Unidentified Case Studies

The goal of this assignment is to identify the industries of ten columns of financial data by comparing the financial ratios and financial information to industry norms. In the following paragraphs we will identify each column, providing the SIC code and industry name, the reasons upon which our match is based, and the sources we used to come to these conclusions.

Column A

We believe that column A is a company associated with the Malt Beverage industry (SIC Code 2082). Our conclusion is based on financial ratios found in Industry Norms and Key Business Ratios. Two main ratios which lead us to this conclusion are the Current Ratio (1.19 for the unidentified industry versus 1.4 for the industry average) and the Quick Ratio (.72 for the unidentified industry versus .8 for the industry average). We also found that the percentages for inventory (10.2% for Column A versus 11.7% for the industry), accounts receivables (9.9% for Column A versus 14.4% for the industry), accounts payable (7.9% for Column A versus 8.5% for the industry), and long-term debt (a combined 34.4% for Column A versus 30.5% for the industry) were within industry norms. We expected the Malt Beverage industry to have a rather low net profit margin, as this industry is more likely to make profit on volume rather than on per-item sales. The industry average net profit is 5.4% versus 4.7% for Column A. Fixed assets for Column A also fit with industry norms, Column A having 39% of its assets in property, plant and equipment versus 50.2% for the industry. We are very confident that based on the above information, Column A must be associated with the Malt Beverage industry.

Column B

We chose Scheduled Air Transportation (SIC 4512) as the industry for Column B because of the cost of goods sold being listed as "n.a." An airline does not sell goods, but sells services. We were also drawn in this direction based on the very high debt ratio (104.5%) and the negative equity, both of which seemed appropriate for an industry in trouble. Also, the property, plant and equipment percentage of 58.9% seems to align itself with the industry average of 47.7%. Ratios from Industry Norms and Key Business Ratios which confirm this assertion include the Current Ratio (.73 for Column B versus 1.1 for the industry), the Quick Ratio (.67 for Column B versus .5 for the industry), and the Inventory Turnover Ratio (43.5x for Column B versus 41x for the industry). Asset percentages which fit with the industry norm includes cash (14.5% for Column B versus 11.6% for the industry) and inventory (1.8% for Column B versus 1.7% for the industry). Notes Payable for Column B (1.6%) is an exact match to the industry average.

Column C

We came to the conclusion that Column C was most likely a company associated with the Retail Grocery Industry (SIC 5411) based on the Current Ratio found in Industry Norms and Key Business Ratios and IRS Corporate Financial Ratios. The industry average for the Current Ratio is 1.7. Column C's Current Ratio of 1.63 fits into the industry average. We were not convinced with the Quick Ratio (1.02 in Column C versus .5 for the industry) or the Inventory Turnover Ratio (5.3x in Column C versus 19.2 for the industry), but the cost of goods sold at 53.9% seemed logical when considering the products of a grocery store. Percentages in assets and liabilities from Column C which fit with the industry averages include inventory (15.3% for Column C versus 27.4% for the industry) and notes payable (1.6% for Column C versus 1.1% for the industry). The Debt Ratio is perhaps the strongest comparison, with 60.5% for Column C versus 54.6% for the industry.

Column D

We came to the conclusion that Column D was a company in the Athletic Shoe Manufacturing business (SIC 3949). The Current Ratio for Column D is 1.66 and the industry average is 2.1. The Quick Ratio for Column D (1.03) is in line with the industry average of 1.1, as is the Inventory Turnover Ratio (5.6x for Column D versus 5.2x for the industry). We figured the "Other Assets" category probably concerned design patents and found that the 17.2% in Column D fit well with the 13.5% industry average. We did not find that the other asset categories fell into line with the industry averages, but thought that the 14.4% in accounts receivables was close to the 21.8% for the industry average.

Column E

Column E seems well-aligned with the Laboratory Analytical Instrument Manufacturing Industry (SIC 3826, Analytical Instruments) based on the Current Ratio (2.0 for Column E versus 1.7 for the industry), the Quick Ratio (1.94 for Column E versus 1.5 for the industry), and the Total Asset Turnover (.66x for Column E versus .96x for the industry). Assets for Column E seem to closely resemble those of the industry. Cash at 14.5% for Column E is close to the 19.1% industry average, and other assets of 11.3% in column E is close to the 18.1% industry average. Liabilities do not seem to match industry norms as closely as we would like, but the industry as a whole appears to be losing money. The Debt Ratio for Column E (94.8%) seems to reflect this industry trend. We were very concerned about the DSO of 282.6 days in Column E. This number did not come close to any of the industries chosen for this assignment and thought that this company may have a problem collecting its debt, especially with their rather high 43% receivables amount.

Column F

We chose Column F as a company associated with the Chemical Manufacturing industry (SIC 2819). The one asset which confirmed this was the 68.1% under "Other Assets," which we concluded had to do with the high amount of patents a company in this industry would have. Using the industry-average ratios found in Industry Norms and Key Business Ratios, we were convinced of our decision with the net profit margin on sales (1.8% in Column F versus 1.7 for the industry).

Column G

The three indications of "n.a." in Column G lead us to believe that this company is associated with the Real Estate Investment Trust industry (SIC 6798). A real estate investment company would have no inventory, no cost of goods sold, and no days outstanding for sales. We felt that the 87.3% for property, plant and equipment was so high in Column G because of the amount of property that would be owned by such a company. Our research indicated that this industry would