The Financial Detective

Topics: Financial ratios, Balance sheet, Financial ratio Pages: 14 (5263 words) Published: November 6, 2009
From the market data, the beta of company B is slightly higher than company A. Company A appears to be less risky than company B. It is likely because company A is a diversified health-products company. Since it manufactures various products and involves in different segments, risk could be reduced. The liquidity ratios show that both companies A and B might not face liquidity problem. Current ratio and quick ratio of company A are higher than company B. Company A holds more current asset in term of cash and short term investments. These cash and short term investments can be used to invest in the future. In terms of asset management, company A has a higher inventory turnover than company B. This is probably due to the mass-market-oriented strategy adopted by company A. In this strategy, activities of buying and selling of inventories are done frequently. The more frequent stocks are being bought and sold, the higher the inventory turnover. Moreover, company A focuses on brand development and management. It is believed that another reason for the higher inventory turnover is likely due to the efficient stock management practiced by company A. Debt management ratios reveal that company B uses more debt in financing than company A. It is due to company B needs more capital for the research and development budget. From the view point of DuPont analysis, asset turnover of company B is lower than company A. According to the company description, company B has divested several of its business. Thus, its total assets decreased and use lesser assets to generate sales. B)Beer

According to the ratios given, it shows that Company C exposed in lower risk than Company D does which shown in the beta level, this might due to the seasonal production of Company D which heavily rely on the sales volume during that particular seasonal period. Besides that, from the asset management, apparently there’s a much lower result in fixed asset turnover for Company C. This probably due to the company has involved in several different sector businesses which consists of loads of fixed assets volume. Whereas, company D might merely focusing smaller production which requires lesser fixed assets in the production process compared with the former company. From the liquidity management ratios given, the Company D has achieved and places itself in a safer position in paying the current liabilities. It was led by a high level of cash and short term investments kept by the company. This is maybe due to the company’s customers demanding pattern as it requires keeping quite a certain amount of inventories and cash to meet the customers’ needs. Meanwhile, for Company D, it might because of the company’s entire year sales can be pre-determined consistently by the company. From the Dupont analysis, Company D has a much lower Return On Equity (ROE) result than Company C because of the lower net income generated and a greater volume of SG&A expenses. This is maybe due to the smaller production volume at the particular season, eventually cannot achieve and enjoy a lower cost per unit of goods like Company C does. C)Computers

From the market data shown, it is believed that Company F is in a lower risk bracket than Company E. The lower debt incurred reduces the risk of Company F going bankruptcy. The higher Price/Earnings (P/E) ratio conducted by Company F indicates investor’s higher expectations and confidence towards the company’s future earnings. The strength in liquidity management enhances Company F’s position. The higher assets proportional to debts held by Company F compliments its liquidity position. Company E’s business nature which focuses more on online-retail, as compared to Company F would definitely hold a lower net fixed assets, just because it may foregoes the conduct of setting up retail stores. Asset management indicates Company E’s lower...
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