Unidentified Industries

This case is an exercise in understanding company financials. There are many criteria to be understood when matching a type of company to the correct financial report. The first approach was to pull out the service companies. They are determined by having no inventory. Then, inventory turnover was reviewed. It could be expected that chain stores, restaurants and grocery stores would have a fairly high turnover. Another characteristic that was assessed was the accounts receivable and collection periods. It was determined that wholesale companies would have a higher collection period than retailers.

The first of the service industry matched was the advertising agency with Company E. This was recognized for reasons beyond zero inventories. Because advertising companies usually get paid when the project is complete, they have higher collection times. This type of company also has a higher percent of other assets because this is the category where commissions fall. Another characteristic matching these together is that the payables and receivables are very close, 39 to 37 respectively. This would be likely for an advertising agency as it would be making purchases on the customer’s behalf.

The HMO company fits with Company G. Again, there is no inventory. They also have low plant and equipment. They really only need some office space. Because they rely heavily on insurance payments, they have a high collection time. Their accounts receivable are large because they charge on the day of service. This type of company would also have a high revenue per assets ratio.

UNIDENTIFIED INDUSTRIES 3

The airline is determined to go with Company M because no inventory and the large amount of plant and equipment. Of the companies with no inventory, this makes sense to be the airline.

The commercial bank would then go with Company N. It is one of the companies that had no inventory, and because of the very high accounts receivable and the longest of the receivable collection period, it was determined to be the commercial bank. The fact that the notes payable was the biggest part of liabilities helps to support this conclusion.

Company A is the online bookstore. This was selected because of its high inventory turnover. Also, it has high cash and long term debt while keeping a relatively low inventory. This would all support an online company such as a bookstore

The bookstore chain is a match with Company B. This was established by a fairly low inventory turnover and a high inventory. This company also has low profit revenue which helps support the findings.

Company C is then matched