...9-207-096 REV: APRIL 10, 2008 The Case of the Unidentified Industries—2006 Educational material supplied by The Case Centre Copyright encoded A76HM-JUJ9K-PJMN9I Order reference F265469 If you were asked to visualize (in income statement and balance sheet form) the financial structure of a typical firm in one particular industry, do you think you could do it? How close to your “vision” do you think the “reality” would be? What if you were asked to do the same experiment covering 14 firms drawn from 14 different industries? How many of the 14 do you think you would get right? You may be surprised by how much you already know! Exhibit 1 presents the balance sheets (in percentage form) and other selected financial data for 14 firms drawn from 14 different industries. While there are clear differences in the financial structures of different firms within a single industry, the firms selected have figures that are broadly typical of those in their industry. Try to match the 14 firms operating in the 14 industries named below with the 14 sets of financial data presented in Exhibit 1. Use any approach you find helpful. Advertising agency (about half of total revenue derived from commissions that equal 15% of media purchases for clients) Airline Bookstore chain Commercial bank (fitted into the most nearly comparable balance sheet and ratio categories of the nonfinancial companies) Computer software developer Department store chain (with its “own brand” charge...
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...The Case of the Unidentified Industries - 1995 Solution: In order to find out the exact firm by analysing the financial structure of typical firms, first we need to separate those firms which have zero inventory turnover (A, B, F and H) from those firms which have zero debt ratio which in our case are (E, H and J) and we use the information to narrow down the possibilities of each firm. In this case there are three groups of companies: 1) Firms having zero inventory turnover. 2) Firms having zero debt. 3) Firms having all financial ratios given. 1) Firms having zero inventory turnover: Under the category of zero inventories, there are four companies. The nature of these companies show that they are not involved in any production, but they provide services to the people and from services they generate cash. Each one with the name and reason is mentioned below. Firm A. Commercial Bank: The financial structure of (A) firm shows that it has zero inventory turnover and high receivables collection period. Banks usually have a large amount of receivables because they lend money to the individual people and a company due to which the average number of days, which in this case is very high, requires to convert receivables into cash is very high. Its financial structure also shows that the firm has borrow money from outside to pay debt to its customers. Firm B. Advertising Agency: This firm has very high receivables and payables due to one reason or the other...
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...The Case of the Unidentified Industries-2006 | | In this case, a summary sheet which contains 14 sets of financial data from 14 different industries is provided. The task is to match 14 different firms with 14 industries by distinguishing the differences (e.g. sources of financing, profitability, the inventory turnover and the accounts receivable collection period) in the financial structures. 1. Advertising agency: the matching industry is E. As a service firm, it does not contain inventory, so first of all, it can be narrowed down to E, G, M, and N. And generally B to B firms provide credit terms to their customers which result in receivables collection periods(RCP) is larger than 30 days, therefore it can be further narrow to E,G,N. Furthermore, based on the given hint, the media purchase is made on behalf of the client, which means the account receivable and account payable should be roughly equal, since the agency does not pay for the media services until their client pays. 2. Airline: the matching industry is M. Similar to Ad agency, it is a service firm, so its inventory is zero as well (G, M, N), and moreover, it is also a Business to Customer firm, its RCP is relative short(less than 30 days), so only M (RCP=12) is left which matches the description. 3. Bookstore chain: the matching industry is B. Retail firms like bookstore chain are likely to have shorter RCP (less than 30 days), which means only A, B, H, I, K and M match this description. Furthermore...
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...If you were asked to visualize (in income statement and balance sheet form) the financial structure of a typical firm in one particular industry, do you think you could do it? How close to your "vision" do you think the "reality" would be? What if you were asked to do the same experiment covering 14 firms drawn from 14 different industries? how many of the 15 do you think you could get right? You may be surprised by how much you already know! Exhibit 1 presents the balance sheets ( in percentage form) and other selected financial data for 14 firms drawn from 14 different industries. Case of the Unidentified Industries Hints……. 1. Separate the Service from the businesses that sell products. a. Service Business do not have inventory b. Who has low fixed assets and long accounts receivables? c. Who has the highest $ of Fixed Assets in property, plant and equipment? d. Who has high accounts payables due to high salaries? e. Who has the majority of their assets booked as financial assets? 2. Next look at Accounts Receivables and Inventory Turn Over for the product businesses f. Who has the lowest AR and highest Turn? g. Who has the lowest AR and lowest Turns? h. Who takes the longest to collect their Accounts Receivables? 3. Next look at the Plant & Equipment and Net Profits i. Who has the lowest Plant & Equipment and highest Net Profits? j. Who has a high Plant & Equipment and low net...
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...Enron Company Enron chief financial officer set up and managed several partnerships that did business with Enron. Enron board of directors waived the firm's conflict-of-interest rules to permit this. Bad accounting for the partnerships allowed Enron to keep billions of dollars of debt off its balance sheet and to hide hundreds of millions of losses. The partnerships paid Enron's CFO more than $30 million in addition to his regular compensation. Board members were shocked to discover this when they investigated the partnerships. And when the truth about Enron's true debt obligations was revealed, Enron went bankrupt. (Emery, D., Finnerty, J. and Stowe, J., 2007) AGENCY COSTS Monitoring, constraints, incentives, and punishments are designed to push agents to act in the principal’s best interests, but they are costly. The costs of doing these things are called agency costs. Agency costs are the extra costs of having an agent act for a principal, those in excess of what it would cost the principals to “do it themselves.” These costs are like friction in a machine – the more there is, the less efficient the machine, and the more energy that will be wasted. Agency costs are defined in terms of the Principle of Incremental Benefits: The agency cost is the incremental cost of working through others, who serve as agents. In a perfect world, the agent would be paid exactly the fair amount without any waste. In our imperfect world, agency costs are a waste that is lost to the system...
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...The Case of the Unidentified Industries - 1995 Solution: In order to find out the exact firm by analysing the financial structure of typical firms, first we need to separate those firms which have zero inventory turnover (A, B, F and H) from those firms which have zero debt ratio which in our case are (E, H and J) and we use the information to narrow down the possibilities of each firm. In this case there are three groups of companies: 1) Firms having zero inventory turnover. 2) Firms having zero debt. 3) Firms having all financial ratios given. 1) Firms having zero inventory turnover: Under the category of zero inventories, there are four companies. The nature of these companies show that they are not involved in any production, but they provide services to the people and from services they generate cash. Each one with the name and reason is mentioned below. Firm A. Commercial Bank: The financial structure of (A) firm shows that it has zero inventory turnover and high receivables collection period. Banks usually have a large amount of receivables because they lend money to the individual people and a company due to which the average number of days, which in this case is very high, requires to convert receivables into cash is very high. Its financial structure also shows that the firm has borrow money from outside to pay debt to its customers. Firm B. Advertising Agency: This firm has very high receivables and payables due to one reason or the...
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...Capturing Value in Global Networks: Apple’s iPad and iPhone Kenneth L. Kraemer, Greg Linden, and Jason Dedrick1 University of California, Irvine, University of California, Berkeley and Syracuse University July 2011 1 Acknowledgement: This research has been supported by grants from the Alfred P. Sloan Foundation and the U.S. National Science Foundation (CISE/IIS). Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the Sloan Foundation or the National Science Foundation. Abstract This article analyzes the distribution of value from innovation in the global supply chains of the Apple iPad and iPhone. We find that Apple continues to capture the largest share of value from these innovations. While these products, including most of their components, are manufactured in China, the primary benefits go to the U.S. economy as Apple continues to keep most of its product design, software development, product management, marketing and other high-wage functions in the U.S. China’s role is much smaller than most casual observers would think. A key finding for managers is that they need to beware of relying too heavily on single customers. With its control over the supply chain, Apple has the power to make and break the fortunes of many of its suppliers. A key finding for policymakers is that there is little value in electronics assembly. Bringing high-volume electronics...
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...Bonnie Sweeten This case received media attention when Bonnie Sweeten called 911 on May 26, 2009 stating she and her 9 year old daughter had been kidnapped. She claimed two males forced the two in the trunk of her SUV. It was later discovered that Sweeten faked the whole ordeal and was actually caught at Disney World and taken into custody. Bonnie falsely claimed the abduction and details of the case are unfolding daily. Many would think a mother that would pull a stunt of such nature as Sweeten must be crazy and have a problem. Sweeten does have a problem and it is much deeper than what the surfaces may display. The mother of three appeared to be the perfect mother, working full time at a law firm for 15 years, active PTA mom and supportive wife , all while living the middle class lifestyle. The problem lies there, although it appeared Sweeten lived the middle class lifestyle through hard work and dedication, this was not the case. Financial stress may have led Sweeten to do the unthinkable. The plane tickets were purchased under a false identity of a former co-worker. An investigation is ongoing into allegations from previous employer of theft into the thousands. Before leaving she withdrew $12,000 from several bank accounts. Sweeten even posted 10% of the $1 million bond with cash. Authorities are investigating into the financial matters of Bonnie. Since being released on $100,000 cash bail, Bonnie plans to stay with distant relatives in Pennsylvania and begin mental...
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...Hefty Hardware’s is planning to accomplish their new project Savvy Store Program. This has shown conflict in viewpoints between IT Department and Business side Of Hefty Hardware. Considering the case study of Hefty Hardware, I identified certain communication issues between the IT and Business departments. They do not appear as if they exist together. Rather, they exist as two different cases. Business and IT targets are not intentionally balanced despite of the selective principles towards IT effect more on business. Breaking down the situations, it appears to be lack of energetic participation of IT conflict in the framework change of Savvy Store program. In my view, IT forms a major component of today’s progressive world. The role of IT department in a business environment is to provide technological support to the whole organization wherever needed. IT department also keeps an eye on new tools and software which may enhance the efficiency of the organization. In addition, whenever the company faces technological issues then IT department is responsible to solve the problems. Both Business and IT has many identified and unidentified shortcomings. Initially, staff in IT office seems to have nonappearance of adapting on how the affiliation functions are going on. The scope that the other IT selection goes, the establishment of IT framework in the affiliation simply pivots around making efficient and genuine IT structure to give a successful stage to business performance. The...
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...lawyer by day. He has over 20 years of experience with estate planning and elder law. He was born in Fayetteville, North Carolina to military parents and he was an only child. His parents were base inspectors and moved from base to base mostly overseas and Michael never really made friends or developed social skills. He was given a computer at a young age but was forced to go to college for law. Although, his first love was computers, Michael went to and graduated from University of Texas School of Law. David’s parents settled in South Florida where to bought real estate. David moved to South Florida prior to their passing, where he lives in an apartment building left to him by his parents upon their passing. Mr. David has his own law firm with one partner in which...
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...| The Case of the Unidentified Industries-2006 | | In this case, a summary sheet which contains 14 sets of financial data from 14 different industries is provided. The task is to match 14 different firms with 14 industries by distinguishing the differences (e.g. sources of financing, profitability, the inventory turnover and the accounts receivable collection period) in the financial structures. 1. Advertising agency: the matching industry is E. As a service firm, it does not contain inventory, so first of all, it can be narrowed down to E, G, M, and N. And generally B to B firms provide credit terms to their customers which result in receivables collection periods(RCP) is larger than 30 days, therefore it can be further narrow to E,G,N. Furthermore, based on the given hint, the media purchase is made on behalf of the client, which means the account receivable and account payable should be roughly equal, since the agency does not pay for the media services until their client pays. 2. Airline: the matching industry is M. Similar to Ad agency, it is a service firm, so its inventory is zero as well (G, M, N), and moreover, it is also a Business to Customer firm, its RCP is relative short(less than 30 days), so only M (RCP=12) is left which matches the description. 3. Bookstore chain: the matching industry is B. Retail firms like bookstore chain are likely to have shorter RCP (less than 30 days), which means only A, B, H, I, K and M match this description...
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...The Case of the Unidentified Industries-2006 1. Advertising Agency –E We believe the matching industry is Company E. As a service firm it does not contain inventory. It will also have zero inventory turnover. Through research we learned that the media purchase is made on behalf of the client which means that the accounts receivable and accounts payable would be roughly equal to one another. In addition, the receivable collection period (RCP) is greater than 30 days which is common in business to business firms. Also, the firm has a low debt to asset ratio and this is again because the advertising agency industry has no inventory. 2. Airline Industry-M We feel like industry M best suits this industry. Similar to the advertising industry the Airline industry the airline industry is also a service industry. Meaning the level of inventory is also zero. More importantly however, this industry’s main assets include fleets of airplanes and this will reflect a high plant and equipment percentage. The receivables collection period (days) for industry M is 12, because in this service industry the receivables collection period is short this. Also, most of the sales are processed quickly many in cash therefore their account receivables will also reflect a low number. For this reason we feel that letter M fits the description for the airline industry. 3. Bookstore Chain-B The matching industry is B. Bookstore chains are part of the retail market and their plant...
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...SciTronics Inc. Case #1 Prepared by: Kyle Peck For: Babak Lotfaliei FIN423 MW:10am-11:50am 2/11/15 Table of Contents Company Overview 3 Fundamental Analysis 3 Asset Utilization 3-4 Liquidity and Leverage 4-5 Conclusion 5 Appendices 6-15 Company Overview My group was called upon to analyze the financial statements and performance of SciTronics Incorporated, a medical industry company that supplies high quality products to various corporations. Initially, after analyzing their balance sheet ranging from the years 2005 through 2008, the company has clearly progressed and the 2008 numbers look a lot better than those of 2005 (see Appendix D). To analyze this data, we used numerous sources of financial information that included the firm’s financial ratios, various business cycles, and their source of external financing as well. Fundamental Analysis One important number that was really impressive was the dramatic increase in SciTronic’s overall sales. Using the calculations from the ratios, SciTronics’ sales jumped up at an approximately 20.77% compound rate. Furthermore, the profitable percentage for this firm almost doubled...
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...The Case of the Unidentified Industries Financial Accounting & Management MBA 623 Sandra Martin Professor Christian C. Senk, Esq May 15, 2014 The online book seller goes with firm A, There is a high inventory turnover, along with keeping low inventory. Firm A also has a lot of cash and long term debt. The collection period is on the low side, on the other hand the online book store has a high accounts payable because it has to borrow a lot of money to pay for their inventory. The revenue/total asset account is in good standing, along with total assets/net worth. Net profit/ total asset shows that the company is very profitable as well. The book store chain goes with firm B. The bookstore is keeping high inventory, high plant, and equipment and the profit from revenue is kept low. The book store retail chain will likely have a shorter RCP(less than 30 days). The book store has assets which are not less than 25%. The inventory turnover(cost of goods sold/inventory), shows how often the company sells and replaces its inventory! Revenue/total assets are showing the company has good profitability, as well as the total asset/net worth, and the net profit/net worth. The online direct factory to customer personal computer vendor goes with C. The majority of the business is sales to businesses, and the manufacturing are outsource. All of their business transactions are done online through credit transaction. The online direct factory will have a large account...
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...Finance Theory II (Corporate Finance) Katharina Lewellen February 5, 2003 1 Today Preliminaries Introduction to the course Corporate finance Types of questions Course outline Course requirements Case of Unidentified Industries 2 Preliminaries Texts − Brealey & Myers, Principles of Corporate Finance, 7th edition − Higgins, Analysis for Financial Management, 7th edition − Case and Readings Packet Professor − Katharina Lewellen 3 Introduction Corporate finance Investment policy How the firm spends its money (real and financial assets) Financing and payout policy How the firm obtains funds (debt, equity) and disposes of excess cash 4 Balance sheet view of the firm Assets Liabilities Current Liabilities Current Assets Long-term debt Fixed Assets 1. Tangible 2. Intangible Shareholders’ Equity 5 Introduction, cont. But we also need to understand… Capital markets Types of securities (stocks, bonds, options…) Trade-off between risk and return Pricing Taxes and government regulation 6 Financial markets Firms Curr assets Fixed assets Debt Equity Financial Markets Individuals Financial Intermediaries Government 7 Introduction, cont. Finance is really about value Firms Projects and real investments Securities Common characteristic Invest cash today in exchange for cash (hopefully) in the future Central question How do we create value through investment and financing decisions? 8 Types of questions Investment...
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