The Financial Detective 2005

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Part 1 : Examine and analyze the financial ratios for eight pairs of unidentified companies and match the description of the company with the financial profile derived from the financial ratios.

Beer

Company D has higher current ratio and quick ratio which is higher 2.43x and 2.3x respectively. This was because Company D had higher cash and short term investment which was 55.6% while Company C only has 1.4%. It proves that Company D is financially conservative and it matches with the second described company.

Beside that, Company D keep more stock which is 11.9% compare with Company C 4.3% because their company produces seasonal and year round beers with smaller production volume and their beers’ demand is not whole year long. Hence slower sales in Company D will have lower inventory turnover with higher inventory.

There was no dividend payout for Company D whereas the Company C they have high dividend payout ratio due to stable product sales which not affected by the seasonal event. The goodwill for Company C is higher than Company D of about 6.1%, this may be due to the Company C is a national brewer of mass market consumer beers sold under a variety of brand names, so the Company C can match with the first described company.

The fixed asset turnover for Company C and Company D is 1.72x and 12.67x respectively. This is because Company C has many fixed asset, and own a number of beer related business and several major theme park where the total fixed asset recorded 51.2% of its total assets.

Company C has high total debt/total asset ratio and long term debt / shareholders’ which were 51.19% and 310.28% respectively, while Company D has zero for both ratios. This show company D was using very conservative strategy which was low debt and high reservation strategy to manage the company and the Company C was using very aggressive approach in the risk management to earn more profit.

In conclusion, the company fit the first set of description which is Company C is Anheuser-Busch Companies and the company match the second set of description which is Company D is Boston Beer Company.

Hardware and Tools

Receivable turnover ratio of company K and L were 5.82x and 4.42x respectively. The high ratio of K implies that its extension of credit and collection of accounts receivable is efficient, which could be due to low receivable the K had whereas L’s ratio was low due to the high receivable it had, which might be the company policy to provide financing for customer large purchase. As such it proves that K met the description of first company and L met the description of the second company in the industry.

A global manufacturer will need more financing on its worldwide business where they need to build own factory, warehouse and sell office all around the world. Such a huge expansion will

require huge external financing which is the debt financing. Hence Company K as the global manufacturer has high debt ratio compare with Company L.

In the second described company, it stated that the company produces high-quality precision tools and diagnostics-equipment system for professional users which had less competition had lead this company to generate higher gross profit margin as the selling price of the products would be much higher than the cost of goods sold. Thus the second described company met with the Company L which had higher gross profit margin.

Dividend payout ratio of Company K and Company L were 15.30% and 70.62% respectively. Higher margin and a stable niche market of Company L will help them to distribute more dividends to their shareholder. While mass market oriented and expanding globally will make Company K to reserve more earning to support their operations.

As a conclusion, the company fit the first set description which is company K is Black and Decker Corporation and the second set of description which is company L is Snap- On.

Health Products

Cash and short-term...
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