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. StepIndustryCommon CharacteristicsCompanies
1ServiceAlmost no inventories
Inventory turnover negligibleMajor passenger airline Regional bank
Temporary office personnel agency
For-profit hospital chain
2MerchandizingHigh and similar inventory level
Leverage ratio is nearly identicalUpscale department store chain Warehouse club
Discount department store chain
3ManufacturingHigh plant & equipmentManufacturer of oral, personal, and household care products Defense contractor
4OtherMajor 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
AirlineHigh 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
BankHigh 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 KTemporary Office Personnel
AgencyHigh receivables (55.4%): Often get...