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This case provides financial statement data and aims to analyze the common-sized
balance sheet and ratios of 12 companies in order to identify their respective industries.
The companies involved are
- Regional bank
- Temporary office personnel agency
- For-profit hospital chain
- Warehouse club
- Major passenger airline
- Major regional utility company
- Manufacturer of oral, personal, and household care products
- Hotel chain
- Upscale department store chain
- Discount department store chain
- International oil company
- Defense contractor
In case 13-3, There are 5 service companies, which are regional bank, temporary
office personnel agency, for-profit hospital chain, major passenger airline, and hotel chain.
The common characteristic of service industry is almost no inventories and negligible
inventory turnover. In balance sheet, the 5 columns that related with this explanation are
A, E, G, J, and K because the ratios of inventory turnover of the companies are not
meaningful, even if calculable. The ratios of inventories in those columns are quite low.
Column E should be regional bank because banks have very high percentage of
account payable (84.7%), which they have to pay back on the depositors’ request. Banks
are usually highly leveraged. Thus, stockholders’ equity (7.9%) is quite low.
Column A should be major passenger airline because of the highest percentage of
unearned revenues in column A (11.6%). Highly unearned revenue of airline business
become from booking and paying in advance of airline passenger.
Column K should be temporary office personnel agency. Other than the data of
inventories, the data of plant and equipment of column K also proved that it is a balance
sheet of temporary office personnel agency. Since, this office is temporary. Company may
not have a lot of plant and equipment.
Column J should be hotel chain because of the ratio of goodwill (17.6%) and the
ratio of investment also highly (10.5%), which is the fact of hotel business that have to
have investment.
Column G should be for-profit hospital chain.
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Type of business: Manufacturing
Manufacturing industries from this case are defense contractor and manufacturer of
oral, personal, and household care products, which must have the highly ratio of plant and
equipment. Column C and I are two columns that have the highest ratio of plant and
equipment (71.7% and 81.1%). Thus, it is possible that column C and I will be the balance
sheets of defense contractor and manufacturer of oral, personal, and household care
products respectively.
The different between C and I is the ratio of inventories which are 6.2% and 1.6%
respectively. Column C has the percentage of inventories more than column I. Thus,
column C should be manufacturer of oral, personal, and household care products. Column I
should be defense contractor.
The last two columns are column D and H which could be international oil company
and major regional utility company.
Column H should be international oil company because it has the ratio of goodwill
(35.9%). Due to oil company is international company, it must have goodwill. So, Column
D should be major regional utility company.
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