The Case of Unidentified Ratio

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HARVARDI

BUSINESSISCHOOL
9 -8 1 2 -1 2 9
FEBRUARY 17, 2012

JOSH LERNER

The Case of the Unidentified Ratios
Phil Clark pounded his desk in despair. It was 2 AM on February 15, 2012, at the offices of Golden Sacks, a major investment bank. Clark, a recent graduate of Harvard Business School, had been working for the past nine hours on a presentation that his boss’ boss, the legendary investment banker Ebenezer Sikes, was to make over breakfast the next morning to a major sovereign wealth fund. Sikes had asked him—via an e-mail which arrived moments before Clark was to head out to take his fiancé to dinner—to prepare a presentation comparing the financial statements and selected ratios of 10 firms, to illustrate the relationships between balance sheet items, profit, and operations. Clark had chosen from the latest annual financials for several firms. The companies chosen were:           A warehouse shopping club A supermarket chain A hotel chain A temp agency A pharmaceutical manufacturer A software firm A major investment bank A manufacture of electronic communications equipment An express delivery firm A consumer products company

All had gone well until a few minutes ago, when an e-mail arrived, seemingly from his fiancé, entitled “I LUV U.” When he had opened the attachment, however, it turned out to be a computer virus, which wiped out the PowerPoint file he was working on. It was too late to repeat the laborious downloads that had occupied much of his evening. Rather, working from his surviving notes (see Exhibit 1), he had to somehow figure out which financial statements went with which firm. The one certainty was that if the presentation were not ready by 6 AM, it would be ugly: Sikes—who barely knew how to turn on a computer himself--would have little sympathy for his e-mail mishap.

________________________________________________________________________________________________________________ Professor Josh Lerner prepared this case. The company mentioned in this case is fictional. The format of this case is based on “Drivers of Industry Financial Structure,” by Dwight B. Crane and Indra Reinbergs, HBS No. 201-039 and “Identify the Industries,” William J. Bruns, Jr., Sharon M. McKinnon, and Jeremy Cott, HBS No. 198-017. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

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Exhibit 1
A

Common-Sized Financial Statements

ASSETS Cash & Equivalents Net Receivables Inventories Prepaid Expenses Other Current Assets 30.9% 26.8% 39.2% 0.0% 0.0% ---------96.9% 5.1% 3.7% 17.3% 1.8% ---------27.9% 8.2% 5.9% 8.2% 1.3% ---------23.6% 8.5% 16.7% 1.6% 3.4% ---------30.3% 5.0% 14.4% 10.9% 0.0% 3.0% ---------33.4% 14.4% 7.7% 4.3% 0.0% 4.6% ---------31.0% 28.7% 30.4% 11.8% 0.0% ---------70.9% 21.0% 3.6% 24.8% 0.0% 1.8% ---------51.2%

B
6.0% 59.3% 0.0% 4.8% ---------70.1%

C

D

E

F

G

H

I

J
27.8% 4.8% 0.0% 11.5% ---------44.1%

Total Current Assets Gross Plant, Property & Equip Accumulated Depreciation 2.1% 0.9% ---------1.2% 0.2% 0.6% 0.0% 1.1% ---------100.0% 133.6% 68.1% ---------65.4% 1.2% 0.0% 2.8% 0.0% 2.6% ---------100.0% 61.1% 27.1% ---------34.0% 8.7% 21.1% 0.9% 11.7% ---------100.0% 123.0% 66.3% ---------56.8% 0.0% 0.0% 8.6% 0.0% 4.4% ---------100.0% 64.1% 31.0% ---------33.1% 0.2% 2.0% 28.6% 0.0% 2.8% ---------100.0% 16.6% 6.8% ---------9.8% 5.0% 52.1% 0.0% 2.1% ---------100.0% ---------3.8% 2.1% 2.8% 14.5% 1.3%...
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