Please match the 9 industries to the financial statements and provide an explanation of why they were matched.
Common-sized balance sheets (all items scaled by total assets), common-sized income statements (all items scaled by net sales), and selected financial ratios for the nine companies are 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 9 companies are drawn from the following 9 different industries: Liquor producer and distributor Discount airline Commercial bank (items fitted into the same categories as the non-financial firms) Computer software company Large integrated oil and gas company Mobile phone service operator R&D-based pharmaceutical manufacturer Retail grocery company R&D-based semiconductor manufacturer Assignment Using the financial statement data provided in Exhibits 2, 3, and 4, match the companies with their industry. NOTE: #DIV/0! or #Value! indicates that the item was not separately disclosed. . 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 Receivable = 365 / (Sales / Receivables) Day's Inventory 365 / (Cost of Sales / Inventory) Asset Turnover - Sales / Total Assets (Total Current Debt + Long-term Debt) / Total Assets (Total Current Debt +Long-term Debt) / Stockholders' Equity (Operating Profit + Interest Expense) / Interest Expense FINANCIAL LEVERAGE Debt to Total Assets Debt to Stockholders' Equity Coverage Ratio PROFITABILITY Gross Margin Ratio Return on Sales Return on Assets Return on Equity DUPONT ANALYSIS Return on Equity Gross Profit/Sales - Net Income / Sales Net Income / Total Assets - Net Income / Stockholders' Equity = Return on Sales Asset Turnover Leverage (Net Income / Sales) x (Sales / Assets) x (Assets / Stockholders' Equity) 5 Exhibit 2. Common-Sized Income Statement (all items scaled by sales) Company 1 2 3 5 6 7 8 Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Goods Sold 42.9% 30.396 25.2% 15.6% 22.7% 77.3% 12.6% 73.6% 80.7% Gross Profit 57.1% 69.7% 74.8% 84.4% 77.3% 22.796 87.4% 26.4% 19.3% Selling. General, & Administrative Exp. 27.1% 37.2% 33.1% 54.8% 38.0% 11.9% 38.1% 19.1% 3.8% Operating Income before Depreciation 30.1% 32.5% 41.7% 29.6% 39.3% 10.7% 49.3% 7.3% 15.5% Depreciation, Depletion & Amortization 14.3% 1.8% 13,5% 5.5% 4.396 4.8% 3.1% 1.8% 3.9% Operating Profit 15.7% 30.8% 28.1% 24.1% 35.0% 5.9% 46.2% 5.5% 11.6% Interest Expense 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Non-Operating Income/Expense 1.096 0.3% 1.1% 0.5% 1.0% 0.1% -13.4% 0.5% 4.996 Special Items -2.2% -0.1% -0.3% 0.1% -3.0% -0.896 -1.096 0.0% 0.596 Pretax Income 11.7% 30.096 28.29% 23.8% 32.4% 4.3% 31.8% 5.4% 16.8% Total Income Taxes 3.8% 9.4% 73% 5.1% 6.8% 1.7% 10.19 1.7% 6.9% Income Before Extraordinary Items & Non-controlling Interest 7.9% 20.5% 21.096 18.8% 25.5% 2.6% 21.7% 3.796 9.9% Net Income 7.7% 20.5% 21.0% 18.8% 25.5% 2.6% 20.2% 3.5% 9.5% Source: Standard & Poor's Capital IQNet Advantage Exhibit 3. Common-Sized Balance Sheet (all items scaled by total assets) ASSETS 1 2 3 4 5 6 7 8 9 Cash & Short-Term Investments 1.4% 8.7% 21.4% 17.4% 51.9% 16.6% 10.4% 3.696 2.8% Net Receivables 4.8% 14.2% 4.7% 11.8% 12.2% 1.996 55.1% 3.2% 10.696 Inventories 0.4% 21.6% 5.3% 7.6% 1.3% 2.4% 3.0% 21.5% 4.5% Prepaid Expenses 0.4% 3.7% 0.0% #VALUE! 0.0% #VALUE! 0.0% #VALUE! 0.0% Other Current Assets 1.4% 3.0% 4.8% 2.3% 3.8% 2.5% #VALUE! 1.0% 1.696 Total Current Assets 8.4% 51.2% 36.1% 39.1% 69.2% 23.3% 68.5% 29.3% 19.5% Gross Plant, Property & Equipment 98.2% 25.7% 79.8% 43.7% 15.9% 104.8% #VALUE! 85.0% 122.3% Accumulated Depreciation -58.3% -13.5% -46.3% -21.0% -8.8% -36.5% #VALUE!-27.3% -54.6% Net Plant, Property & Fquipment 40.0% 12.2% 33.5% 22.7% 7.1% 68.3% 0.8% 57.7% 67.796 Investments at Equity 1.5% #VALUE! 1.5% #VALUE! #VALUE! 0.0% 0.7% #VALUE! 8.496 Other Investments #VALUE! #VALUE! 7.8% 17.3% 8.0% 0.3% 22.2% 0.096 2.0% Intangibles 47.6% 34.7% 19.2% 13.8% 14.0% 6.0% 3.3% 10.1% #VALUE! Deferred Charges 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% #VALUE! #VALUE! 0.096 Other Assets 2.6% 1.996 1.996 7.0% 1.6% 2.1% #VALUE! 2.996 2.4% TOTAL ASSETS 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.096 100.096 100.0% LIABILITIES Accounts Payable Notes Payable & Other ST Borrowings Current Portion of LT Debt Total Current Debt Income Taxes Payable Accrued Expenses Other Current Liabilities Total Other Current Liabilities Total Current Liabilities Long Term Debt Deferred Taxes & Investment Tax Credit Other Liabilities TOTAL LIABILITIES Redeemable Non-controlling Interest EQUITY Preferred Stock - Redeemable Preferred Stock - Nonredeemable Total Preferred Stock Common Stock Capital Surplus Retained Earnings Less: Treasury Stock Common Equity Shareholders Equity-Parent Nonredeemable Non-controlling Interest STOCKHOLDERS EQUITY TOTAL TOTAL LIABILITIES & EQUITY 0,0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.9% 3.5% 3.7% 3.3% 3.7% 5.396 70.496 18.7% 11.6% 0.0% 0.1% 0.3% 0.0% 0.4% 0.0% 3.8% 3.1% 2.1% 1.5% 0.0% 0.0% 2.5% 1.0% 2.8% 1.1% 2.1% 0.5% 1.5% 0.296 0.3% 2.5% 1.4% 2.8% 4.9% 5.1% 2.7% 0.5% 0.8% 0.0% 0.6% 0.5% 0.5% #VALUE! 0.7% 3.0% 3.5% 8.2% 9.2% #VALUE! 3.0% 5.4% #VALUE! 8.9% #VALUE! 2.5% 0.1% 2.4% 19.0% 18.0% 12.5% WVALUE! 0.4% 3.996 6.0% 8.4% 11.6% 19.0% 20.9% 18.0% #VALUE! 9.3% 3.9% 11.9% 12.8% 15.6% 25.4% 26.6% 26.5% 75.3% 33.8% 21.19 24.0% 22.1% 13.3% 14.7% 9.9% 14.79 8.49 22.2% 2.4% 11.0% 4.0% 4.2% #VALUE! 1.4% 15.0% 0.4% 2.396 11.3% 17.7% 9.8% 4.296 15.5% 8.0% 6.0% 5.3% 1.6% 14.5% 64.6% 48.7% 37.29 55.6% 45.9% 62.1% 88.9% 59.99 49.396 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.9% 0.0% 0.0% #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! 0.9% #VALUE! #VALUE! 2.4% 0.8% 0.0% 2.1% 0.0% 4.3% 0.6% 0.2% 2.996 33.3% 1.8% 23.4% 14.4% 47.0% 6.5% 4.1% 1.6% 0.0% 11.6% 69.9% 39.3% 37.0% 7.0% 30.7% 5.796 35.596 103.9% -12.1% -21.2% #VALUE! -9.1% #VALUE! -3.8% -0.4% #VALUE! -58.0% 35.2% 51.3% 62.8% 44.4% 54.1% 37.9% 10.1% 37.2% 48.8% 35.2% 51.3% 62.8% 44.4% 54.1% 37.996 11.0% 37.29% 48.8% 0.1% 0.0% 0.0% 0.0% 0.0% 0.096 0.1% 2.5% 1.896 35.4% 51.3% 62.8% 44.4% 54.1% 37.996 11.1% 39.7% 50.79 100.0% 100.0% 100.0% 100.096 100.0% 100.0% 100.0% 100.096 100.096 4.02 Exhibit 4. Selected Financial Ratios (three-year average of values for 2011-2013) Company 1 2 3 4 5 6 7 8 9 LIQUIDITY RATIOS Cash & Market Sec to Total Assets 0.01 0.09 0.21 0.17 0.52 0.17 0.10 0.04 0.03 Acid Test Ratio 0.52 1.80 1.67 1.15 2.41 0.70 0.87 0.20 0.63 Current Ratio 0.71 2.32 1.54 2.61 0.88 0.91 0.87 0.92 ASSET MANAGEMENT Day's Receivable 37.35 67.77 26.01 63.34 80.88 7.57 3.208.07 5.10 31.30 Day's Inventory 7.52 341.92 117.78 264.40 37.57 12.50 1,342.81 46.27 Asset Tumover 16.66 0.47 0.77 0.65 0.68 0.55 0.90 0.06 2.31 1.23 FINANCIAL LEVERAGE Long-term Debt to Total Assets 0.26 0.22 0.14 0.17 0.11 0.17 0.13 0.27 0.05 Long-term Debt to Stockholders' Equity 0.04 0.00 0.01 0.06 0.03 0.07 0.44 0.13 0.05 Coverage Ratio #DIV/0!DIV/0! #DIV/0! #DIV/0! #DIV/0! NDIV/0! #DIV/0! #DIV/0! #DIV/0! PROFITABILITY Gross Margin Ratio 0.57 0.70 0.75 0.84 0.77 0.23 0.87 0.26 0.19 Return on Sales 0.08 0.21 0.21 0.19 0.26 0.03 0.20 0.04 0.09 Return on Assets 0.04 0.16 0.14 0.13 0.14 0.02 0.01 0.08 Return on Equity 0.12 0.11 0.31 0.22 0.29 0.26 0.06 0.11 0.20 0.23 DUPONT ANALYSIS Return on Equity 0.11 0.31 0.22 0.29 0.26 0.06 0.11 0.20 0.23 Return on Sales 0.08 0.21 0.21 0.19 0.26 0.03 0.20 0.04 0.09 Asset Tumover 0.47 0.77 0.65 0.68 0.55 0.90 0.06 2.31 1.23 Leverage 2.84 1.98 1.59 2.27 1.85 2.64 9.05 2.52 1.98 Source: Standard & Poor's Capital IQNet Advantage. Common-sized balance sheets (all items scaled by total assets), common-sized income statements (all items scaled by net sales), and selected financial ratios for the nine companies are 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 9 companies are drawn from the following 9 different industries: Liquor producer and distributor Discount airline Commercial bank (items fitted into the same categories as the non-financial firms) Computer software company Large integrated oil and gas company Mobile phone service operator R&D-based pharmaceutical manufacturer Retail grocery company R&D-based semiconductor manufacturer Assignment Using the financial statement data provided in Exhibits 2, 3, and 4, match the companies with their industry. NOTE: #DIV/0! or #Value! indicates that the item was not separately disclosed. . 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 Receivable = 365 / (Sales / Receivables) Day's Inventory 365 / (Cost of Sales / Inventory) Asset Turnover - Sales / Total Assets (Total Current Debt + Long-term Debt) / Total Assets (Total Current Debt +Long-term Debt) / Stockholders' Equity (Operating Profit + Interest Expense) / Interest Expense FINANCIAL LEVERAGE Debt to Total Assets Debt to Stockholders' Equity Coverage Ratio PROFITABILITY Gross Margin Ratio Return on Sales Return on Assets Return on Equity DUPONT ANALYSIS Return on Equity Gross Profit/Sales - Net Income / Sales Net Income / Total Assets - Net Income / Stockholders' Equity = Return on Sales Asset Turnover Leverage (Net Income / Sales) x (Sales / Assets) x (Assets / Stockholders' Equity) 5 Exhibit 2. Common-Sized Income Statement (all items scaled by sales) Company 1 2 3 5 6 7 8 Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Goods Sold 42.9% 30.396 25.2% 15.6% 22.7% 77.3% 12.6% 73.6% 80.7% Gross Profit 57.1% 69.7% 74.8% 84.4% 77.3% 22.796 87.4% 26.4% 19.3% Selling. General, & Administrative Exp. 27.1% 37.2% 33.1% 54.8% 38.0% 11.9% 38.1% 19.1% 3.8% Operating Income before Depreciation 30.1% 32.5% 41.7% 29.6% 39.3% 10.7% 49.3% 7.3% 15.5% Depreciation, Depletion & Amortization 14.3% 1.8% 13,5% 5.5% 4.396 4.8% 3.1% 1.8% 3.9% Operating Profit 15.7% 30.8% 28.1% 24.1% 35.0% 5.9% 46.2% 5.5% 11.6% Interest Expense 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Non-Operating Income/Expense 1.096 0.3% 1.1% 0.5% 1.0% 0.1% -13.4% 0.5% 4.996 Special Items -2.2% -0.1% -0.3% 0.1% -3.0% -0.896 -1.096 0.0% 0.596 Pretax Income 11.7% 30.096 28.29% 23.8% 32.4% 4.3% 31.8% 5.4% 16.8% Total Income Taxes 3.8% 9.4% 73% 5.1% 6.8% 1.7% 10.19 1.7% 6.9% Income Before Extraordinary Items & Non-controlling Interest 7.9% 20.5% 21.096 18.8% 25.5% 2.6% 21.7% 3.796 9.9% Net Income 7.7% 20.5% 21.0% 18.8% 25.5% 2.6% 20.2% 3.5% 9.5% Source: Standard & Poor's Capital IQNet Advantage Exhibit 3. Common-Sized Balance Sheet (all items scaled by total assets) ASSETS 1 2 3 4 5 6 7 8 9 Cash & Short-Term Investments 1.4% 8.7% 21.4% 17.4% 51.9% 16.6% 10.4% 3.696 2.8% Net Receivables 4.8% 14.2% 4.7% 11.8% 12.2% 1.996 55.1% 3.2% 10.696 Inventories 0.4% 21.6% 5.3% 7.6% 1.3% 2.4% 3.0% 21.5% 4.5% Prepaid Expenses 0.4% 3.7% 0.0% #VALUE! 0.0% #VALUE! 0.0% #VALUE! 0.0% Other Current Assets 1.4% 3.0% 4.8% 2.3% 3.8% 2.5% #VALUE! 1.0% 1.696 Total Current Assets 8.4% 51.2% 36.1% 39.1% 69.2% 23.3% 68.5% 29.3% 19.5% Gross Plant, Property & Equipment 98.2% 25.7% 79.8% 43.7% 15.9% 104.8% #VALUE! 85.0% 122.3% Accumulated Depreciation -58.3% -13.5% -46.3% -21.0% -8.8% -36.5% #VALUE!-27.3% -54.6% Net Plant, Property & Fquipment 40.0% 12.2% 33.5% 22.7% 7.1% 68.3% 0.8% 57.7% 67.796 Investments at Equity 1.5% #VALUE! 1.5% #VALUE! #VALUE! 0.0% 0.7% #VALUE! 8.496 Other Investments #VALUE! #VALUE! 7.8% 17.3% 8.0% 0.3% 22.2% 0.096 2.0% Intangibles 47.6% 34.7% 19.2% 13.8% 14.0% 6.0% 3.3% 10.1% #VALUE! Deferred Charges 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% #VALUE! #VALUE! 0.096 Other Assets 2.6% 1.996 1.996 7.0% 1.6% 2.1% #VALUE! 2.996 2.4% TOTAL ASSETS 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.096 100.096 100.0% LIABILITIES Accounts Payable Notes Payable & Other ST Borrowings Current Portion of LT Debt Total Current Debt Income Taxes Payable Accrued Expenses Other Current Liabilities Total Other Current Liabilities Total Current Liabilities Long Term Debt Deferred Taxes & Investment Tax Credit Other Liabilities TOTAL LIABILITIES Redeemable Non-controlling Interest EQUITY Preferred Stock - Redeemable Preferred Stock - Nonredeemable Total Preferred Stock Common Stock Capital Surplus Retained Earnings Less: Treasury Stock Common Equity Shareholders Equity-Parent Nonredeemable Non-controlling Interest STOCKHOLDERS EQUITY TOTAL TOTAL LIABILITIES & EQUITY 0,0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.9% 3.5% 3.7% 3.3% 3.7% 5.396 70.496 18.7% 11.6% 0.0% 0.1% 0.3% 0.0% 0.4% 0.0% 3.8% 3.1% 2.1% 1.5% 0.0% 0.0% 2.5% 1.0% 2.8% 1.1% 2.1% 0.5% 1.5% 0.296 0.3% 2.5% 1.4% 2.8% 4.9% 5.1% 2.7% 0.5% 0.8% 0.0% 0.6% 0.5% 0.5% #VALUE! 0.7% 3.0% 3.5% 8.2% 9.2% #VALUE! 3.0% 5.4% #VALUE! 8.9% #VALUE! 2.5% 0.1% 2.4% 19.0% 18.0% 12.5% WVALUE! 0.4% 3.996 6.0% 8.4% 11.6% 19.0% 20.9% 18.0% #VALUE! 9.3% 3.9% 11.9% 12.8% 15.6% 25.4% 26.6% 26.5% 75.3% 33.8% 21.19 24.0% 22.1% 13.3% 14.7% 9.9% 14.79 8.49 22.2% 2.4% 11.0% 4.0% 4.2% #VALUE! 1.4% 15.0% 0.4% 2.396 11.3% 17.7% 9.8% 4.296 15.5% 8.0% 6.0% 5.3% 1.6% 14.5% 64.6% 48.7% 37.29 55.6% 45.9% 62.1% 88.9% 59.99 49.396 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.9% 0.0% 0.0% #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! 0.9% #VALUE! #VALUE! 2.4% 0.8% 0.0% 2.1% 0.0% 4.3% 0.6% 0.2% 2.996 33.3% 1.8% 23.4% 14.4% 47.0% 6.5% 4.1% 1.6% 0.0% 11.6% 69.9% 39.3% 37.0% 7.0% 30.7% 5.796 35.596 103.9% -12.1% -21.2% #VALUE! -9.1% #VALUE! -3.8% -0.4% #VALUE! -58.0% 35.2% 51.3% 62.8% 44.4% 54.1% 37.9% 10.1% 37.2% 48.8% 35.2% 51.3% 62.8% 44.4% 54.1% 37.996 11.0% 37.29% 48.8% 0.1% 0.0% 0.0% 0.0% 0.0% 0.096 0.1% 2.5% 1.896 35.4% 51.3% 62.8% 44.4% 54.1% 37.996 11.1% 39.7% 50.79 100.0% 100.0% 100.0% 100.096 100.0% 100.0% 100.0% 100.096 100.096 4.02 Exhibit 4. Selected Financial Ratios (three-year average of values for 2011-2013) Company 1 2 3 4 5 6 7 8 9 LIQUIDITY RATIOS Cash & Market Sec to Total Assets 0.01 0.09 0.21 0.17 0.52 0.17 0.10 0.04 0.03 Acid Test Ratio 0.52 1.80 1.67 1.15 2.41 0.70 0.87 0.20 0.63 Current Ratio 0.71 2.32 1.54 2.61 0.88 0.91 0.87 0.92 ASSET MANAGEMENT Day's Receivable 37.35 67.77 26.01 63.34 80.88 7.57 3.208.07 5.10 31.30 Day's Inventory 7.52 341.92 117.78 264.40 37.57 12.50 1,342.81 46.27 Asset Tumover 16.66 0.47 0.77 0.65 0.68 0.55 0.90 0.06 2.31 1.23 FINANCIAL LEVERAGE Long-term Debt to Total Assets 0.26 0.22 0.14 0.17 0.11 0.17 0.13 0.27 0.05 Long-term Debt to Stockholders' Equity 0.04 0.00 0.01 0.06 0.03 0.07 0.44 0.13 0.05 Coverage Ratio #DIV/0!DIV/0! #DIV/0! #DIV/0! #DIV/0! NDIV/0! #DIV/0! #DIV/0! #DIV/0! PROFITABILITY Gross Margin Ratio 0.57 0.70 0.75 0.84 0.77 0.23 0.87 0.26 0.19 Return on Sales 0.08 0.21 0.21 0.19 0.26 0.03 0.20 0.04 0.09 Return on Assets 0.04 0.16 0.14 0.13 0.14 0.02 0.01 0.08 Return on Equity 0.12 0.11 0.31 0.22 0.29 0.26 0.06 0.11 0.20 0.23 DUPONT ANALYSIS Return on Equity 0.11 0.31 0.22 0.29 0.26 0.06 0.11 0.20 0.23 Return on Sales 0.08 0.21 0.21 0.19 0.26 0.03 0.20 0.04 0.09 Asset Tumover 0.47 0.77 0.65 0.68 0.55 0.90 0.06 2.31 1.23 Leverage 2.84 1.98 1.59 2.27 1.85 2.64 9.05 2.52 1.98 Source: Standard & Poor's Capital IQNet Advantage
