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BRIEF OF THE CASE

The financial statements of no two companies are alike. External factors
that affect such differences are the nature of the industry in which the
company belongs, and the financial norms and standards that govern in
each industry. In addition, the internal factors are also considered such
as the managements philosophy and operating style and its attitude
towards achieving certain goals. Moreover, business strategies are also a
key factor in analyzing such financial, as well as non-financial
differences between companies. Lastly, the social perspective should not
be taken for granted. The presence of good customer relations and a
sense of social responsibility add up in building company goodwill
which will in turn contribute to the operations of the entity as a whole.









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PROBLEM AREA

Given the common sized financial statements of each company in each
industry, the problem is to match the financial data with the company
descriptions. Exhibit 1 shows the financial statements, as well as the
financial ratio analysis of each company.










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ANALYSIS OF THE CASE
A. Health Products

Company A is the manufacturer of a broad line of name-
brand toiletries, non-prescription drugs and consumer and
baby-care products primarily because of a larger market,
which comprises of 165 decentralized subsidiaries; there is a
presence of a higher gross margin which accounts for 63.1%
of the total revenue.

Company B is the manufacturer of pharmaceuticals and a
variety of low-margin hospital supplies which were
marketed primarily through direct sales to doctors and
hospitals because of the presence of a lower gross margin of
36.0%. In addition, its other assets comprise a large
percentage of its total assets (40.6%) , which can attributed
to the goodwill stemming from acquiring a large hospital
supply company.
B. household appliances

Company C is the marketer of high quality washers, dryers,
dishwashers and refrigerators under its own name, primarily
because of a presence of lower cost of goods sold (72.8%) which
infers that manufacturing and selling under one brand name
entails a lower cost. In addition, its sales to assets ratio is much
higher (223.0%) which says that they are much concentrated in
utilizing their assets to generate more sales.

Company D is the marketer of the same products, but under 3
different brand names. The presence of a higher cost of goods

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sold (79.3%) infer that manufacturing and selling under different
brand names would require higher cost.

C. Computers

Company E is the manufacturer of large mainframe computers
which also provides financial and insurance services. Receivables
comprise 18.7 percent of total assets which is significant in
financing type of business. In addition, when a company offers
financial services, it generates other income in the form of interest,
which can be seen in their income statement (2.7%).

Company F is the manufacturer of supercomputer systems for
scientific applications. Its output may be small, but its price tag is
the highest in the industry, which is why they have a lower cost of
goods sold (35.7%) due to a small number of units produced, but a
higher gross margin (64.3%) because of higher selling prices. In
addition, since the computers were used for physical research, the
company incurs research and development expense (15.8%).

D. Retailing

Company G is the firm that operates discount department store
and wholesale clubs. Its inventory is large (51.7%) which is
typical for a wholesaler. In addition, the presence of a nominal
amount of receivable in its assets (1.9%), a very quick
receivable turnover (166.37) and a very short days receivable
outstanding (2 days) reflect that the company is selling largely
on cash.

Company H is the firm that operates a credit-based department
store. Its receivable comprise 34.7% of its total assets. In

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addition, the presence of a very slow receivable turnover (1.86)
and a long days receivable outstanding (196 days) reflect that
the company is relying largely on credit sales.

E. Electronics

Company I is the firm that produces semi-conductors, with
the defense industry as its primary market and specializes on
small desktop and hand-held computing equipment.
Compared with Company J, its total current assets is only
50.9% as against 60.2% of Company K which represents
that it is less financially conservative.

Company J is the financially-conservative firm that produces
semi-conductors, which specializes on radio and television
equipment. Its total current assets are 60.2%, 15.6 % of
which is on cash & equivalents. This means that the
company is financially conservative. Aside from
semiconductor manufacturing, it is also involved in
manufacturing of television and radio equipment, which will
explain the other income of 3.9%.

F. Hotels

Company K is the firm that operated a worldwide chain of
high-quality hotels and motels in addition to a smaller line
of casinos. In contrast with Company L, the long-term debt
is much lower (21.6%) which can be inferred that it
personally finances its operations and does not rely too
much on debt financing, or those that are financed by
creditors.


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Company L is the largest food contractor in the country. Its
financing is through off-balance sheet limited partnerships.
This can be proven by the percentage of long-term debt to its
total assets (46.5%). It means that hotel operations rely too
much on the finances provided by creditors on a long-term
basis.

G. Newspapers
Company M is the newspaper company that owns a number
of small newspapers throughout the Midwest. Broadcasting,
which is its secondary line of business accounts for the total
other income of 11.8%. In addition, the presence of a higher
other assets (61.7&) results from the goodwill stemming
from acquisitions.
Company N is the large flagship newspaper that sells around
the country and around the world. As compared to Company
M, its other assets is lower (25.2%), but since it operates
worldwide, its assets should comprise mostly of property,
plant and equipment which corresponds to Company Ns net
PPE of 56.2%.

H. Transportation
Company O is the large national trucking and freight
forwarding company. Since this is a service type of business,
it does not incur cost of goods sold, which can be clearly
seen in its income statement. Majority of its expenses are
operating, which can be inferred as the cost of service
which is typical for a freight-forwarding company.

Company P is the railroad company. 20% of revenues was
said to be derived from real estate business which will
reflect on the companys receivables which comprises

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18.7% of the total assets. Its sales to assets ratio (191%)
reflects that it has diverse and high selling products like real
estate.

















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SOLUTIONS
A. Health Products
Company A should continue to penetrate its market in order to
sustain the margin percentage. However, cost- benefit
considerations should also be considered such that if maintaining
its market would entail more cost and will provide less benefits, it
would be advisable to reduce the number of its subsidiaries.

Company B should expand its market. It can be achieved by
having advertising projects aimed to mass market their products in
an effort to attract more consumers and generate larger revenue.

B. Household Appliances
Company C should maintain its strategy to operate under a single
brand name. In addition, if the companys sales to assets ratio can
still be improved, much better.

Company D, since selling under 3 different brand names entail
more cost, they should make an effort to reduce brand names.
However, qualitative factors should also be considered such as the
market demand for that particular brand, its impact on consumers
and its contribution to the companys total income.





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C.Computers
Company E, which also engages in financial and insurance
services, should take a closer look and emphasize on credit
management; that is, efficient management of receivables, credit
granting, and taking precautions with regards to uncollectible
accounts. In addition, it should generate larger income in the form
of interest.

Company F should provide a balance of all sorts. A company may
have a larger margin but with its high selling prices, it would not
be attractive on the consumers point of view. The company should
expand on its production and maintain reasonable level of R & D
costs.


D. Retailing

Company G should sell more on credit. A healthy business
enterprise allows for selling goods on credit because it will
generate more revenue and would be attractive from the
consumers viewpoint. However, focus is still on the possibility of
uncollectible accounts, but nonetheless, it is still a necessary cost
of credit sales.

Company H should improve its financial ratios. They may be
selling on credit, but the realization of receivables to cash is still
very slow. They should improve the collection methods which in
turn will improve receivable turnover, and days receivables
outstanding. Note that selling on credit only postpones the
collection of cash, and not to make it uncollectible.


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E.Electronics

Company I should be more financially conservative. Note that
having sufficient cash is the ultimate requirement of being liquid.
Cash is still what every business wants.

Company J should maintain its being financially conservative.
They should continue to provide sufficient cash balance, enough to
maintain working capital necessary for operations.
F.Hotels
Company K should maintain its reliance on equity financing, while
also taking into consideration the advantages of tapping debt in
some situations.

Company L should consider the advantages and disadvantages of
relying on debt financing. It is advisable to rely on debt if the firm
is liquid enough to pay its obligation upon maturity, however, there
are disadvantages of debt financing the entity should consider such
as: (1) Since debt requires a fixed charge, there is a risk of not
meeting this obligation if the earnings of the firm fluctuate; (2)
Debt adds risk to the firm; (3) Certain managerial prerogatives are
usually given up in the contractual relationship outlined in the
contract (Example: specific ratios must be kept above certain level
during the term of the loan, restrictions in paying dividends).





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G. Newspapers
Company M should improve on its broadcasting operations, since
it provides benefit on the firms operations. It would be a great mix
if the firm could find the balance between the print media and
visual media operations.

Company N should maintain its international operations. Aside
from the non-financial benefits of operating on a global market, the
worldwide operation would attract more market, and would be a
cause of larger revenue. In addition, they should utilize more their
property, plant and equipment in their operations.


H. Transportation

Company O should reduce the cost of service at a reasonable level.
Note that incurring more costs would decrease net income.

Company P should improve on its real estate business, since, like
Company M in the Newspaper industry, it provides additional
benefits on the company.