Matching The Firms Essay

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Case 01

Matching The Firms:

Separate the firms that would generate revenue through services. (Airline, commercial bank, social networking services, and computer software developer)

1. Airline: - M
Being a service industry there would be no need for inventory; this narrows the firms down to E, G, M, & N.
There would also be a high ratio of property plant and equipment in the asset section of the balance sheet due to planes; this narrows the firms to E & M.
Firm M is being selected because of the higher PPE between the two remanding letters
2. Commercial Bank - G
Being a service industry there would be no need for inventory; this narrows the firms down to E, G, M, & N.
Banks should have lots of cash on hand due to the nature of their business. This is why a bank would be appropriate for firm G.
3. Social Networking Services - N
Being a service industry there would be no need for inventory; this narrows the firm down to E, G, M, & N.
Industry average (i.e. Facebook) shows sales on credit, so a high ratio on accounts receivable would be normal. This leads to the selection of firm N.
4. Computer software developer - E
Being a service industry there would be no need for inventory; this narrows the firm down to E, G, M, & N.
Leaving E or M the ratios for computer software firm would have a lower PPE then the Airline firm. This narrows the firm to E.

Separate the firms that would generate revenue through inventory sales. (Bookstore chain, department store, online retailer, retail drug chain, and retail grocery chain)

5. Bookstore chain - B
Sales would be generated through inventory; this would show a high ratio for inventory in the balance sheet ratios. Firms A, B, I, J, & K.
Asset turn over should be around 1 to 2 times a years for the industry (i.e. Barns and Nobel). Selecting firm B
6. Department Store - J
Sales would be generated through inventory; this would show a high ratio for inventory in the balance sheet ratios. Letters A, B, I, J, & K.
Store has charge card available; this will lead to higher credit sales (i.e. Accounts Receivable) Firm J.
7. Online Retailer - A
Sales would be generated through inventory; this would show a high ratio for inventory in the balance sheet ratios. Letters A, B, I, J, & K.
Lower proper planet and equipment - Possible firms A & B
Process of elimination leaves firm A
8. Retail Drug Chain - K
Sales would be generated through inventory; this would show a high ratio for inventory in the balance sheet ratios. Letters A, B, I, J, & K.
Reviewing industries including Walgreens there is an inventory turns over around 7 times. This matching firm K
9. Retail Grocery Store - I
Sales would be generated through inventory; this would show a high ratio for inventory in the balance sheet ratios. Letters A, B, I, J, & K.
Profit margin should be around 2% leaving possible firms A, B, I, & K
Asset turn over should be among the highest out of all industries do due to spoilage so firm I is selected.

Remaining Firms (Misc.)

10. Pharmaceutical Manufacture - D
Industry average shows inventory turnover is around 2 this leaves letter D
11. Online Direct Factory - C
Low inventory due to out sourcing, leaving firm C, D, F, H & L
Low property plant and equipment is low due to outsourcing, leaving firm C, D, & F
Should have a higher inventory turnover such as firm C.
12. Electric and Gas Utilities - F
Process of elimination
13. Parcel Delivery - L
Little to no inventory due to service such as deliveries generating revenue. Possible firms C, F, H & L
Higher property plant and equipment because of distribution centers and vehicles. Possible firms H & L
Process of elimination - L
14. Restaurant Chain - H
Inventory is low because of food spoilage, should be less than 2 - Possible firms D, F, H & L
Fixed Assets should be high because of chain of restaurants and possible land being on the books. Possible firms L & H
High Inventory turn over for the industry
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