Identify the Industries
Introduction
This paper aims to analyze the common-sized balance sheets and ratios of 12 companies in order to identify their respective industries (Please refer to the Appendix for an overview of the financial data).
The balance sheets of the 12 companies are analyzed in four steps, as shown in the following table.
Step Industry Common Characteristics Companies
1 Service Almost no inventories
Inventory turnover negligible Major passenger airline
Regional bank
Temporary office personnel agency
Hotel chain
For-profit hospital chain
2 Merchandizing High and similar inventory level
Leverage ratio is nearly identical Upscale department store chain
Warehouse club
Discount department store chain
3 Manufacturing High plant & equipment Manufacturer of oral, personal, and household care products
Defense contractor
4 Other Major regional utility company
International oil company
Based on balance sheets’ common characteristics of companies operating in similar industries, we defined major clusters in four steps. Within each of these clusters we used industry-specific characteristics to distinguish between individual companies.
Step 1: Five service industry companies
Company Industry-related explanations
A Major
Passenger
Airline High unearned revenues (11.6%): Customers book and pay in advance
Negative retained earnings (-1%): Airline industry is under severe pressure and many companies are losing money
High plants & equipment (55.6%): Airplanes on the books
E Regional
Bank High accounts payable (84.7%): Banks take deposits from their customers, which they have to pay back on the depositors’ request
High receivables (63.1%): Banks loan money to third parties
Low stockholders’ equity (7.9%): Banks are usually highly leveraged
Very low plant & equipment (1.8%): Banks usually rent real estate for their operations
K Temporary Office Personnel
Agency High receivables (55.4%): Often
This paper aims to analyze the common-sized balance sheets and ratios of 12 companies in order to identify their respective industries (Please refer to the Appendix for an overview of the financial data).
The balance sheets of the 12 companies are analyzed in four steps, as shown in the following table.
Step Industry Common Characteristics Companies
1 Service Almost no inventories
Inventory turnover negligible Major passenger airline
Regional bank
Temporary office personnel agency
Hotel chain
For-profit hospital chain
2 Merchandizing High and similar inventory level
Leverage ratio is nearly identical Upscale department store chain
Warehouse club
Discount department store chain
3 Manufacturing High plant & equipment Manufacturer of oral, personal, and household care products
Defense contractor
4 Other Major regional utility company
International oil company
Based on balance sheets’ common characteristics of companies operating in similar industries, we defined major clusters in four steps. Within each of these clusters we used industry-specific characteristics to distinguish between individual companies.
Step 1: Five service industry companies
Company Industry-related explanations
A Major
Passenger
Airline High unearned revenues (11.6%): Customers book and pay in advance
Negative retained earnings (-1%): Airline industry is under severe pressure and many companies are losing money
High plants & equipment (55.6%): Airplanes on the books
E Regional
Bank High accounts payable (84.7%): Banks take deposits from their customers, which they have to pay back on the depositors’ request
High receivables (63.1%): Banks loan money to third parties
Low stockholders’ equity (7.9%): Banks are usually highly leveraged
Very low plant & equipment (1.8%): Banks usually rent real estate for their operations
K Temporary Office Personnel
Agency High receivables (55.4%): Often