The Financial Detective Case Study in Finance

Richard Houlihan

Casy Study 7

The Financial Detective

        For each industry, there are certain financial consistencies among the competitors in that specific industry. These things could be having a large amount of assets or a larger amount of differentiated products. These things all depend on the industry you are in. The main objective of industry competitors is to obtain the leading market share. To do this, the company has to become a more desirable company than their competitors. This requires to keep an eye on the competitors to keep ahead or at least be on the same pace as them. Through this, companies have many of the same tendencies and habits. However, there are also many differences between companies in the same industry. These differences involve things from marketing strategies to accounting methods. The one thing that is always unique between companies is their financial statistics and ratios. These differences are due to a combinations of different things. These include outside factors regarding the industry, the decisions of the leaders of the companies, and the consumer. In this case study, I will take a look at eight different industries. The eight industries that will be discussed are health products, beer, computers, books and music, paper products, hardware and tools, retailing, and newspapers. In these industries, there are two companies provided with different strategies, market shares, specific products, etc. I will try to distinguish which company goes with which financial statistics based on their descriptions.

        The first industry is the health industry. The first company being evaluated is the world’s largest prescription-pharmaceutical company. They have a large line of ethical pharmaceuticals, with a strong research and development budget. Recently, they have rid themselves of all businesses outside of pharmaceuticals and have focused on securing licensing deals with companies involved with pharmaceuticals and biotechnology. The second company is a diversified health-products company that manufactures and markets a long line of prescription pharmaceuticals, over-the-counter drugs, consumer health and beauty products, and medical diagnostics and devices. Brand development and management is also a large part of their company’s mass-market-oriented strategy. Based off of statistics, there are a few that stand out specifically. The first is assets and fixed assets. Company A has a larger amount of total assets which makes me believe that Company A is the second company because of the large amount of products that they have which involve a large amount of resources to produce these products. I also noticed that intangibles are substantially higher for Company B. This makes me believe that Company B because of their large focus on research and development. Furthermore, Company A has a much larger cost of goods sold which also gives reason that Company A is the second company because of their large amount of products being produced. In conclusion, I believe that Company A is the second company discussed and Company B is the first company discussed.

        The second industry discussed is beer. The first company is a national brewer of mass-market consumer beers sold through many different brands. They operate many different breweries, and distribution systems. They also own a number of businesses involved with beer including snacks and theme parks. The second company is a seasonal and year-round beer producer with smaller production volumes for higher prices. They also outsource most of their brewing. In terms of financially, they are relatively conservative and have recently gone through a cost-saving initiative to counterbalance the recent surge in packaging and freight costs. As for the financial statistics, the first number that I noticed was long-term debt. The company C had a long term debt of 51.2 while company D had no long term debt. Due to this information, I would say that the second company discussed is company D because they were said to be financially conservative and are trying to save from spending. Another number that was significant was net fixed assets. For net fixed assets, company C had a much larger number of 54.7 opposed to company D’s 16. Due to this, I would say that the first company discussed resembles company C because the first company discussed has a larger number of products, breweries, and distribution systems. Another significant statistic is SG&A expense which was much larger in company D which makes me believe that the second company discussed is company D because of their recent increases in packaging and freight costs. In conclusion, I believe that company C is the first company and company D is the second company.

        The third industry discussed is computers. For the first company, they focus solely on mail-order sales of built-to-order PCs including desktops, laptops, notebooks, servers, printers, etc. They assemble PC components manufactured by its suppliers and allow their customers to design, price, and purchase through its web site. The second company sells a highly differentiated line of computers, consumer oriented electronic devices, and a variety of proprietary software products. The company recently suffered a dramatic decline in their market share but has since recovered due to their charismatic founder. The company has an aggressive retail strategy intended to drive traffic through its stores and to expand its installed base of customers through the showcasing of its products in a healthy atmosphere. As for financial statistics, the first significant number is investments with company E having 18.6 and company F having zero. Therefore, I would associate company E with the first company discussed because company E would have to make investments into online expansion for their mail-order arrangement. Another significant number is accounts payable with company E having a 38.3 and company F having an 18. Because of this, I would say that the first company is company E because they have many suppliers which would most likely be handled through credit. SG&A also sticks out with company E having a 9.7 and company F having a 23.1. This leads me to believe that company F is the second company because of their large amount of stores which results in a good amount of overhead expenses. Another statistic that helped my argument that the second company is company F is return on equity because it is significantly lower than company E which could possibly be a result from company F’s recent loss of market share. In conclusion, I believe that company E is the first company and company F is the second company.