Managerial Accounting Group assignment 2 Contributors: 1. Sarunpat Wachirasereechai
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2. Md. Afzal Jamil
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3. Sujana Pradhan
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4. Wiwan Panpanit
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5. Varun Prakash
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Case 13-3 Identify the Industries 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 Based on the balance sheet, 12 companies are analyzed by common characteristics of companies operating, which can distinguish betwee n individual companies. Type of business: Service A = Major passenger airline E = Regional bank G = For-profit hospital chain J = Hotel chain K = Temporary office personnel agency 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 common charac character terist istic ic of servic service e indust industry ry is almost almost no invent inventori ories es and neglig negligibl ible e 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 unearn unearned ed revenu revenues es in col column umn A (11.6% (11.6%). ). Highly Highly unearn unearned ed revenu revenue e of airlin airline e busine business ss become from booking and paying in advance of airline passenger.
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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. Type of business: Manufacturing C = Manufacturer of oral, personal, and household care products I = Defense contractor 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. Type of business: Merchandizing ( Wholesaling and Retailing) B = Upscale department store chain F = Warehouse club L = Discount department store chain In this case, warehouse club, upscale department store chain, and discount department store chain are merchandizing industry, which must have high and similar inventory level and leverage ratio of merchandizing industry should be nearly identical. The top three columns that have the highest ratio of inventories are column B, F, and L. Column B should be upscale department store chain because the ratio of goodwill in this column is quite high (25.7%) which is true that upscale department should have high goodwill because of their affluent customers. Column L should be discount department store chain because inventory turnover of this column is quite high (11.9%). Column F should be warehouse club which is wholesaling. Thus, when compare with other, this column will have the highest ratio of inventories (42.6%). Type of business: Mining D = Major regional utility company H = International oil company 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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Case 13-4: Supplement to identify the industries According to the case, there are 7 firms which can divide to 4 types as following: 1. 2. 3. 4.
Service Manufacturing Merchandizing Other
Type of business: service A: Coal-carrying rail road G: Advertising agency Common characteristics of a service company are almost no inventories and less inventory turnover. As you can see in the exhibit, A and G have no inventories. Thus, A should be a coal-carrying rail road and G going to be advertising agency. Also, a coal-carrying rail road should have higher plant and equipment as compared with an advertising agency as shown by 78.7 and 7.4 respectively. Type of business: Manufacturing B: Maker of name-brand, quality men’s apparel C: Automobile manufacturer Manufacturing companies usually have high plant and equipment. Therefore, we narrow down on B and C as maker of name-brand, quality men’s apparel and automobile manufacturer respectively. Also, automobile manufacturers tend to have higher percentage of assets attributed to investment/s in affiliated companies (18 for C as compared with 10.8 for B). Also, we notice that C has 12.8 under notes payable which makes sense because an automobile manufacturing process is technically more complex and involves many different components / parts which are often, expensive. So, the automobile company may have some written short-term obligations with their suppliers to pay them back at a later date. Type of business: Merchandizing E: Retail Jewelry chain F: Basic chemical company Companies in this category also tend to have a relatively high and similar inventory level, so we have E and F with inventory levels of 61 and 49.2 respectively. Also E has higher accrued taxes (Amount of taxes owed, based on income earned or a property value assessment, but not yet paid) as compared with F. Also, by logic, a basic chemical company should have more plant and equipment than a jewelry chain. Finally, both jewelry and chemical plants would tend to have a low inventory turnover as the value of jewelry of wouldn’t depreciate / fluctuate much over a period of time. Similarly, chemicals are not perishable and could be kept in the inventory for many days without many consequences until a customer order is placed. Type of business: Others D: Meat packer We know that meat is a perishable product that can go bad very quickly. So, by looking at the high inventory turnover for D i.e. 23X we conclude that this must be the meat packer Page 3 of 4
because, the packaged meat must be sent out from the inventory as soon as possible to the retailers (supermarket / poultry shop) otherwise, it would not be fresh.
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