Essay

The Case of the Unidentified Industries-2006

Background and Analysis:

This case study involves matching companies with different business models with unidentified financial profiles. Using Inventory percentage and Inventory turnover from the line items provided on the balance sheet allowed distinguishing between firms that were either service oriented or non-service oriented firms. From this, the four non-inventory carrying firms were hypothesized to be the Advertising Agency, Airline, Commercial Bank, and Health

From this we can make the following assumptions about the identity of the companies:

Advertising Agency is column letter E as this firm has no inventory, NA for inventory turnover, and low plant and equipment. Another indicator is the receivables collection period of 201 days, which could be typical of an advertising firm due to project length.

Airline is column letter M as this firm has no inventory, NA for inventory turnover, has a 66% plant and equipment asset value. Also being shown is a 2% accounts receivable which means tickets are usually paid in full before a passenger can fly, while presenting 19% in current liabilities, which is the highest out of the no inventory firm, which could mean the airline is paying for gas on short term credit and with a current ratio of .94 seems to possibly be slow in paying the debt as well. Profit to revenue is high as well at .204.

Health Maintenance Organization is column letter G as no inventory and NA for inventory turnover. Revenue to total assets are high per total assets are 2.079, longer receivables collections at 89 days as services are rendered first and then insurance payment follows days to months later.

Commercial Bank is column letter N as this firm has no inventory, NA on the inventory turnover, which also has a 73% notes payable (bank notes, mortgages), along with a 4,071 receivables in collection days.

Moving forward, we need to make some assumptions about the remaining companies...