HEALTH
PRODUCTS


Character:
 Character:

• Develops,
manufactures
&
 • Manufactures
and
nationally

distributes
ethical
drugs
 markets

a
broad
line
of
OTCP,

• Sold
to
doctors
and
hospital
 name‐brand
toiletries,
&

through
direct
agents
 consumer
baby
care
products

• Holds
substantial
number
of
 • Products
are
sold
to
retailers
&

patents
on
original
research
 distributors


• Strategy
in
tapping
research
 • Retailers
and
distributors

breakthroughs:
owns
shares
in
 directly
sell
to
consumers

JV
and
biotech
firms
 • Mass‐market
strategy:
brand


 development
and
management


 

Answer:
B
 Answer:
A


 

Basis:
 Basis:
Mass
production,
thus

• High
other
assets:
due
to
 • Higher
inventory
TO

patents
 • High
asset
TO


• High
profit
margin:

since
 • High
current
assets
(due
to

breakthrough
drugs
 inventory
and
AR)

• High
debt
to
equity:
high
LT

debts
in
order
to
fund
R&D
for

breakthroughs

HOUSEHOLD
APPLIANCES

Character:
 Character:

• Manufacturing
and
marketing
 • Attempts
to
segment
the
market

high
quality
home
appliances
 for
the
same
product.
HOW?:

• Carries
its
own
brand
 owning
3
private‐label
brand

• Strategy:
industry
quality
leader
 names

&
charges
commensurate
prices
 • Captive
supplier
of
private‐label


 appliances
on
a
large
multi‐year


 contract
with
a
leading
US


 retailer


 

Answer:
D
 Answer:
C


 

Basis:
 Basis:

• Low
cash
since
most
funds
are
 • Low
profit
margin,
low
EBIT
is

diverted
to
fixed
asset
to
 sacrificed
for
high
sales
TO

support
strategy
 • Higher
cash:
due
to
private
label

• High
short
term
liabilities
to
 supplier
agreements
with
multi‐
support
operation
of
high
 year
contract
streaming
sales

quality
goods
 and
cash

• Higher
SG
&A,
EBIT
 • Lower
SG
&
A:
impact
of
being
a

• Being
a
quality
leader
may
 captive
supplier

imply
length
in
the
business
and

efficiency
in
production

resulting
to
low
debt
to
equity

ratio

• Higher
profit
margin:
quality

products
can
demand
higher

prices



COMPUTERS

Character:
 Character:

• Mail‐order
seller
of
PC

 • Sells
computers
through
dealers

• PC
to
the
consumer
market
 and
a
sales
force

• Located
in
modest
facility
in
a
 • Most
company
sales:
business

rural
region
 market


Lipana,
Diane
Shayne
D.


Legal
Accounting‐
Atty.
Kho‐Sy

Page 1 of 4

 • Outsources
important
elements
 • Leading
brand
name

of
manufacturing
 • More
internal
manufacturing

• Key
strategy:
low
cost
,
lower
 • Key
strategy:
quality
and

prices
and
higher
sales
volume
 service
leader
in
the
industry
&


 broad
product
line
in
its


 segment


 

Answer:

E
 Answer:
F


 

Basis:
 Basis:

• Lower
CGS
and
higher
GPM,
 • higher
CGS
because
more

because
of
outsourcing
 internal
manufacturing


 • lower
SG
&
A:
due
to
efficient

distributions
through
dealers

and
sales
force

• higher
inventory
TO:
since

business
market,
bulk

sales/multiple
unit
sales
in
a

single
transaction





RETAILING

Character:
 Character:

• Large,
national
chain
of
 • Growing
chain
of
consumer

department
stores
 home‐improvement
store

• Sells
largely
on
credit
 offering
a
large
scale
selection

• Sells
from
automotive
 of
home‐improvement
items
at

equipment
and
services
to
 low
prices

clothing
and
HH
items
 • Category
killer

• Properties
are
primarily
leased
 • Strategy:
underprice


 competition,
advertise


 heavily
enjoy
large
market


 share
and
unit
sales
volumes


 • Stores
are
in
a
warehouse


 format
and
are
all
leased


 

Answer:
G
 Answer:
H


 

Basis:
 Basis:

• High
AR:
credit
sales
 • Higher
inventory

• Lower
FA:
properties
are
 • Higher
fixed
asset

primarily
leased
 • Higher
Receivables
TO


 • Higher
asset
TO

HOTELS

Character:
 Character:

• Owns
one
of
the
largest
food‐ • Operates
worldwide
chain
of

service
contractors
in
the
 high‐quality
hotels/motels
in

country
 addition
to
a
smaller
line
of

• Finances
hotels
via
off‐balance‐ casinos

sheet
limited
partnerships.
 • Key
strategy:
concentrate
on
the

• Has
significant
assest
in
the
 lodging
and
entertainment

form
of
food‐service
and
hotel‐ business
and
own
its
own

management
contracts
 properties

• Key
strategy:
manage,
not
own,
 

its
hotels
 


 

Answer:
J
 Answer:
I


 

Basis:
 Basis:


Lipana,
Diane
Shayne
D.


Legal
Accounting‐
Atty.
Kho‐Sy

Page 2 of 4

 • Low
fixed
asset

 • High
fixed
asset

• Higher
SG
&A
 • Low
Inventory

• High
AR,
low
Cash
 • Higher
CGS

• Lower
CGS,
higher
GP
 • Higher
LT
liabilities
because
of

• Higher
fixed
asset
turnover:

 nature
of
assets/investments

due
key
strategy
and
nature
of
 • NI
and
profit
margin
due
to
the

assets
 quality
of
goods
and
services

offered

NEWSPAPERS

Character:
 Character:

• Has
a
large
flagship
newspaper
 • owns
a
number
of
newspapers

• Paper
sold
around
the
country
 in
a
relatively
smaller

and
the
world
 communities
throughout
the

• Product,
centered
largely
to
one
 Midwest

• Strong
central
control
 • viewed
by
analysts
as:
holding
a

• 
Competition
for
subscribers
 portfolio
of
a
small
local

and
advertising
revenue:
fierce
 monopolies
in
newspaper

in
the
chosen
segment
 publishing


 • has
significant
amount
of


 goodwill
on
B/S
stemming
from


 acquisition


 • key
to
operating
success:


 strategy
of
decentralized


 decision
making
and


 administration


 

Answer:

L
 Answer:
K


 

Basis:
 Basis:

• higher
fixed
assets
due
to
 • higher
other
assets:
goodwill

magnitude
of
operation
and
 • higher
Income(EBIT,
Pretax,
NI)

distribution
 and
higher
Profit
Margin:

• higher
inventory
turn
over:
size
 captured
local
market,

of
distribution
(local
and
 monopoly

abroad)
 • higher
current
liabilities
due
to

• 
 high
ST
liabilities
due
to
nature

of
operation:
decentralized

(more
employees,
more
offices

leased
or
operated)



BEER

Character:
 Character:

• national
brewer
of
mass
market
 • microbrewer

beers
 • smaller
production
volume
and

• variety
of
brand
names
 higher
prices

• owns
several
theme
parks
 • company
outsources
much
of
its


 brewing
activity


 • recently
completes
a
successful


 IPO
of
stock


 

Answer:
M
 Answer:
N


 

Basis:
 Basis:

• higher
fixed
assets:
big
 • higher
PE
ratio:
IPO

operation
 • higher
equity
than
liabilities,

• higher
other
assets:
ownership
 higher
asset
TO
and
ROA,
lower

of
theme
parks
 CGS:
outsourcing
of
brewing

• higher
LT
debts
and
other
liab:
 activities

due
to
size
of
operation
 • higher
GP:
small
volume,
high


Lipana,
Diane
Shayne
D.


Legal
Accounting‐
Atty.
Kho‐Sy

Page 3 of 4

 • higher
CGS
 prices

specialty
item
v
mass

• higher
EBIT:
mass
market
 item

• higher
LT
debt
to
equity:
size
of
 • higher
SGA:
specialty
market

operation

STEEL

Character:
 Character:

• mini
mill
 • large
integrated
steel
producer

• serves
a
specific
segment
of
the
 able
to
provide
a
full
range
of

steel
market
and
not
vulnerable
 products.

to
foreign
competition
 • Higher
cost—mainly
labor

• smaller
in
scale:
can
fill
smaller
 • High
cost
offset
with
long

production
orders
profitably
 production
runs
in
the

• not
unionized
low
labor
cost
 fulfillment
of
large
contracts

• key
strategy:
low
cost,
low
 

price,
nimble
service

 


 

Answer:
O
 Answer:
P


 

Basis:
 Basis:

• lower
profit
margin:
low
cost
 • Higher
fixed
assets:
large

/price
Created by Diane operation,
long
range
of

Shaynestrategy
 products

• higher
SG
&
A:
specialty
market
 • High
asset
turnover:
high

volume
of

sale
for
large

contracts






Per
Industry

Appliances,
Computers,
Retail,

Steel
have
high
CGS
since
they
involved

manufacturing
which
entails
huge
cost
for
machineries
or
sourcing
of
materials
and

labor.

Hotels
have
high
inventory
turnover
since
their
inventories
are
in
the
nature
of
ofg

of
goods
involving
consumables.


High
LT
Debt
to
equity
and
high
liability,
and
CGS
for
Hotel
and
Appliances
because

of
the
nature
of
their
investments,
which
demands
high
capital
outlay:
buildings
for

Hotels
and
equipment
for
Appliances
manufacturing.

Health
have
high
SG
&
A
possibly
due

to
expenses
related
to
advertising
and

employment
of
medical
representatives
who
does
direct
sales
and
marketing
of

goods.

Computers
and

Retailing

have
high
current
assets
due
to
the
inventory
kept.

Computers,
although
not
selling
consumables
like
in
retail,
have
become
a
priority

item
in
households
and
offices.

Health
has
a
high
profit
margin
due
to
the
nature
of
the
goods
sold.
Medicines
are

both
necessary
goods
and
consumables.

Beer
also
has
a
high
profit
margin.
Being
a
sin
good,
even
if
price
increase,
its

consumer
market

will
continue
to
patronize.
They
are
in
good
position
to
demand

for
higher
prices
and
gain
higher
margins.


Health
and
Hotel
have
a
high
PE
ratio,
possibly
because
there
is
a
high
expectation
of

growth
for
such
industries.
For
hotels,
there
is
a
possibility
of
a
tourism
boom.
For

health,
there
could
expectation
of
release
of
breakthrough
medicines.


Lipana,
Diane
Shayne
D.


Legal
Accounting‐
Atty.
Kho‐Sy

Page 4 of 4