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• ashwini patil

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Indian Institute of Management, Tiruchirappalli

Financial Statement Analysis

The Financial Detective, 2016

Submitted by – Group 7 Abhilash Jhamb (1701062) Alpesh Shrimal (1801007) Aditi Shah (1801066) Ashwini Patil (1801074) Utkarsh Mendhe (1801128)

Airline: Companies A and B From the given information and financial data, Company A is a major airline that operates both domestically and internationally and offer add on services. Company A has a high amount of good will of 2, compared to Company B’s of only 1. This can be result of the merger with one of the largest airline carriers in the United States. Company B is the one which primarily operates in the United States with some routes to Caribbean and Latin America. Company B has a lower amount of 60 for costs of goods sold as compared to Company A for 70. This can be attributed to lower maintenance costs associated with the company. Lower prices are further indicated in the lower percentage of profit margin and a lower cost of goods sold to sales percentage. Company B also has a cost of goods sold to sales percentage of 60% versus company A’s percentage of 70%

Beer: Companies C and D Company D’s cash is 3 times than that of company D. Higher cash of company D indicates its risk aversion strategy. It had cash for some unforeseen circumstances. Higher PP&E of company D indicates that it has its own brewery while company C has outsourced the task of brewing the beer and thus has not invested in property and plant. Higher goodwill of company C indicates its good tasting beer and good service than company D. Lower level of debt of company D indicates its conservative nature as demonstrated earlier. Lower level of inventory turnover for company C in spite of not owning a plant indicates its higher footfall than company D. Company D has a higher asset turnover which means it uses its assets efficiently to generate sales than that of company C.

Company C does not have enough liquid assets to cover its short-term liabilities which is also indicated by lower cash while company D has enough liquid assets to cover its short-term liabilities.

Computers: Companies E and F Company F’s extremely large holding of cash and ST investments represents the company’s efforts to safeguard against future difficulties. Higher R&D expense percentage of company F indicates the focus of the company on innovation as compared to the company E. Higher net profit of company E indicates as compared to company F which reflects company E’s low-cost focus strategy. Company E has higher inventory turnover as compared to company F which indicates that the company E’s products are in demand as compared to that of company E. Higher receivables turnover of company E indicates faster payments made by consumers of company E’s products. Company E has lower SG&A percentage, consistent with its low cost-mail order strategy. Company F’s higher SG&A percentage reflects the cost associated with retail concept.

Hospitality: Companies G and H From the financial data, the Company G is the one which owns and operates several chains of hotels. This is evident from the fact that company H has lower 17% of net property, plant and equipment as comparer to 53% of company G. Company H has a higher receivable and payable percentage which reflects from the long-term contracts between the hotel owners and H. The SG&A expenses percentage are also high in case of company H which is due to the fact that H primarily works through only management and occur such expenses.

Newspaper: Companies I and J The common-sized financial data and ratios show that only one company, company I in this industry is profitable. Company I is the company which was founded in 1851. Since Company I focuses on only one product, their current ratio is 1.53 showing better control on finances than company J having current ratio of 3.53 Company J is not able to keep up with the competition and seems to be trying to get out of the industry. They are acquiring firms in different profitable industries just to try and stay above water. Company J has negative dividend pay-out ratio (-39.7%) showing they are not serving their shareholders well. Its beta is