Description
Case 6 – The Financial Detective, 2016
This case presents financial ratios for eight pairs of unidentified companies and asks you to mate the description of the company with the financial profile derived from the ratios. The primary objective of this case is to introduce you to financial ratio analysis — in particular, the range of ratios and the insights each one affords. This case builds upon knowledge you acquired previously in other business finance courses with respect to the definitions and usage of various financial ratios.
The structured exploration of pairs of companies within an industry affords a number of important insights into strategy and financial performance. First, the economics of individual industries account for significant variations in financial ratios because of differences in technologies, product characteristics, or competitive structures. Second, financial performance results from managerial choices: within industries, the wide variation in financial ratios is often a result of the differences in corporate strategy in marketing, operations, and finance.
You do not need to report on all 16 companies. Post your company pair selection in the Discussion Forum to claim it. Do not select the same company pair as another student – this is a “first come, first served” opportunity. Company pair “O and P” is not available. Review the first post in the Discussion Forum for an example of what your research should contain. Companies O and P are an example of what you should do.
Although you do not have to research all companies, you must still review and comment upon the research of your classmates.
Please post directly to the discussion board; do not only upload an attachment.
You may include supplementary attachments if they help support or illustrate your position.
The attached spreadsheet may also be helpful to you.
| THE FINANCIAL DETECTIVE, 2016 | ||||||||||||||||
| Common-Sized Financial Data and Ratios | ||||||||||||||||
| Airlines | Beer | Computers | Hospitality | Newspapers | Pharmaceuticals | Power | Retail | |||||||||
| A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | |
| ASSETS (%) | ||||||||||||||||
| Cash & ST Investments | 6 | 10 | 5 | 15 | 14 | 41 | 7 | 2 | 25 | 35 | 1 | 13 | 5 | 25 | 30 | 8 |
| Receivables | 4 | 2 | 3 | 9 | 10 | 18 | 4 | 18 | 9 | 14 | 5 | 11 | 7 | 8 | 10 | 3 |
| Inventory | 1 | 1 | 2 | 9 | 1 | 16 | 0 | 0 | 0 | 2 | 3 | 10 | 2 | 7 | 16 | 25 |
| Current Assets—Other | 5 | 4 | 3 | 3 | 5 | 9 | 4 | 3 | 2 | 4 | 2 | 2 | 5 | 6 | 0 | 4 |
| Current Assets—Total | 17 | 16 | 14 | 35 | 31 | 84 | 15 | 23 | 36 | 56 | 11 | 35 | 19 | 46 | 56 | 39 |
| Net Property, Plant, & Equipment | 42 | 75 | 14 | 64 | 8 | 4 | 53 | 17 | 25 | 23 | 3 | 23 | 62 | 19 | 33 | 49 |
| Long-Term Marketable Securities | 0 | 1 | 0 | 0 | 56 | 0 | 0 | 0 | 13 | 0 | 0 | 10 | 0 | 0 | 0 | 0 |
| Goodwill & Intangibles | 28 | 1 | 70 | 1 | 3 | 2 | 9 | 39 | 5 | 19 | 85 | 26 | 8 | 3 | 7 | 6 |
| Assets—Other | 13 | 8 | 2 | 1 | 2 | 9 | 23 | 21 | 21 | 2 | 1 | 6 | 12 | 33 | 4 | 7 |
| Assets—Total | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |
| LIABILITIES & EQUITY (%) | ||||||||||||||||
| Accounts Payable | 5 | 2 | 9 | 7 | 12 | 4 | 2 | 10 | 4 | 6 | 1 | 4 | 5 | 5 | 31 | 17 |
| Debt in Current Liabilities | 3 | 5 | 4 | 0 | 4 | 0 | 4 | 5 | 8 | 0 | 2 | 0 | 7 | 1 | 5 | 0 |
| Current Liabilities—Other | 24 | 19 | 8 | 11 | 12 | 20 | 8 | 38 | 12 | 12 | 8 | 19 | 7 | 8 | 15 | 20 |
| Current Liabilities—Total | 33 | 26 | 21 | 17 | 28 | 24 | 15 | 53 | 23 | 18 | 11 | 23 | 19 | 13 | 52 | 38 |
| Long-Term Debt | 13 | 16 | 32 | 0 | 18 | 0 | 14 | 63 | 10 | 0 | 62 | 22 | 50 | 4 | 13 | 36 |
| Deferred Taxes | 0 | 14 | 9 | 9 | 8 | 0 | 1 | 0 | 0 | 0 | 12 | 0 | 3 | 0 | 2 | 0 |
| Liabilities—Other | 34 | 6 | 4 | 3 | 4 | 5 | 18 | 43 | 32 | 28 | 3 | 13 | 12 | 7 | 14 | 15 |
| Liabilities—Total | 80 | 63 | 66 | 29 | 59 | 29 | 47 | 159 | 66 | 46 | 88 | 59 | 83 | 24 | 80 | 89 |
| Stockholders’ Equity | 20 | 37 | 34 | 71 | 41 | 71 | 53 | (59) | 34 | 54 | 12 | 41 | 17 | 76 | 20 | 11 |
| Total Liabilities & Equity | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |
| INCOME/EXPENSES (%) | ||||||||||||||||
| Revenue | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |
| Cost of Goods Sold | (70) | (60) | (39) | (48) | (60) | (69) | (63) | (26) | (39) | (101) | (23) | (24) | (81) | (74) | (67) | (63) |
| Finance Div. Operating Exp. | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | (1) |
| Interest Expense – Finance Division | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | (0) |
| Gross Profit | 30 | 40 | 61 | 52 | 40 | 31 | 37 | 74 | 61 | (1) | 77 | 76 | 19 | 26 | 33 | 36 |
| SG&A Expense | (4) | (4) | (32) | (36) | (6) | (12) | (12) | (23) | 45 | 0 | (26) | (33) | (1) | (7) | (19) | (28) |
| R & D Exp. | 0 | 0 | 0 | 0 | (3) | (13) | 0 | 0 | 0 | 0 | (3) | (24) | 0 | (4) | (12) | 0 |
| Depreciation & Amort. | (5) | (5) | 0 | 0 | 0 | 0 | (13) | (4) | 4 | 5 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other Operating Expense | (5) | (12) | 3 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | (23) | 0 | 0 | (0) | (0) | 0 |
| Earnings before Interest and Taxes | 16 | 19 | 32 | 16 | 30 | 6 | 13 | 47 | 12 | (5) | 25 | 19 | 18 | 14 | 2 | 8 |
| Net Interest Expense | (1) | (2) | (4) | 0 | 1 | 0 | (2) | (5) | (2) | 0 | (15) | (0) | (6) | 0 | (0) | (1) |
| Other | 3 | 0 | 1 | (0) | (0) | 0 | (3) | 2 | (4) | (2) | (12) | (4) | (4) | 0 | (0) | (0) |
| Pretax Income | 18 | 17 | 29 | 16 | 31 | 6 | 8 | 44 | 6 | (7) | (1) | 14 | 8 | 15 | 1 | 7 |
| Income Tax Expense | (6) | (7) | (6) | (6) | (8) | (2) | (3) | (14) | (2) | 1 | (1) | (2) | (3) | 0 | (1) | (3) |
| Earnings of Discontinued Ops. | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Extraord. Item & Account. Change | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Minority Int. in Earnings | 0 | 0 | (4) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | (0) | 0 | (3) | 0 | 0 | 0 |
| Net Income | 11 | 11 | 19 | 10 | 23 | 4 | 5 | 30 | 4 | (7) | (3) | 12 | 2 | 15 | 1 | 4 |
| MARKET DATA | ||||||||||||||||
| Beta | 1.20 | 1.10 | 0.95 | 0.95 | 0.95 | 1.20 | 1.15 | 1.15 | 1.15 | 0.95 | 1.15 | 0.75 | 1.15 | 1.50 | 1.05 | 1.00 |
| Price/Earnings | 10.0 | 10.9 | 24.2 | 34.0 | 12.8 | 22.0 | 59.8 | 24.0 | 34.9 | nmf | 18.3 | 22.9 | 27.2 | 9.7 | nmf | 19.2 |
| Price to Book | 3.9 | 2.4 | 4.2 | 3.9 | 5.0 | 2.8 | 0.3 | nmf | 2.7 | 0.8 | 5.5 | 6.1 | 1.8 | 1.2 | 25.5 | 6.4 |
| Dividend Payout (%) | 7.9 | 0.0 | 88.2 | 0.0 | 21.8 | 0.0 | 0.0 | 29.5 | 41.8 | (39.4) | 0.0 | 88.7 | 91.5 | 0.0 | 0.0 | 197.5 |
| LIQUIDITY | ||||||||||||||||
| Current Ratio | 0.52 | 0.60 | 0.64 | 2.01 | 1.11 | 3.50 | 1.02 | 0.43 | 1.53 | 3.17 | 1.04 | 1.53 | 0.99 | 3.48 | 1.08 | 1.04 |
| Quick Ratio | 0.31 | 0.44 | 0.41 | 1.35 | 0.90 | 2.45 | 0.72 | 0.37 | 1.45 | 2.82 | 0.62 | 1.03 | 0.63 | 2.49 | 0.77 | 0.30 |
| ASSET MANAGEMENT | ||||||||||||||||
| Inventory Turnover | 37.0 | 85.4 | 5.9 | 8.5 | 62.8 | 3.9 | 109.7 | nmf | nmf | 61.2 | 2.3 | 1.6 | 17.6 | 4.6 | 7.7 | 4.9 |
| Receivables Turnover | 16.5 | 43.3 | 13.0 | 25.3 | 13.6 | 5.3 | 8.8 | 13.1 | 7.1 | 8.3 | 4.3 | 5.9 | 5.8 | 9.3 | 17.8 | 11.7 |
| Fixed Assets Turnover | 1.9 | 1.0 | 2.2 | 2.4 | 10.8 | 22.0 | 0.6 | 14.1 | 2.4 | 4.8 | 7.6 | 2.5 | 0.6 | 2.5 | 5.5 | 4.1 |
| DEBT MANAGEMENT | ||||||||||||||||
| Total Debt/Total Assets (%) | 79.6 | 62.9 | 66.0 | 28.5 | 58.9 | 29.1 | 47.4 | 159.0 | 65.7 | 45.7 | 87.7 | 59.0 | 83.0 | 24.2 | 79.5 | 88.7 |
| LT Debt/Shareholders’ Equity (%) | 62.4 | 43.5 | 95.2 | 0.1 | 44.8 | 0.0 | 26.2 | nmf | 29.3 | 0.0 | 501.9 | 54.6 | 292.5 | 5.2 | 61.5 | 320.9 |
| Interest Coverage | 13.6 | 10.0 | 6.5 | nmf | 97.2 | nmf | 4.8 | 8.1 | 4.2 | nmf | 1.7 | 23.2 | 1.9 | 74.1 | 4.9 | 10.2 |
| DuPONT ANALYSIS | ||||||||||||||||
| Net Profit Margin (%) | 11.1 | 10.6 | 19.0 | 10.3 | 22.8 | 3.8 | 4.9 | 30.1 | 4.0 | (6.6) | (2.8) | 12.1 | 2.0 | 15.3 | 0.6 | 4.2 |
| Asset Turnover | 0.8 | 0.8 | 0.3 | 1.5 | 0.9 | 1.1 | 0.3 | 2.4 | 0.6 | 1.0 | 0.3 | 0.6 | 0.4 | 0.5 | 1.8 | 1.7 |
| Return on Equity (%) | 46.0 | 23.6 | 19.7 | 21.9 | 46.2 | 5.8 | 2.9 | nmf | 8.1 | (14.8) | (5.0) | 16.1 | 11.2 | 10.4 | 4.9 | 36.2 |
| nmf = not a meaningful figure | ||||||||||||||||
| Data source: S&P Research Insight, Capital IQ, and Value Line Investment Survey. | ||||||||||||||||
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