% 19.5% 0.0% 3.4% 0.0% 1.2% 2.3% 0.9% 0.0% 1.4% 100.0% 21.4% 7.4% 71.2% 16.2% 27.1% 0.0% 27.9% 3.7% 3.9% 27.6% 6.9% 0.0% 20.7% 100.0% 64.9% 5.3% 29.8% 0.0% 15.4% 1.1% 13.3% (1.5%) 4.2% 7.6% 1.4% 0.0% 62% 100.0% 65.7% 3.5% 30.8% 0.0% 27.3% 0.0% 3.4% 2.9% 0.9% 5.5% 2.2% 0.0% 3.3% BALANCE SHEET Assets Cash Receivables Inventories Other Current Assets Total Current Assets Net Property, Plant & Equip Other Long Term Assets Total Assets 10.0% 28.9% 5.4% 0.0% 44.2% 30.4% 25.3% 100.0% 0.2% 7.2% 1.5% 1.2% 10.1% 79.3% 10.6% 100.0% 2.7% 6.1% 19.9% 0.4% 29.1% 47.4% 23.5% 100.0% 1.4% 3.0% 74.9% 12.6% 91.9% 33.7% 15.7% 5.4% 2.8% 57.7% 35.8% 6.6% 100.0% 0.0% 5.6% 29.4% 5.4% 40.4% 52.6% 7.0% 100.0% 6.7% 12.1% 6.2% 2.2% 27.2% 30.1% 42.7% 100.0% 0.7% 6.6% 24.3% 1.5% 33.1% 35.3% 31.6% 100.0% 1.0% 26.4% 26.6% 2.6% 56.7% 42.6% 0.7% 100.0% 0.0% 8.1% 100.0% 8.2% 3.6% Liabilities Short Term Debt Accounts Payable Other Current Liabilities Total Current Liabilities Long Term Debt Other Long Term Liabilities Total Liabilities Stockholds' Equity Minority Interest Preferred Stock Common Shareholders Equity Total Liabilities and Stockholders' Equity 38.4% 6.4% 0.0% 44.8% 0.0% 44.7% 89.5% 16.2% 28.4% 22.2% 66.8% 1.0% 8.0% 9.7% 18.7% 9.7% 52.6% 81.1% 4.5% 10.2% 7.6% 22.3% 38.3% 0.0% 60.6% 1.6% 4.1% 14.8% 20.5% 3.1% 5.4% 28.9% 0.4% 28.3% 17.9% 46.6% 62.8% 10.9% 120.3% 8.5% 5.8% 15.2% 29.5% 17.6% 10.3% 57.4% 0.7% 4.4% 7.7% 12.8% 34.1% 11.3% 58.2% 8.0% 11.5% 9.7% 29.1% 12.2% 4.2% 45.5% 0.0% 0.0% 10.5% 100.0% 0.0% 5.4% 27.8% 100.0% 0.0% 0.3% 18.6% 100.0% 0.0% 0.3% 39.1% 100.0% 0.0% 0.0% 71.1% 100.0% 0.0% 0.0% (20.3%) 100.0% 0.0% 0.0% 42.6% 100.0% 0.0% 0.0% 41.8% 100.0% 0.0% 0.0% 54.5% 100.0% Exhibit 2: Selected Financial Information KEY RATIOS D 11.43% Net Profit Margin Asset Turnover Return on Assets Return on Equity Current Ratio Quick Ratio Operating Cash Flow Current Liabilities NR Days Sales Outstanding Inventory Days on Hand AP Days Outstanding Financial Leverage Total DebComon Equity Interest Coverage Operating Cash Flow Capital Expenditures 3.02% 0.74 2.23% 21.19% 0.99 0.87 0.19 142.62 31.99 41.89 9.49 3.64 2.41 1.88 D 3.71% 1.26 4.66% 11.82% 4.13 0.76 -0.19 8.59 266.40 36.60 2.54 1.09 2.64 .14.95 8.49% -6.60% 0.45 0.92 3.80% -6.04% -31.97% 0.62 1.55 0.53 0.49 0.59 0.36 58.69 24 31 17.48 83.69 48.64 35.94 3.01 5.29 1.31 0.57 3.14 NMF 1.75 1.32 E 24.74% 0.88 21.73% 30.57% 2.81 2.55 1.80 65.18 51.50 48.61 1.41 0.07 302.12 2.89 E 1.40% 4.32 6.06% - 29.85% 0.87 0.24 0.18 4.70 32.27 31.63 -4.93 -3.11 2.89 0.65 3.31% 1.65 5.46% 10.01% 1.95 1.03 0.32 G 20.74% 0.51 10.65% 24.98% 0.92 0.71 0.47 86.30 151.87 192.20 2.35 0.61 7.09 4.49 6.18% 0.96 5.94% 14.20% 2.58 0.69 1.57 24.95 131.34 25.71 2.39 0.83 3.14 11.54 58.57 85.26 38.73 1.83 0.37 3.89 1.22 MARKET DATA P/E Ratio Equity Beta Fiscal Year End 9.09 11.67 NMF 9.75 23.97 19.86 NMF 15.94 30 22 0.79 0.53 0.79 1.38 1.49 0.44 1.23 0.26 1.32 December December December December December December December December January Industry Retail Stores Pharmaceuticals Home Builders Grocery Stores Semiconductor Manufacturers Electric Utilities Apparel Manufacturers Steel Industry Automobile Manufacturers INCOME STATEMENT Net Sales Cost of Goods Sold Depreciation & Amortization Gross Profit R&D Expense Seling. Gent & Admin Exp Other Operating Expense Operating Income Non-Operating Income Interest Expense Pretax Income Taxes Other Income Net Income A 100.0% 75.5% 7.2% 17.3% 0.0% 8.9% 0.0% 8.4% (0.8%) 3.5% 4.1% 1.1% 0.0% 3.0% B 100.0% 60.4% 11.1% 28.5% 0.0% 1.8% 6.4% 20.2% 0.0% 6.4% 13.8% 5.3% 0.0% 8.5% 100.0% 89.1% 5.7% 5.2% 0.0% 2.3% 9.9% (7.0%) 0.1% 1.1% (8.0%) (1.4%) 0.0% (6.6%) R 100.0% 80.9% 0.7% 18.4% 0.0% 10.5% 1.1% 6.8% 0.5% 2.6% 4.7% 1.0% 0.0% 3.7% E 100.0% 34.9% 9.1% 56.0% 8.7% 11.1% 0.0% 36.2% 1.9% 0.1% 38.1% 13.3% 0.0% 24.7% E 100.0% 75.6% 1.4% 23.0% 0.0% 19.5% 0.0% 3.4% 0.0% 1.2% 2.3% 0.9% 0.0% 1.4% 100.0% 21.4% 7.4% 71.2% 16.2% 27.1% 0.0% 27.9% 3.7% 3.9% 27.6% 6.9% 0.0% 20.7% 100.0% 64.9% 5.3% 29.8% 0.0% 15.4% 1.1% 13.3% (1.5%) 4.2% 7.6% 1.4% 0.0% 62% 100.0% 65.7% 3.5% 30.8% 0.0% 27.3% 0.0% 3.4% 2.9% 0.9% 5.5% 2.2% 0.0% 3.3% BALANCE SHEET Assets Cash Receivables Inventories Other Current Assets Total Current Assets Net Property, Plant & Equip Other Long Term Assets Total Assets 10.0% 28.9% 5.4% 0.0% 44.2% 30.4% 25.3% 100.0% 0.2% 7.2% 1.5% 1.2% 10.1% 79.3% 10.6% 100.0% 2.7% 6.1% 19.9% 0.4% 29.1% 47.4% 23.5% 100.0% 1.4% 3.0% 74.9% 12.6% 91.9% 33.7% 15.7% 5.4% 2.8% 57.7% 35.8% 6.6% 100.0% 0.0% 5.6% 29.4% 5.4% 40.4% 52.6% 7.0% 100.0% 6.7% 12.1% 6.2% 2.2% 27.2% 30.1% 42.7% 100.0% 0.7% 6.6% 24.3% 1.5% 33.1% 35.3% 31.6% 100.0% 1.0% 26.4% 26.6% 2.6% 56.7% 42.6% 0.7% 100.0% 0.0% 8.1% 100.0% 8.2% 3.6% Liabilities Short Term Debt Accounts Payable Other Current Liabilities Total Current Liabilities Long Term Debt Other Long Term Liabilities Total Liabilities Stockholds' Equity Minority Interest Preferred Stock Common Shareholders Equity Total Liabilities and Stockholders' Equity 38.4% 6.4% 0.0% 44.8% 0.0% 44.7% 89.5% 16.2% 28.4% 22.2% 66.8% 1.0% 8.0% 9.7% 18.7% 9.7% 52.6% 81.1% 4.5% 10.2% 7.6% 22.3% 38.3% 0.0% 60.6% 1.6% 4.1% 14.8% 20.5% 3.1% 5.4% 28.9% 0.4% 28.3% 17.9% 46.6% 62.8% 10.9% 120.3% 8.5% 5.8% 15.2% 29.5% 17.6% 10.3% 57.4% 0.7% 4.4% 7.7% 12.8% 34.1% 11.3% 58.2% 8.0% 11.5% 9.7% 29.1% 12.2% 4.2% 45.5% 0.0% 0.0% 10.5% 100.0% 0.0% 5.4% 27.8% 100.0% 0.0% 0.3% 18.6% 100.0% 0.0% 0.3% 39.1% 100.0% 0.0% 0.0% 71.1% 100.0% 0.0% 0.0% (20.3%) 100.0% 0.0% 0.0% 42.6% 100.0% 0.0% 0.0% 41.8% 100.0% 0.0% 0.0% 54.5% 100.0% Exhibit 2: Selected Financial Information KEY RATIOS D 11.43% Net Profit Margin Asset Turnover Return on Assets Return on Equity Current Ratio Quick Ratio Operating Cash Flow Current Liabilities NR Days Sales Outstanding Inventory Days on Hand AP Days Outstanding Financial Leverage Total DebComon Equity Interest Coverage Operating Cash Flow Capital Expenditures 3.02% 0.74 2.23% 21.19% 0.99 0.87 0.19 142.62 31.99 41.89 9.49 3.64 2.41 1.88 D 3.71% 1.26 4.66% 11.82% 4.13 0.76 -0.19 8.59 266.40 36.60 2.54 1.09 2.64 .14.95 8.49% -6.60% 0.45 0.92 3.80% -6.04% -31.97% 0.62 1.55 0.53 0.49 0.59 0.36 58.69 24 31 17.48 83.69 48.64 35.94 3.01 5.29 1.31 0.57 3.14 NMF 1.75 1.32 E 24.74% 0.88 21.73% 30.57% 2.81 2.55 1.80 65.18 51.50 48.61 1.41 0.07 302.12 2.89 E 1.40% 4.32 6.06% - 29.85% 0.87 0.24 0.18 4.70 32.27 31.63 -4.93 -3.11 2.89 0.65 3.31% 1.65 5.46% 10.01% 1.95 1.03 0.32 G 20.74% 0.51 10.65% 24.98% 0.92 0.71 0.47 86.30 151.87 192.20 2.35 0.61 7.09 4.49 6.18% 0.96 5.94% 14.20% 2.58 0.69 1.57 24.95 131.34 25.71 2.39 0.83 3.14 11.54 58.57 85.26 38.73 1.83 0.37 3.89 1.22 MARKET DATA P/E Ratio Equity Beta Fiscal Year End 9.09 11.67 NMF 9.75 23.97 19.86 NMF 15.94 30 22 0.79 0.53 0.79 1.38 1.49 0.44 1.23 0.26 1.32 December December December December December December December December January
