ACCOUNTING FOR DECISION MAKING

GSM 5301
IDENTIFY THE INDUSTRIES
-FINANCIAL STATEMENT ANALYSIS-
DR. AHMED RAZMAN
GROUP 5
GROUP MEMBERS:
1. NOOR AHMED BROHI
. HAZEEM AZAM DAR
3. NINA ROSELI
!. "ANESSA CHIN
5. OR#IKA PASCHAL
INTRODUCTION
Common size financial statements are expressed in terms of percentage, converted from the
financial statements expressed in dollars and also some selected ratios. There are two was of
presenting them! verticall or horizontall. "#ch financial statements can $e expressed
individ#all, e.g. common size $alance sheet, common size income statement, common size
owner%s e&#it and common size cash flow statement. 'hen analsing s#ch statements, #sers are
a$le to draw an overview of companies on how well the compan is doing, compared to plaers
of its own ind#stries or even other ind#stries. Users are also a$le to zoom into the details $
loo(ing at the percentage of each item, to f#rther )#stif $efore an concl#sions are made.
*RO+,-. "T/T-.-NT
Common size financial statements are fre&#entl #sed $ analst to trac( performance over
several ears, or to compare different companies and0or ind#stries at a point of time. Common
size $alance sheets of 12 companies are presented in this report involving companies from ma)or
$#siness ind#stries. Using the ratios, common size statements and other analtical tools, the data
needs to $e analsed to identif all the companies presented in the statement.

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+ased on the case st#d, 12 companies were chosen $eca#se the consist of primaril one ma)or
$#siness segment and the relationship $etween $alance sheet items, profit and operations are
fairl tpical of these ind#stries. The 12 companies are!
1. Regional $an(
2. Temporar office personnel agenc
4. 5or6profit hospital chain
7. 'areho#se cl#$
8. .a)or passenger airline
9. .a)or regional #tilit compan
:. .an#fact#rer of oral, personal and ho#sehold care prod#cts
;. <otel chain
=. Upscale department store chain
1>. Disco#nt department store chain
11. International oil compan
12. Defense contractor
The first step is to categorize the companies into respecta$le ind#stries. There were 8 ind#stries
that have $een identified, which are!
1. "ervice Ind#str
2. Retail Ind#str
4. .an#fact#ring Ind#str
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7. Oil and ?as Ind#str
8. *ower and Utilit Ind#str
The ta$le $elow shows the categorization of companies and ind#stries.
SER"ICE
INDUSTRY
RETAIL
INDUSTRY
MANUFACTURING
INDUSTRY
OIL AND GAS
INDUSTRY
PO$ER AND
UTILITY
INDUSTRY
R%&'()*+ ,*)- 'areho#se cl#$ .an#fact#rer of oral,
personal, and
ho#sehold care
International oil
compan
.a)or regional
#tilit compan
T%./(0*01
(22'3%
/%04())%+
*&%)31
Upscale
department store
chain
Defense contractor
5or6profit
hospital chain
Disco#nt
department store
chain
M*5(0
/*44%)&%0
A'0+')%
H(6%+ 37*')
T<- C</R/CT-RI"TIC" O5
INDU"TRI-"
S%08'3% I)9:4601
Companies0 $#siness that does wor( for c#stomer@sA and occasionall provide goods, $#t not
involved in man#fact#ring. ?enerall, service ind#stries does not stoc( inventor other than for
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their office0 $#siness s#pplies and tools. Th#s, the first wa of determining a service compan is
$ loo(ing at its inventor. The wo#ld either have ver little inventor or no inventor at all.
/nother possi$le wa of determining the service ind#str is $ loo(ing at the #nearned reven#e
val#e. This is $eca#se as a service compan, #pfront paments or $oo(ing will $e made in order
to get the service.
R%6*'+ I)9:4601
+#sinesses that p#rchase goods or prod#cts in large &#antities from man#fact#rers directl or
thro#gh a wholesale, and then sells smaller &#antities to the cons#mer. "o, logicall the
inventor stoc( and inventor t#rn sho#ld $e loo(ed at in determining whether it is a retail
compan or not.
M*):2*36:0')& I)9:4601
.an#fact#ring ind#str refers to an $#siness that transforms raw materials into finished or
semi6finished goods #sing machines, tools and la$or. .an#fact#ring sectors incl#de prod#ction
of food, chemicals, textiles, machines and e&#ipment. 5rom the definition itself it is clear that the
plant, propert and e&#ipment val#e @**-A of a man#fact#ring compan wo#ld $e tremendo#sl
high. The val#e of inventor and inventor t#rn can also $e considered in determining the
man#fact#ring compan.
O'+ *)9 G*4 I)9:4601
There are two ma)or sectors within the oil and gas ind#str, #pstream and downstream. Upstream
is the process of extracting the oil and refining it, while downstream is the commercial side of
the $#siness s#ch as gas station or the deliver of oil for heat.
P(;%0 *)9 U6'+'61 I)9:4601
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Companies that that engages in the generation, transmission, and distri$#tion of electricit for
sale generall in a reg#lated mar(et. The power and #tilit ind#str is a ma)or provider
of energ in most co#ntries. It is indispensa$le to factories, commercial esta$lishments, homes,
and even most recreational facilities. ,ac( of electricit ca#ses not onl inconvenience, $#t also
economic loss d#e to red#ced ind#strial prod#ction. -lectricit mar(ets are also considered
electric #tilities66these entities $# and sell electricit, acting as $ro(ers, $#t #s#all do not own
or operate generation, transmission, or distri$#tion facilities. Utilities are reg#lated $ local and
national a#thorities. Companies in this ind#str will have a high **- val#e $eca#se the wo#ld
need a $ig plant in order to carr o#t the generation, transmission and distri$#tion process.
ID-NTI5IC/TION
Compan /
M*5(0 /*44%)&%0 *'0+')% @"ervice Ind#strA
'e came to that concl#sion for two reasonsB 1A /irlines will have high #nearned reven#es. This
is $eca#se airline services #s#all involves advanced $oo(ing and paing witho#t a proper
transaction or service $eing done. Once the service is done, onl then the can recognize the
reven#e as earned. 2A /irlines *ropert, *lant and -&#ipment acco#nt is high considering the fact
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that airplanes are expensive and the are considered as **-.
Compan +
U/43*+% D%/*06.%)6 46(0% @ Retail Ind#strA
'e came to this concl#sion $eca#se of two reasons. 1A Department stores alwas have high
inventor $eca#se the alwas need things at hand to sell them immediatel. The need high
goodwill $eca#se these stores are #s#sall ver expensive and the can afford to $e expensive
$eca#se the are ver pop#lar and hence have high goodwill.
Compan C
M*):2*36:0%0 (2 (0*+< /%04()*+ *)9 7(:4%7(+9 3*0% /0(9:364 @.an#fact#ring Ind#strA
'e came to this concl#sion for three reasons. 1A the have ver high t#rnover. 2A the have low
inventor $eca#se the sell prod#cts ver &#ic(l and this is wh their inventor t#rnover is
high.4A the have h#ge **- ca#se the need machiner and factor to prod#ce their prod#cts.
Compan D
D%2%)4% C()60*36(0 @ .an#fact#ring Ind#strA
'e came to this concl#sion $eca#se of their ver high inventor as the have to sell a lot of
prod#cts at the same time to governments and other sec#rit organizations.
Compan -
R%&'()*+ B*)- @"ervice Ind#strA
+an(s need to have a h#ge cash C $an( $alance as the are operating with mone as their
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medi#m. /s per the exhi$it, their cash C $an( portion is the $iggest o#t of all and s#pported $
the h#ge receiva$les @d#e to their deposit0investments with other $an(sA and paa$les @people,
companies and other $an(s deposits0investmentsA. ,ow stoc(holders e&#it is also a point
$eca#se $an(s are highl leveraged where the $an(s are getting a h#ge portion of their financing
from others.
Compan 5
$*0%7(:4% 3+:, @ Retail Ind#strA
'e came to this concl#sion $eca#se of two reasons. 1A The have the highest inventor stoc( of
all which ma(es sense as these shops need man prod#cts in high &#antit read to $e sold
immediatel. 2A The have high **- which co#ld $e $eca#se of the transportaion vehicles and
the storerooms the have p#rchased.
Compan ?
F(0- P0(2'6 H(4/'6*+ C7*') @"ervive Ind#strA
That is so $eca#se of their ver high **- as the need a lot of space to (eep patients, medicine,
ho#se emergenc staff etc.
Compan <
I)6%0)*6'()*+ O'+ C(./*)1 @ Oil and ?as Ind#strA
'e came to this concl#sion $eca#se of their ver high goodwill. The are international compan
and the wor( in a ver competitive $#siness li(e oil ind#str at that, the need to have a ver
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high goodwill from c#stomers to s#cceed.
Compan I
M*5(0 R%&'()*+ U6'+'61 C(./*)1 @*ower and Utilit Ind#strA
'e came to this concl#sion $eca#se of their low inventor and high ppe. /s the are ma)or
#tilit compan, the will have high **- from which the will drive #tilit to serve c#stomers.
The also have low inventor which ma(es sense as the provide services more that prod#cts to
c#stomers.
Compan D
H(6%+ C7*') @"ervice Ind#strA
'e came to this concl#sion for two reasons. 1A <otel chains have high **- $eca#se the need
man large properties to occ#p c#stomers and provide them services. 2AThe also need high
goodwill to $e s#ccessf#l as it is goodwill that determines their c#stomer portfolio. The higher
their goodwill, the higher their standard will $e and hence the &#alit of c#stomer will $e high.
Compan E
T%./(0*01 (22'3% P%04())%+ A&%)31 @"ervice Ind#strA
'e came to this concl#sion for two reasons. The have low **- as the have o##tso#rce most
of their f#nctions. The have no inventor which s#pports o#r idea that it is a service compan.
Compan ,
D'43(:)6 D%/*06.%)6 S6(0% C7*') @ Retail Ind#strA
'e came to this concl#sion for two reasons. 1AThe have ver high inventor. 2AThe have high
t#rnover $eca#se the sell goods as soon as the p#rchase them. The dont (eep stoc( for a long
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time.
Other than analsing the financial statement given, another wa of determining the compan is
$ comparing the ann#al report of similar companies in that partic#lar ind#str. 5or example!
T7% F')*)3'*+ S6*6%.%)6 (2 M*+*14'*) A'0+')%4 =MAS>
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T7% F')*)3'*+ S6*6%.%)6 (2 P%02'3'%)6 I)3< =H(4/'6*+><
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CONC,U"ION
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The 12 companies has $een identified on the $asis of financial information provided in the exhi$it 1464
and gro#ped into five ind#stries. It is concl#ded that witho#t (nowing the significant of financial ratios
and common6size financial analsis information it is diffic#lt to identif the ind#stries of companies.
5inancial analsis information helped #s in (nowing the exact ind#stries of compan in which it is
operating. /s we see a$ove, on the $asis of Inventor t#rnover ratio we have classified the man#fact#ring
compan $eca#se man#fact#ring companies have high inventor t#rnover ratio $eca#se as the prod#ce
goods the sell it. "o in that wa other ratios also helped in classification of different companies in
gro#ps.
It shows that financial analsis tools are ver important in (nowing the ind#str of companies and also
(nowing the financial so#ndness of companies.
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