Financial Detective
The Financial Detective
As rightly said in the case, the financial statements of no two companies are alike. The financial statements of companies in a particular industry, however, have many similarities and follow certain financial norms unique to that industry. Our analysis focuses on identifying these similarities.
Company A: Manufactures and markets a broad line of name brand toiletries, nonprescription drugs, and consumer and baby care products. When compared to company B, it has:
• A lower cost of goods sold figure, which indicates that it manufactures mass market consumer products.
• Higher advertising expense, which indicates that the company targets its advertising towards a large consumer base (mass market).
• Higher R&D expense, which indicates the company is rigorously improving its products and designing new ones to effectively compete in the mass market.
Company B: Manufactures pharmaceuticals and a variety of low-margin hospital supplies. The firm recently acquired a large hospital supply company. When compared to company A, it has:
• A higher long term (Other) assets figure, which indicates the significant amount of goodwill brought on to its books by the acquisition.
. . .
Company L: Is the largest food-service contractors in the country, a large chain of family and fast food restaurants.
• A lower current liability figure, since land does not depreciate.
• A higher accounts receivable figure which indicates that the company is operating in the retail sales channel where selling on credit is common.
• A lower ratio of property, plant & equipment, which signifies the fact that much of the companies business comes from financial and software services which do not require a large investment in fixed assets.
Company N: Owns one large flagship newspaper that is sold around the country and around the world.
• A lower gross profit ratio, since it is in a more competitive business.
• A lower gross profit sold
As rightly said in the case, the financial statements of no two companies are alike. The financial statements of companies in a particular industry, however, have many similarities and follow certain financial norms unique to that industry. Our analysis focuses on identifying these similarities.
Company A: Manufactures and markets a broad line of name brand toiletries, nonprescription drugs, and consumer and baby care products. When compared to company B, it has:
• A lower cost of goods sold figure, which indicates that it manufactures mass market consumer products.
• Higher advertising expense, which indicates that the company targets its advertising towards a large consumer base (mass market).
• Higher R&D expense, which indicates the company is rigorously improving its products and designing new ones to effectively compete in the mass market.
Company B: Manufactures pharmaceuticals and a variety of low-margin hospital supplies. The firm recently acquired a large hospital supply company. When compared to company A, it has:
• A higher long term (Other) assets figure, which indicates the significant amount of goodwill brought on to its books by the acquisition.
. . .
Company L: Is the largest food-service contractors in the country, a large chain of family and fast food restaurants.
• A lower current liability figure, since land does not depreciate.
• A higher accounts receivable figure which indicates that the company is operating in the retail sales channel where selling on credit is common.
• A lower ratio of property, plant & equipment, which signifies the fact that much of the companies business comes from financial and software services which do not require a large investment in fixed assets.
Company N: Owns one large flagship newspaper that is sold around the country and around the world.
• A lower gross profit ratio, since it is in a more competitive business.
• A lower gross profit sold