Drivers of Industry Financial Structure
Low Net Plant & Equipment: An online retailer will not have a huge facility as compared to a manufacturer. It will have at most an office building and a warehouse to stockpile some inventory of its own. -
No Receivables/Days of Receivables: Since an online retailer caters to only individual customers, and since the latter pays usually by cash or credit card, accounts receivable will be at most a negligible amount, if not zero. -
Unearned Revenues: Unearned Revenues can exist for an online retailer especially when the company opens up pre-order accounts for various products which are not yet released in the market. -
Research & Development: An online retailer can have an R&D team which constantly works on improving the online storefront of the company by developing new or improving existing payment modes, storing sensitive information of customers securely, etc. -
Negative Net Income/Sales: This figure is negative because probably the company might have gone ahead and acquired some distressed companies during the turbulent years of 2000.
Supermarket Grocery Retailer:
High Inventory: It’s normal for a supermarket retailer to stock up on inventory to its maximum possible limit given the fact that supermarket goods are fast moving consumer goods. Also due to high inventory, a retailer gets some breathing space in case a product (or many products) sells off quickly from shelves. -
High Net Plant & Equipment: This figure is quite high for a grocery retailer but there can be two explanations for this. Either this company has a chain of stores spread across a wide geographical area or the balance sheet of this company is very small and hence their net plant & equipment figure is coming out quite higher than what one would expect from a retailer. -
No Research & Development: Since this company sells goods and products from other manufacturers/producers, it will not have an R&D expense. -
Low Days of Receivables: Accounts receivable in this company’s case is close to negligible because it probably takes money up front from its customers (cash or credit card). Once a while, a customer may make a big order and not immediately pay. But on an average, the days of receivables will be less. -
Net Income/Sales: Although the gross margin of this company is more than that of the Warehouse Club, the Net Income/Sales is less, because the Warehouse Club sells in bulk quantities as compared to a Supermarket Grocery Retailer.
International Hotel Chain:
Low Inventory: Since most of the business of a Hotel is in the form of renting rooms or conference centers, the inventory of this company will be low. Most of it will be in the form of complimentary toiletries, entertainment things, etc. -
High Net Plant & Equipment: Since this company is an international hotel chain, it will have large properties most probably in upscale locations around the world. Hence this figure will be high on the balance sheet. -
High L/T Debt (Non Current Assets): As the company has a high amount of plant & equipment, the company will mostly finance these assets with large amounts of long-term debt either in the form of loans or bonds. -
Zero Days of Receivables: For a hotel, almost all customers pay up as soon as they check out of the premises. Once again, this is done by either cash or credit card, neither of which requires a long period of time to clear. -
No Inventory Turnover: By looking at the inventory we described above, it is clear that the hotel doesn’t sell it to customers. Hence this category is meaningless.
Major Passenger Airline:
No Inventory: As most part of an airline’s assets are its planes and facilities (plant & equipment), the inventory figure will be approximately equal to zero. -
High Net Plant & Equipment: A major passenger airline will have a huge fleet of various kinds of aircraft. The cost of each aircraft goes into hundreds of millions of dollars....
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