Identify the industry Analysis of financial statements Harvard Case Solution & Analysis

Identify the industry Analysis of financial statements Case Study Solution

The financial statements of the different companies are matched with their corresponding income statements and balance sheets. The judgments involved in the matching are stated below and the data are matched according to the nature of the industry as some industries have a high cost of sales, whereas other industries have a low cost of sales due to the nature of the product or service being supplied by that company. The companies are looked for the hints such as their depreciation costs and their research and development costs as a research and development company would have a high level of research and development costs which need to be matched with the particular company in the list of companies provided by the company.

There are nine companies namely the liquor Producer and distributor, the discount airline, the commercial bank, the larger integrated oil and Gas Company, mobile phone service operator, R&D based pharmaceutical manufacturer, retail grocery company and R&D based semiconductor manufacturer. These are the nine companies for matching with their financial statements and the reasons for their matching would be the clear differences in their expenses or their assets or liabilities.

Matching of companies

Research and development based pharmaceutical manufacturer

The research and development are matched with the first income statement and the balance sheet of the financial statements provided. The cost of sales of the manufacturer is the third highest i.e. 43% and hence the gross profit margin is 57% of the sales which states that the manufacturing costs of the pharmaceutical are higher as it incurs costs in the manufacturing and these manufacturing costs are included in the cost of sales of the company.

As the company is involved in the research and development, so the inventory is 0.4% which shows that the inventory is very low in the company and this is true because the research and development companies have a huge amount of cash invested in the assets of the company. The property plant and equipment of the company is 98.2% which states that the company has a high level of non-current assets for the research and the assets will be used in the research process of the company.

Due to lower inventories being managed by the company, the current ratio of the company is 0.71:1, which shows that the company has a low level of liquidity, whereas the acid test ratio of the company is 0.52:1.The low level of acid test ratio shows that the company has a low level of liquidity as the acid test ratio eliminates the inventory from the current assets of the company and calculates the liquidity which shows the real liquidity of the company as these include the assets which can be easily converted into cash and are liquid enough. On the other hand, the return on total assets is low as it is only 0.04 due to the reason as the company has the net income of 8% in comparison to the sales of the company and hence this makes the return on total assets lower than it should be.

R &D semiconductor manufacturer

The company is chosen because of several factors namely the return on sales, debt ratio and property plant and equipment. The return on sales of the company is the third highest if compared with the other companies in the financial statements provided and the return on sales is 0.21. In addition to this, the company has low debt ratio as the company’s long-term debt to stockholder’s equity is 0. This shows that the company is fully financed from the equity and has no debt involved in the capital structure.Furthermore, the company has a high cost of sales which is 30% overall and this shows that the company has a huge expenditure of 30% as direct costs for sales is incurred as the cost of the sales of the company products manufactured.

Identify the industry Analysis of financial statements Harvard Case Solution & Analysis

 

 

 

Large integrated oil and gas

The large integrated oil and gas has a high level of property plant and equipment of 79.8% which is due to the fact that the oil and gas use several components which are to be used for their normal services or the products they offer to the customers. The company also has a high level of costs of accumulated depreciation in its financial statements. The depreciation cost of the company is 46.3% and it shows that a huge amount of cost is of accumulated depreciation in the balance sheet of the company. The companies have a higher current ratio and the quick ratio which are2.32:1 and 1.67:1 and this shows that the company has a high level of liquidity and has spare cash available which can be invested somewhere in order to earn the interest incomes for the company. The main reason why this is chosen as the large integrated oil and gas in the financial statements provided is due to the fact that the company has a high level of property, plant and equipment and these are required by such business for such type of work.......................

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