The Financial Detective, 2005
If two companies sell similar products, that does not mean they have the same financial data. Every company has different ways to increase their profit. The following case gives a brief description of two companies for each category. Each company may have different objectives, ideas, strategies and ratios. The incentive of this case is to figure out which financial data belongs to the two companies in each category, and find out what the numbers given in the financial statement indicate about the companies.
For the Health Products industry company A would be the diversified health-products company. Over-the-counter medication is always in demand 365 days a year, and that means that it’s always going to be sold. Based on the financial data the company with the highest inventory turnover was company A (3.08). Because company A is more diverse they would have a larger inventory rate. The cost of goods sold for company A (23.9) is higher because rather than company B, there is much more costs to Company A. They have costs such as factory machines, factory workers, etc. Company B is the world’s largest pharmaceutical company. Company B has higher intangible assets (46.1) Company B being the world’s largest pharmaceutical company means it has brand recognition, leading to greater intangible assets. The current ratio and quick ratio of company B(1.96,1.42) are lower than company A (1.50,1.13) because it is harder for it to turn its liquidity into cash, because of the fact that it’s divested in some non-pharmaceutical businesses and because it takes longer to process the deals with other firms. The long term debt for company B (5.9) is higher than that of company A (4.8), because of their research and development.
Company C is the national brewer of mass-market consumer beers. The company invests in several other beer related businesses, which is why their investments is at 2.9 and company D is at 0. Company C has a higher inventory turnover because their profit is not driven by having higher prices like that of company D. The inventory is going to be sold much quicker because the beer is affordable for everyone. The net profit margin is greater for company C because they operate an extensive network of breweries and distribution systems. The fact that Company C owns other beer related businesses means that their long term debt would be high (51.2) because they need money to start up their companies.
Company D is the seasonal and year-round beer company. The fact that company D outsources most of its brewing activity, means they are trying to save on production costs, leading the company having lower cost of goods sold (38.5) than company C (53.9). Because company D is selling its product for higher prices that means their gross profit would be higher. than company C, due to the fact that the company would be making more money per unit sold. They are making more money per unit sold due to an increase in the price of their product. Company D has a net profit margin of (5.76) as compared to (15) for company C.
Company E focuses on mail-order sales of built-to-order PCs. They take orders and communicate with their customers from their website. Since they operate from their website, they should have less operating income which can be shown in the financial data; Company E has 9.7 SG&A while Company F has 23.1. In order to make built-to-order PCs they need a large supply of parts which we can see from their large number of inventories, which is 2 compared to the other company which is 1.3. In order to have a large number of inventories they need parts from suppliers which can also be seen in their large number in liabilities (60.9) compared to...
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