The Case of the Unidentified Industries The preceding exercise suggests a series of questions that may be helpful in assessing a companys future financial health. It also describes several ratios that are useful in answering some of the questions, especially if the historical trend in these ratios is examine. However, it is also important to compare the actual absolute value with some standard to determine whether the company is performing well. Unfortunately, there is no single current ratio, inventory turnover, or debt ratio that is appropriate to all industries, and even within a specific industry , ratios may vary significantly among companies. The operating and competitive characteristics of the companys industry greatly influence its investment in the various types of assets, the riskiness of these investments, and the financial structure of its balance sheet. Try to match the five following types of companies with their corresponding balance sheets and financial ratios as shown in Exhibit 3.

Exhibit 3 Unidentified Balance Sheet Balance Sheet Percentages Cash Receivables Inventories Other current assets Property and equipment (net) Other assets Total assets 7.6% 27% 1.4% 7 2% 12.7% 48.1 25.0 100.0% 60.3 31.7 5.3 1.2 30.2 2.9 23.0 49.9 100.0% 8.7 7.3 3.0 66.6 100.0% 100.0% 100.0% 45% Notes payable Accounts payable Other current liabilities Long-term debt Other liabilities Owners' equity Total liabilities and equity 4.2% 50.8% 15.2 5.7 22.7 0.9% 21.5 27.4 38.4% 5.5 3.0 4.7 30.0 22.9 20.0 12.7 37.5 9.8 17.4 26.5 100.0% 100.0% 100.0% 100.0% 100.0% Selected Ratios Net profitset sales Net profits/total assets Net profits/owners' equity Net sales/total assets Collection period (days) Inventory turnover Total liabilities/total assets Long-term debt/owners equity Current assets/current liabilities Quick ratio 02 06 04 03 .29 78 149 05 03 01 05 .14 36 48 67 63 106 23 96 5.3 85 2.4 89 65 85 24 .2