Identify the Industry
• Industries in the case can be organized into five groups consisting of
A. Financial industry
High receivables (loans) and payables (deposits, other loans), little inventory
Commercial banking (2)
2 has the highest receivables and payables (both note payable and account payable). It has no raw materials, work in progress and finished goods, which are characteristics for a bank.
B. Retail industry
Lots of inventory, low gross profit percentage
Retail grocery stores(1)
1 has the lowest gross margin ratio, a high inventories, no work in progress. Therefore 1 has the attributes of Retail industry.
C. High Technology
High R&D
There are three companies which has high R&D expenditures. They are 7, 8, 6.
Computer software (8)
Software developments need spend much more expenditures on research and development. They require less raw materials and inventories. So 8 should be Computer software.
Pharmaceutical preparations (6)
Pharmaceutical preparations need intangible assets such as brand recognition and good will. 6 has a higher intangibles than 6. What’s more, 6’s coverage ratio is nearly 10 times higher than 7. As a result, 6 is the right one.
The left one is 7. So 7 is Semiconductor manufacturer.
Semiconductor manufacturer (7)
D. Service industry
Little inventory, high current receivables
IT service provider (5)
IT service provider provides service only, so it does not need inventories. It also have high current receivables. According to this, 5 should be the IT service provider.
Mobile phone service provider (9)
9 and 10 both have a low inventories. However, 10 has finished goods which should be 0 if 10 was Mobile phone service provider. Therefore 9 should be the right one.
E. Capital Intensive industry
Commercial airline (10)
Airline might be the most capital intensive. 10 and 6 have relatively higher shareholder equity than the rest of all. I think 10 is the Commercial airline because it has a higher capital surplus than 6 which is a
A. Financial industry
High receivables (loans) and payables (deposits, other loans), little inventory
Commercial banking (2)
2 has the highest receivables and payables (both note payable and account payable). It has no raw materials, work in progress and finished goods, which are characteristics for a bank.
B. Retail industry
Lots of inventory, low gross profit percentage
Retail grocery stores(1)
1 has the lowest gross margin ratio, a high inventories, no work in progress. Therefore 1 has the attributes of Retail industry.
C. High Technology
High R&D
There are three companies which has high R&D expenditures. They are 7, 8, 6.
Computer software (8)
Software developments need spend much more expenditures on research and development. They require less raw materials and inventories. So 8 should be Computer software.
Pharmaceutical preparations (6)
Pharmaceutical preparations need intangible assets such as brand recognition and good will. 6 has a higher intangibles than 6. What’s more, 6’s coverage ratio is nearly 10 times higher than 7. As a result, 6 is the right one.
The left one is 7. So 7 is Semiconductor manufacturer.
Semiconductor manufacturer (7)
D. Service industry
Little inventory, high current receivables
IT service provider (5)
IT service provider provides service only, so it does not need inventories. It also have high current receivables. According to this, 5 should be the IT service provider.
Mobile phone service provider (9)
9 and 10 both have a low inventories. However, 10 has finished goods which should be 0 if 10 was Mobile phone service provider. Therefore 9 should be the right one.
E. Capital Intensive industry
Commercial airline (10)
Airline might be the most capital intensive. 10 and 6 have relatively higher shareholder equity than the rest of all. I think 10 is the Commercial airline because it has a higher capital surplus than 6 which is a