this case provides the data for 9 companies. match the financial data to each industry and explain results.

GRAEME RANKINE IDENTIFY THE INDUSTRY-ANALYSIS of FINANCIAL STATEMENT DATA Since companies in the same industry face similar opportunities and constraints, they tend to make similar invest- ment, dividend, and financing decisions. Thus, the financial characteristics of firms in the same industry tend to cluster together. For example, old economy businesses with large amounts of tangible assets may have higher leverage ratios because such assets provide good collateral for lenders. 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 devaluc quickly. On the other hand, companies in different industries tend to exhibit different financial characteristics, as measured by financial ratios, because of cross-sectional dif- ferences in operating and financing decisions. With some knowledge of the different operating, investing, and financing decisions across industries, financial ratios may be used to identify an industry (sec Exhibit 1 for the definition of ratios used). 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 aged 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 Rerail grocery company R&D-based semiconductor manufacturer Assignment Using the financial statement data provided in Exhibits 2. 3. and 4. march the companies with their industry. NOTE. #DIV/0! of Value indicates that the item was nor 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 Assers / Current Liabilities ASSET MANAGEMENT Day's Receivable Day's Inventory Asset Turnover 3657 (Sales / Receivables) 365 / (Cost of Sales / Inventory) Sales / Total Assets FINANCIAL LEVERAGE Debt to Total Assets Debt to Stockholders Equity Coverage Ratio (Total Current Debt +Long-term Debt) / Total Assets (Total Current Debt + Long-term Debt) / Stockholders Equity (Operating Profit Interest Expense) / Interest Expense PROFITABILITY Gross Margin Ratio Return on Sales Return on Assets Return on Equity Gross Profit / Sales Net Income / Sales Net Income / Total Assets - Net Income / Stockholders' Equity DUPONT ANALYSIS Return on Equity = Return on Sales Asser Turnover Leverage (Net Income / Sales) x (Sales Assets) * (Assets / Stockholders Equity) 5 7 Exhibit 2. Common-Sized Income Statement (all items scaled by sales) 1 Company 2 3 6 8 Sales 100.0% 100.0% 100,0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Gostof Cook Sokl 12.95 3039 25.246 15.64 222.76 77246 20.796 Gost Profil 57.1% 69.796 74.8% 844% 77376 22796 87.446 26.4 19.3% Selling General, & Administratie Ex 27.1% 37.2% 33.1% 54.8% 28.046 110% 39.196 19.145 2396 Operating Income before Deprecia 30.146 32.5% 41.746 29.696 39.3976 10.796 9.346 7.346 15.5% 14 3146 1.8% Deptoxikon Deplerion & Amortization 13.9% 5.5% 4.36 4.8% 3.196 1.896 2996 Operating Prodit 15.76 30.8% 28.196 24.196 35.046 5.996 1.246 5.996 116% Inarest Expense 0.0% 0.0% 0.046 0.046 0.096 10% 0.096 2.046 0.0% Non-Operating Income/Expense 1.0% 0.396 1.1% 0.5% 1.0% 0.1% -13.476 0.946 4.9% Specul Items -(1.196 019 2.046 1.8% 1.096 0.046 0.596 Per Incante 11.7% 30.0% 28.2016 23.8% 32.476 43% 31.8% 5.496 16.896 Total Income Taxes 3.8% 9.4% 73% 5.1% 6.8% 17% 10.15 1.776 6.9% Income Before Extraordinary Items & Non-controlling Interest 7.946 20.5% 21.6% 18.8% 25.59.264621.242746 2.994 Ne licentie 20.5% 21.046 18.8% 25.546 26%20-246 22.946 9.54 Soriano Sundada l'espal NetAdvante Exhibit 3. Common-Sized Balance Sheet (all items scaled by total assets) ASSETS 2 2 4 5 Cah & Short-Term Investments 1.4% 8.756 21.4% 17.4 $1.59 16.6776 10.49 3.63 7.016 Net Receivable ANN 14.29 4.796 11.896 12.296 1.996 35.11 3296 10.69 Inventoria 0.25 21.6 5.390 7.6% 1396 2.496 3.08 21.596 4.5 Trepid Expo 0.41 3.79 0.096 #VALUE! 0.0% VALUE O.ON VALURI 0.0 Cher Current Act 1.4% 2.096 4896 2 3.89 2:59 VALUE 10% 1.095 Til Gurrent Assets $1.29 3.1% 39.1N 69.2% 23.396 68.976 293 19.516 Grom Mant, Property & Equipment 98.29 25.7% 79.8% 43.79 15.9% 104.9 VALUE 85.0% 122.39 Asumuland Depreciation 58.39 L1.5 46 -21.09 8.8% 36.5% VALUE 27.3% 554.646 Net Pant Property & Equipment 40.0% 12.2% 33.5% 22.7% 7.19 68.3 0.89 57.796 67.7 Investments Equity 1.5% #VALUE 1.5% TVALUE $VALUE 0.0% 0.7 #VALUE 14 Other Investment #VALUE #VALUE 7.89 17.3% 8.0% 0.3 22.29 0.076 2.046 Intangible 47.6% 34.7 19.29 13.8% 14.0% 6.0 3.3 10.1% VALUE Deferred Charge 0.0% OON 0.0N 0.0% 0.096 0.0% FVALUH VALUH! 0.016 Other Arts 2.6 1.99 1.99 7.096 1.6% 2.1% VALUE 2.996 24 TOTAL ASSETS 100.0% 100.096 100.0 100.096 100.0% 100.096 100.0 100.0 100.096 3.3% LIABILITIES Au Payak Notes Payable & Other ST Horrowing Current Portion of UT Dear Total Green Debe Income Tax Payable Accrued Expo Other Currem Libilities Toul Other Current Liabilities Total Current Liabilitia Long Term Dhabi Deferred Trees & 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 Faming La Trury Stock Common Equity Shareholden Equity Parent Nonodermable Non-controlling Interest STOCKHOLDERS EQUITY TOTAL TOTAL LIABILITIES & EQUITY 0.0% 0.0% 0.0% 0.0% 0.0' 0.046 0.046 0.0% 0.04 3.9% 2.5% 1.7% 3.7% 5.3% 70.4% 18.7% 11.69 0.09 0.1 0.396 0.0% 0.4% 0.0% 3.8% 3.1996 2.1956 1.5% 0.0% 0.09 2.5% 1.0% 2.896 1.196 2.196 0.5% 1.5% 0,24 0.39 259 1.49 2.8% 4.996 5.196 2.746 0.5% 0.0% 0.6% 0.59 0.5% SYALUE 0.796 3.09. 3.59 8.29 9.29. #VALUE! 3.04 5.4% VALUE 8.996 VALUE 2.59 0.1% 2.4% 19.0% 18.09 12.5% FVALUE! DAS 3.99 6.09 844 11.6% 19.09 20.9N 18.096 VALUE 9.35 1.99 11.9% 12.8% 15.6% 25.4% 26.6% 26.5% 75.390 33.8945 21.11 24.04 22.19 13.3% 14.79 9.99 14.796 8.496 22.246 2.476 11.09 4.0 4.29 FVALUE! 1.49 15.0% 0.496 2,396 11:36 1775 9.89 4.29 15:54 09 6.ON. 5.396 1.6 14.59 646% 48.74 37.396 55.696 49.996 62.15 8.946 59.99 49.39 0.09 0.04 0.056 0.096 0.09 0.0 0.0 0.49 0.09 0.ON 0.0% 0.0% 0.096 0.09 0.0% 0.01 0.05 0.046 0.09 0.0 G.DE 0.09 0.0N 0.0 0.0 0.04 0.0196 0.09 0.0 0.0 0:04 0.046 0.0% 0.9 0.09 0.09 EVALUE VALUE IVALUE VALUE VALUE VALUE 0.99 VALUE VALUE 0.89 20 21 OON 6.390 0.6% 0.29 2.99 33.39 1.8 21.196 14 AZON CSN 4.1C 1.6% 0.046 69.99 39.396 37.0% ON 0.75 5. 35.596 103.936 -12.152129 VALUE 9.15 VALUE! +1.8 H10,49 TVALET58_0t 35.25 SI.196 44.440 37.95 10.198 1724 18.99 35.29 51.146289 4496 STI 37.94 11.09 48. 0.15 D. 0.04 0.0 0.096 0.09 0.196 2.5 1. 35.4 5019 028 44.496 51.29 37.94 11.1 139. 50.7 100.0 100.000 100.000 100.0 1000 100.00 100.000.00 9 7 06 Exhibit 4. Selected Financial Ratios (three year average of values for 2011-2013) Company 1 2 3 4 5 LION WENTY RATIOS Cash & Market Secil Assets 0.01 10.09 0.21 0.17 0.52 ANTRO 0.52 1.80 1.67 241 Gurent Ratio 0.71 4.02 2.32 261 1.15 1.54 0.17 0.70 0.88 0.10 0.87 0.91 0.04 0.20 0.87 0,113 4.63 0.92 ASSET MAMCEMENT Das Recetable Do inventory Astex Tlumener 3735 67.77 26.01 334 7.52 36192 117.78 264.40 0.AZ 0.77 0.65 0.68 80.88 37.57 0.55 7.57 3.208.07 12.50 134.81 0.90 0.06 5.10 46.27 231 31.30 16.66 1.23 FINANCIAL BEVERAGE Long o Debit to Total Aucts (1.26 0.22 0.14 0.17 0.11 0.17 0.13 0.27 0.05 Long-erm Debt to Stockholders Equity 0.04 0.00 0.01 0.06 (L03 007 0.4 0.13 0.05 Coverage Rank #DIV/OF DIVIDE #DIV/0! #DIV/CE DIV/CE #DIV/0! #DIV/DIV/OF DIV.O! 0.70 0.21 0.16 0.31 0.75 0.21 0.14 0.22 0.84 0.19 0.13 0.29 0.77 0.26 0.14 0.26 0.23 0.03 0.02 0.87 0.20 0.01 0.11 (1.26 004 0.08 220 0.19 0.09 1.12 0.23 0.06 PRONITAHILITE Glow Mangin Ratio 0.57 Return on Sales 0.08 Retts 0:04 Rerum an Equity 0.11 ENOTOT VALISIS Return on Equm 0.11 Rem On Sales 0.18 Asset Tiener (147 284 Locrage Souse Sandor & Hoon Capul Nis Advantage (131 0.21 0.77 1.98 0.22 0.21 0.65 1.59 EZD 600 0.29 0.19 0.68 2.27 0.26 0.26 0.55 1.85 01.06 0.03 0.90 2.64 0.11 0.20 0.06 9.05 0.20 0.04 231 252 1.23 1.98 GRAEME RANKINE IDENTIFY THE INDUSTRY-ANALYSIS of FINANCIAL STATEMENT DATA Since companies in the same industry face similar opportunities and constraints, they tend to make similar invest- ment, dividend, and financing decisions. Thus, the financial characteristics of firms in the same industry tend to cluster together. For example, old economy businesses with large amounts of tangible assets may have higher leverage ratios because such assets provide good collateral for lenders. 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 devaluc quickly. On the other hand, companies in different industries tend to exhibit different financial characteristics, as measured by financial ratios, because of cross-sectional dif- ferences in operating and financing decisions. With some knowledge of the different operating, investing, and financing decisions across industries, financial ratios may be used to identify an industry (sec Exhibit 1 for the definition of ratios used). 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 aged 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 Rerail grocery company R&D-based semiconductor manufacturer Assignment Using the financial statement data provided in Exhibits 2. 3. and 4. march the companies with their industry. NOTE. #DIV/0! of Value indicates that the item was nor 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 Assers / Current Liabilities ASSET MANAGEMENT Day's Receivable Day's Inventory Asset Turnover 3657 (Sales / Receivables) 365 / (Cost of Sales / Inventory) Sales / Total Assets FINANCIAL LEVERAGE Debt to Total Assets Debt to Stockholders Equity Coverage Ratio (Total Current Debt +Long-term Debt) / Total Assets (Total Current Debt + Long-term Debt) / Stockholders Equity (Operating Profit Interest Expense) / Interest Expense PROFITABILITY Gross Margin Ratio Return on Sales Return on Assets Return on Equity Gross Profit / Sales Net Income / Sales Net Income / Total Assets - Net Income / Stockholders' Equity DUPONT ANALYSIS Return on Equity = Return on Sales Asser Turnover Leverage (Net Income / Sales) x (Sales Assets) * (Assets / Stockholders Equity) 5 7 Exhibit 2. Common-Sized Income Statement (all items scaled by sales) 1 Company 2 3 6 8 Sales 100.0% 100.0% 100,0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Gostof Cook Sokl 12.95 3039 25.246 15.64 222.76 77246 20.796 Gost Profil 57.1% 69.796 74.8% 844% 77376 22796 87.446 26.4 19.3% Selling General, & Administratie Ex 27.1% 37.2% 33.1% 54.8% 28.046 110% 39.196 19.145 2396 Operating Income before Deprecia 30.146 32.5% 41.746 29.696 39.3976 10.796 9.346 7.346 15.5% 14 3146 1.8% Deptoxikon Deplerion & Amortization 13.9% 5.5% 4.36 4.8% 3.196 1.896 2996 Operating Prodit 15.76 30.8% 28.196 24.196 35.046 5.996 1.246 5.996 116% Inarest Expense 0.0% 0.0% 0.046 0.046 0.096 10% 0.096 2.046 0.0% Non-Operating Income/Expense 1.0% 0.396 1.1% 0.5% 1.0% 0.1% -13.476 0.946 4.9% Specul Items -(1.196 019 2.046 1.8% 1.096 0.046 0.596 Per Incante 11.7% 30.0% 28.2016 23.8% 32.476 43% 31.8% 5.496 16.896 Total Income Taxes 3.8% 9.4% 73% 5.1% 6.8% 17% 10.15 1.776 6.9% Income Before Extraordinary Items & Non-controlling Interest 7.946 20.5% 21.6% 18.8% 25.59.264621.242746 2.994 Ne licentie 20.5% 21.046 18.8% 25.546 26%20-246 22.946 9.54 Soriano Sundada l'espal NetAdvante Exhibit 3. Common-Sized Balance Sheet (all items scaled by total assets) ASSETS 2 2 4 5 Cah & Short-Term Investments 1.4% 8.756 21.4% 17.4 $1.59 16.6776 10.49 3.63 7.016 Net Receivable ANN 14.29 4.796 11.896 12.296 1.996 35.11 3296 10.69 Inventoria 0.25 21.6 5.390 7.6% 1396 2.496 3.08 21.596 4.5 Trepid Expo 0.41 3.79 0.096 #VALUE! 0.0% VALUE O.ON VALURI 0.0 Cher Current Act 1.4% 2.096 4896 2 3.89 2:59 VALUE 10% 1.095 Til Gurrent Assets $1.29 3.1% 39.1N 69.2% 23.396 68.976 293 19.516 Grom Mant, Property & Equipment 98.29 25.7% 79.8% 43.79 15.9% 104.9 VALUE 85.0% 122.39 Asumuland Depreciation 58.39 L1.5 46 -21.09 8.8% 36.5% VALUE 27.3% 554.646 Net Pant Property & Equipment 40.0% 12.2% 33.5% 22.7% 7.19 68.3 0.89 57.796 67.7 Investments Equity 1.5% #VALUE 1.5% TVALUE $VALUE 0.0% 0.7 #VALUE 14 Other Investment #VALUE #VALUE 7.89 17.3% 8.0% 0.3 22.29 0.076 2.046 Intangible 47.6% 34.7 19.29 13.8% 14.0% 6.0 3.3 10.1% VALUE Deferred Charge 0.0% OON 0.0N 0.0% 0.096 0.0% FVALUH VALUH! 0.016 Other Arts 2.6 1.99 1.99 7.096 1.6% 2.1% VALUE 2.996 24 TOTAL ASSETS 100.0% 100.096 100.0 100.096 100.0% 100.096 100.0 100.0 100.096 3.3% LIABILITIES Au Payak Notes Payable & Other ST Horrowing Current Portion of UT Dear Total Green Debe Income Tax Payable Accrued Expo Other Currem Libilities Toul Other Current Liabilities Total Current Liabilitia Long Term Dhabi Deferred Trees & 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 Faming La Trury Stock Common Equity Shareholden Equity Parent Nonodermable Non-controlling Interest STOCKHOLDERS EQUITY TOTAL TOTAL LIABILITIES & EQUITY 0.0% 0.0% 0.0% 0.0% 0.0' 0.046 0.046 0.0% 0.04 3.9% 2.5% 1.7% 3.7% 5.3% 70.4% 18.7% 11.69 0.09 0.1 0.396 0.0% 0.4% 0.0% 3.8% 3.1996 2.1956 1.5% 0.0% 0.09 2.5% 1.0% 2.896 1.196 2.196 0.5% 1.5% 0,24 0.39 259 1.49 2.8% 4.996 5.196 2.746 0.5% 0.0% 0.6% 0.59 0.5% SYALUE 0.796 3.09. 3.59 8.29 9.29. #VALUE! 3.04 5.4% VALUE 8.996 VALUE 2.59 0.1% 2.4% 19.0% 18.09 12.5% FVALUE! DAS 3.99 6.09 844 11.6% 19.09 20.9N 18.096 VALUE 9.35 1.99 11.9% 12.8% 15.6% 25.4% 26.6% 26.5% 75.390 33.8945 21.11 24.04 22.19 13.3% 14.79 9.99 14.796 8.496 22.246 2.476 11.09 4.0 4.29 FVALUE! 1.49 15.0% 0.496 2,396 11:36 1775 9.89 4.29 15:54 09 6.ON. 5.396 1.6 14.59 646% 48.74 37.396 55.696 49.996 62.15 8.946 59.99 49.39 0.09 0.04 0.056 0.096 0.09 0.0 0.0 0.49 0.09 0.ON 0.0% 0.0% 0.096 0.09 0.0% 0.01 0.05 0.046 0.09 0.0 G.DE 0.09 0.0N 0.0 0.0 0.04 0.0196 0.09 0.0 0.0 0:04 0.046 0.0% 0.9 0.09 0.09 EVALUE VALUE IVALUE VALUE VALUE VALUE 0.99 VALUE VALUE 0.89 20 21 OON 6.390 0.6% 0.29 2.99 33.39 1.8 21.196 14 AZON CSN 4.1C 1.6% 0.046 69.99 39.396 37.0% ON 0.75 5. 35.596 103.936 -12.152129 VALUE 9.15 VALUE! +1.8 H10,49 TVALET58_0t 35.25 SI.196 44.440 37.95 10.198 1724 18.99 35.29 51.146289 4496 STI 37.94 11.09 48. 0.15 D. 0.04 0.0 0.096 0.09 0.196 2.5 1. 35.4 5019 028 44.496 51.29 37.94 11.1 139. 50.7 100.0 100.000 100.000 100.0 1000 100.00 100.000.00 9 7 06 Exhibit 4. Selected Financial Ratios (three year average of values for 2011-2013) Company 1 2 3 4 5 LION WENTY RATIOS Cash & Market Secil Assets 0.01 10.09 0.21 0.17 0.52 ANTRO 0.52 1.80 1.67 241 Gurent Ratio 0.71 4.02 2.32 261 1.15 1.54 0.17 0.70 0.88 0.10 0.87 0.91 0.04 0.20 0.87 0,113 4.63 0.92 ASSET MAMCEMENT Das Recetable Do inventory Astex Tlumener 3735 67.77 26.01 334 7.52 36192 117.78 264.40 0.AZ 0.77 0.65 0.68 80.88 37.57 0.55 7.57 3.208.07 12.50 134.81 0.90 0.06 5.10 46.27 231 31.30 16.66 1.23 FINANCIAL BEVERAGE Long o Debit to Total Aucts (1.26 0.22 0.14 0.17 0.11 0.17 0.13 0.27 0.05 Long-erm Debt to Stockholders Equity 0.04 0.00 0.01 0.06 (L03 007 0.4 0.13 0.05 Coverage Rank #DIV/OF DIVIDE #DIV/0! #DIV/CE DIV/CE #DIV/0! #DIV/DIV/OF DIV.O! 0.70 0.21 0.16 0.31 0.75 0.21 0.14 0.22 0.84 0.19 0.13 0.29 0.77 0.26 0.14 0.26 0.23 0.03 0.02 0.87 0.20 0.01 0.11 (1.26 004 0.08 220 0.19 0.09 1.12 0.23 0.06 PRONITAHILITE Glow Mangin Ratio 0.57 Return on Sales 0.08 Retts 0:04 Rerum an Equity 0.11 ENOTOT VALISIS Return on Equm 0.11 Rem On Sales 0.18 Asset Tiener (147 284 Locrage Souse Sandor & Hoon Capul Nis Advantage (131 0.21 0.77 1.98 0.22 0.21 0.65 1.59 EZD 600 0.29 0.19 0.68 2.27 0.26 0.26 0.55 1.85 01.06 0.03 0.90 2.64 0.11 0.20 0.06 9.05 0.20 0.04 231 252 1.23 1.98