The Financial Detective

Topics: Financial ratios, Balance sheet, Financial ratio Pages: 6 (2079 words) Published: April 1, 2010
We believe that Company I represents the Smaller Producer of printing papers and Company J represents the World’s Largest Market of Paper. Being the world’s largest paper maker indicates having a larger inventory, more current assets (esp. since it owns timberland and several facilities), and higher cost of goods sold than other paper makers. The inventory for Company J (10.9) is larger than the inventory for Company I (8.8); the current assets for Company J (32.6) are higher than that for Company I (27.2); and the cost of goods sold for Company J (82.9) is higher than that for Company I (75.3). We also expect that, as the world’s largest paper maker, their products will move on the marketplace better than a smaller producer of paper. Thus, Inventory Turnover should also be higher. Here, Company J (7.11) has a larger inventory turnover than Company I (6.75). Receivables turnover, which tells how many times accounts receivables have been collected in a given period, should be higher for the world’s largest paper company than it would be for a small producer of specialty paper. Company J’s (11.64) receivables turnover is higher than that for Company I (8.68). The facts also state that the world’s largest maker of paper has been rationalizing capacity by closing inefficient mills, implementing cost-containment initiatives, and selling nonessential assets. This implies that the company would have a larger asset turnover ratio than other paper companies. Company J (1.20) has a larger asset turnover ratio than Company I (.73). It is probable that since the small producer of paper has most of its product marketed under branded labels, that it would have a higher value of Intangibles, such as trademarks, than the larger company. Here, Company I (14.6) has an intangibles value that is significantly higher than Company J’s (1.9) intangible value. Based on the above analysis, we believe that Company I is the small producer of printing, writing and technical specialty papers, and that Company J is the world’s largest maker of paper, paperboard, and packaging.

From the financial ratios and the notes attached, it is apparent that Company N is the rapidly growing chain of upscale discount stores while Company M is the firm known for its low prices, breadth of merchandise and volume oriented strategy. ASSETS

Receivables: Company M has lower receivables of 1.4 compared to company N with 17.0 and this reason is to the fact that company N offers credit to qualified customer as a means of marketing strategy. Inventories: Company M has higher inventories of 24.5 compared to company N with 16.7 and this reason it attributed to the strategy company M adopts. Company M has a wide breadth of merchandise and volume oriented strategy amount to this high inventories on the balance sheet. Intangibles: There is a 93.33% difference compared to company N with low intangibles. This reason is due to the operational strategy company M adopts. Company M possesses either or all of these following; Goodwill, Partnership rights or Patent rights. Analyzing the information provided accurately, one or more of the of the aforementioned rights exit because for company M to sell some products at very low prices, there must be an existing kind of memorandum of understanding between the producers and company M. LIABILITIES & EQUITY

Deferred Taxes: Company M has deferred Taxes of 3.0 with company N having O. From the information of company M provided, it is possible that the deferred tax is an evidence of capital gains that might have risen from the proceeds of divestments of several non-discount department-store businesses. Debt in Current Liabilities: Company M is 75.4% high than company N’s Debt Current Liabilities. This can be as a result of the lease contract entered by company M. Depending on the lease agreement; Company M might have an overdue payment for the lease for a period within a year. INCOME STATEMENT

Depreciation: It...
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