Financial Detective Harvard Case Solution & Analysis

Financial Detective Case Solution

Introduction

The financial statements of a company represent a company’s economic features and the strategy which is pursued by the management.The financial statements are usually unique to the company as a combination of different strategies and different economic features exists in the market and each company tries to develop a strategy that will provide them a unique position in the market.

The economic features usually include the norms of the industry such as the proportions of fixed assets, normal gross margins in the industry due to high price competition. These features usually cause the financial statements of a company to differ across industry. Although it can be expected that within the same industry, two companies with similar overall strategies could have similar financial statements(Altman, 1968).

The management strategies thendifferentiate the company’s financial statement in same industry. These strategies allow the management to achieve a position in the market, which allows optimum profits and growth. In addition to this, the strategiesinclude decisions regarding how a business is run(Kudla, 1980).

Following are the groups of companies in different industries. Moreover, the following analyses show how the financial statement of companies can differ due to economic features of industry and strategic decision making of the management of companies;

Books & Music

Analysis

First Company

It operates a network of retail stores for selling its book, although the company also sells online however, majority of its sales come from retails. The company allows regular discounts to its customers.In addition to this,company sells its products in a much traditional way.

Second Company

The company sells different products as well as it is well diversified in different industries. It pursues an aggressive strategy of inorganic growth by acquiring online businesses.Moreover, the company achieved profitability in recent past. Its sales are entirely made through internet.

Conclusion Based on Financial Statements

The first company operates large network of retail stores, therefore its financial statement should show high amount fixed assets and the fixed assets turnover should be low. As the company sells in traditional ways, therefore it will have less balance at cash and bank. The first company is company H, as it meets the financial conditions of the first company.

The second company should have less fixed assets as it operates online and high fixed assets turnover. Also, as the company pursues an aggressive strategy of acquisition, therefore the company would have high financial debt.Due to this, the first company is Company H and second company is Company G.

Paper

Analysis

First Company

The company is a leader in the paper industry. The company has vertical integration as it owns facilities to produce its raw materials required. The company is performing cost-cutting activities and closing in-efficient operations.

Second Company

It is a small company as compared to the first company and operates in a more diversified market. It does not have its own brand and sells under brand names of other companies.Moreover, it purchases its raw materials from open markets.

Conclusion Based on Financial Statements

The first company is a leader in market and it also owns lands and fields of woods; therefore it should have more fixed assets as compared to the other company in the industry. Company Jhas more fixed assets as compared to company I, therefore company I should be the first company.While the debts of Company Jarevery high as compared to company I, and this may be because the first company is larger and owns other business. In addition to this, it could be because the company might have taken debt in the past which the company is now paying off by selling its inefficient businesses. The higher level of inventory at company J proves that the company J is the first company,therefore company I should be the second company..............

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