The Financial Detective, 2005, and answer the following 2 questions:

1. Exhibit 1 in Page 124 presents 4 categories of financial ratios for 8 pairs of companies in various industries. Please identify the best and worst performing industry in each of the following categories: liquidity (liquidity ratios), asset management(activity ratios), debt management (debt ratios ), and DuPont analysis ( profitability ratios), and provide reasoning from the industry description and its financial profile.

3. Can you identify companies (names of company A and B) from at least 2 industries, and provide reasoning from the company description and its financial profile.

CAS The Financial Detective, 2005 Financial characteristics of companies vary for many reasons. The two most promi nent drivers are industry economics and firm strategy Each industry has a financial norm around which companies within the industry tend to operate. An airline, for example, would naturally be expected to have a high proportion of fixed assets (airplanes), while a consulting firm would not. A steel manufacturer would be expected to have a lower gross margin than a pharmaceutical manufacturer because commodities such as steel are subject to strong price competi tion, while highly differentiated products like patented drugs enjoy much more pricing freedom. Because of unique economic features of each industry, average financial statements will vary from one industry to the next Similarly, companies within industries have different financial characteristics, in part, because of the diverse strategies that can be employed. Executives choose strate gies that will position their company favorably in the competitive jockeying within an industry. Strategies typically entail making important choices in how a product is made (e.g., capital intensive versus labor intensive), how it is marketed (e.g., direct sales versus the use of distributors), and how the company is financed (e.g., the use of debt or equity). Strategies among companies in the same industry can differ dra matically. Different strategies can produce striking differences in financial results for firms in the same industry The following paragraphs describe pairs of participants in a number of different industries. Their strategies and market niches provide clues as to the financial condition and performance that one would expect of them. The companies' common-sized financial statements and operating data, as of early 2005, are presented in a standardized format in Exhibit 1. It is up to you to match the financial data with the company descriptions. Also, try to explain the differences in financial results across This case was prepared by Sean Carr, under the direction of Robert F Bruner It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation Copyright o 2005 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights To order copies, send an e-mai to sales@dardenbusinesspublishing.com reserved. No part ofthis publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitt ed in any form or by any means electronic, mechani photocopying, recording, or otherwise-without the permission of the Darden Foundation 119