BAB233/ MARCH 2016

CSI FINANCIAL STATEMENTS 2014

USING FINANCIAL RATIOS TO
IDENTIFY COMPANIES

Different industries, different business models, and different operating strategies all lead to
different financial relationships on the balance sheet and income statement. Some companies
may be more capital intensive and carry high amounts of fixed assets, while others actively
engage in mergers & acquisitions and may have significant amounts of goodwill. Commodity
businesses often operate with razor-thin profit margins, while companies that offer a more
differentiated product tend to generate higher margins. Not every characteristic of a firms
strategy or business model is directly revealed in the financial statements, but patterns in the
financial ratios do tend to emerge.

At the top of the next page is a list of 13 companies representing widely different industries. On
the following page are the 2014 common-size balance sheets and selected ratios for these same
companies. Your task is to match each company with the appropriate balance sheet/list of
ratios. As you complete this task, you will be forced to think carefully about both industry and
company characteristics and how these may be reflected in the financial statements and ratios.
You should also keep in mind whatever effects the 2013/2014 economy may have had on each
company.

An initial strategy might be to try to identify the easiest matches first. For example, two
companies carry no inventories and only six companies conduct significant amounts of R & D.
This approach will help you narrow down the remaining companies, which in turn will make
those matches easier to complete. Be prepared to discuss the assignments you make and the
reasons for your choices.

This case was prepared by Peter R. Wilson, Professor of Accounting at Babson College. It was developed as a basis for
class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. It is not
intended to serve as an endorsement, source of primary data or illustration of effective or ineffective management.

Copyright 2016 Babson College and licensed for publication to Harvard Business School Publishing. All rights reserved.
No part of this publication can be reproduced, stored or transmitted in any form or by any means without prior written
permission of Babson College.

This document is authorized for use only in DR. FAIZAH ISMAIL's SEMINAR IN FINANCE_1 course at Universiti Utara Malaysia, from September 2017 to March 2018.
 CSI FINANCIAL STATEMENTS 2014 USING FINANCIAL RATIOS TO
IDENTIFY COMPANIES
BAB233/MARCH 2016

The industries and companies are as follows:

1. Clothing Retailer/Department Store Nordstrom

2. Internet Technology Yahoo
3. Grocery Store Kroger
4. Airline Singapore Airlines (Singapore)
5. Steel Manufacturing Kobe Steel (Japan)
6. Electronics Manufacturing Siemens (Germany)
7. Pharmaceutical Eli Lilly
8. Electric Utility Duke Energy
9. Computer Software Microsoft
10. Consumer Products Coca Cola
11. Commercial Bank Deutche Bank (Germany)
12. Computer Technology and Consulting - IBM
13. Computer Networks and Software - CISCO

This document is authorized for use only in DR. FAIZAH ISMAIL's SEMINAR IN FINANCE_1 course at Universiti Utara Malaysia, from September 2017 to March 2018.
 CSI FINANCIAL STATEMENTS 2014 USING FINANCIAL RATIOS TO
IDENTIFY COMPANIES
BAB233/MARCH 2016

Figure 1. Common size balance sheet/financial ratios for selected companies computed from 2014 annual reports/10Ks
A B c D E F G H I J K L M
Cash & Mkt. Securities 4.1% 10.8% 13.0% 23.6% 49.5% 28.4% 49.7% 7.2% 8.5% 1.7% 16.5% 8.9% 66.4%
Receivables 4.1% 20.6% 8.7% 4.9% 4.9% 7.1% 11.3% 27.1% 13.9% 0.7% 1.7% 24.9% 23.7%
Inventories 18.6% 17.5% 7.4% 3.4% 1.5% 1.1% 1.5% 1.8% 14.4% 2.9% 18.7%
Other Current Assets 2.3% 1.9% 3.7% 4.1% 7.9% 0.7% 3.7% 6.0% 9.1% 4.4% 1.1% 3.9%
Fixed Assets/PPE (net) 58.6% 39.9% 21.4% 15.9% 3.1% 57.5% 7.5% 9.2% 9.2% 58.0% 2.4% 36.1% 0.2%
Intangibles 2.5% 0.9% 7.8% 15.5% 3.1% 1.0% 4.0% 2.6% 4.3% 0.8% 0.3%
Goodwill 7.5% 4.7% 13.1% 23.1% 11.7% 26.0% 17.0% 13.5% 8.3% 4.7% 0.6%
LT Investment in Affiliated Co.'s 3.7% 12.3% 14.8% 3.8% 8.5% 0.5% 2.0% 0.3% 69.3% 0.2%
Other Assets 2.2% 4.7% 21.0% 4.8% 6.9% 0.4% 2.0% 19.6% 21.6% 18.6% 2.7% 8.6%
Total Assets 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Accounts Payable 16.5% 19.7% 3.0% 10.0% 1.0% 13.2% 4.3% 5.8% 7.2% 1.9% 0.4% 14.4% 31.2%
Short Term Debt 6.2% 12.1% 7.2% 24.6% 0.5% 0.3% 1.2% 4.9% 1.5% 4.4% 0.1% 44.1%
Other Current Liabilities 14.6% 7.2% 19.9% 0.5% 17.4% 10.4% 21.0% 23.0% 26.1% 3.0% 6.9% 15.8% 11.2%
Long Term Debt 32.0% 23.2% 14.4% 20.7% 19.4% 4.0% 12.0% 29.8% 18.4% 30.8% 1.9% 33.8% 8.5%
Deferred Charges 4.0% 1.0% 6.1% 6.2% 8.9% 1.6% 3.1% 0.5% 11.1% 28.0% 5.5% 0.1%
Other Long-term Liabilities 8.9% 4.8% 14.0% 4.8% 1.7% 3.3% 7.9% 23.1% 16.1% 14.9% 0.2% 4.0% 0.6%
Minority Interest 0.1% 2.9% 0.0% 0.3% 0.0% 1.5% 0.1% 0.5% 0.0% 0.1% 0.0% 0.3%
Common Stock 15.3% 15.4% 8.0% 16.2% 39.8% 8.2% 39.7% 44.8% 7.8% 32.6% 13.7% 25.3% 2.2%
Retained Earnings 40.5% 14.1% 44.3% 68.9% 13.4% 51.4% 10.3% 117.2% 24.5% 1.7% 14.4% 1.8% 1.7%
Accum. Other Comp Income -2.7% -0.1% -10.7% -6.3% 0.6% 2.2% -23.7% 0.8% -0.4% 35.5% -0.7% 0.1%
Treasury Stock -35.4% -0.1% -0.2% -45.9% -1.2% -128.2% -3.6% -1.1% 0.0%
Total liabilities & O.E. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Gross Margin 21.2% 15.8% 74.9% 61.1% 58.9% 69.0% 50.0% 28.9% 72.3% 37.8% 52.5%
Operating Margin 2.9% 6.3% 17.0% 21.1% 19.8% 1.7% 32.0% 22.1% 10.2% 22.0% 3.1% 9.8% 7.3%
Profit Margin (NI) 1.6% 3.8% 12.2% 15.4% 16.7% 2.4% 25.4% 13.0% 7.5% 7.9% 162.9% 5.3% 4.0%

SGA/Sales 15.8% 9.5% 33.8% 37.4% 24.3% 98.3% 23.8% 25.0% 14.5% 25.9% 39.2% 28.0% 64.1%
R&D Expense/Sales 24.1% 13.4% 13.1% 5.9% 5.7% 26.1%
Interest Expense/Sales 0.4% 1.0% 0.8% 1.1% 1.2% 0.2% 0.7% 0.5% 1.1% 2.3% 1.5% 1.0% 42.9%
Receivable Days 4 94 60 35 40 38 82 125 74 12 82 62 5,922
Inventory Days 24 95 203 63 30 6 36 17 108 53 75

Total Debt/Total Assets 82.2% 67.9% 58.6% 66.8% 46.1% 40.0% 47.9% 89.8% 70.0% 66.1% 37.4% 73.6% 95.7%
Sales/Total Assets 3.55 0.80 0.53 0.50 0.45 0.67 0.50 0.79 0.69 0.20 0.07 1.46 0.03

Return on Assets o/o 5.7% 3.1% 6.4% 7.7% 7.5% 1.6% 12.8% 10.2% 5.1% 1.6% 12.1% 7.8% 0.10%
Financial Leverage 5.6 3.1 2.4 3.0 1.9 1.7 1.9 9.8 3.3 3.0 1.6 3.8 23.3

This document is authorized for use only in DR. FAIZAH ISMAIL's SEMINAR IN FINANCE_1 course at Universiti Utara Malaysia, from September 2017 to March 2018.
Return on Equity % 1.9% 10.5% 15.6% 23.4% 13.9% 2.7% 24.6% 101.3% 17.4% 4.6% 19.4% 29.5% 2.5%

Source: Peter Wilson. Used with permission 3