The Case of the Unidentified Industries Case
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The Case of the Unidentified Industries – 2006
Here is our reasoning for matching each industry with provided companies.
First, we established that the industry with no reported inventory should belong be within service industry. The 4 Service Industries within the unidentified industries list are: Bank, Airlines, HMO and Ad Agencies.
Of those, Commercial Bank can be identified as Industry N. As bank use its clients’ money for their activities, their debt/total asset ratio is very high. Also, since they sometimes owe interest on the money they borrow, the payables are filed under notes payable and not accounts payable.
The Airline Company can be matched with Industry M. Being mainly a BtoC industry, the accounts receivable collection period will be lower than BtoB industries and, considering the choices given (M, G or E), only M matches this parameter (12 days). Also, the high % in Plant and Equipment fits the image of an airline company.
The Health and Maintenance Organization can be identified as Industry G. It is a BtoB company therefore incurring higher receivable collection period. Also, the revenue/total assets number at 2.079 and the net margin at .022 indicates that they receive huge amounts of money but don’t keep much of it as profit. This fits the description of a company getting its revenue from Insurance Companies and redistributing it to hospital and healthcare professionals by opposition to Ad Agency (the other remaining possible choice).
The Ad Agency was determined to be Industry E mostly as a result of the elimination process within the service companies. Since the company gets revenue from media purchase and bill clients in function of medias purchased through a marketing campaign which last for months, the receivable collection period can very easily be above half a year as some clients only complete payments once the all the media have been purchased and the campaign has been completed depending on contracts. As the account payable are directly linked to the account receivable (purchased medias vs commission on it), the corresponding percentages should follow each other.
Next, we decided to select the retail chains: Bookstore Chain, Retail Grocery Chain, Department Store Chain and Retail Drug Chain. Those 4 companies can be identified by selecting the 4 companies with both a high percentage of Plant and Equipment as well as a high percentage of Inventory within their assets as this would describe retail industry the best (lots of locations, lots of stuff). This means that B, I, J, K were kept (at least 15% in both asset categories.
The Department Store Chain can be identified as Industry J. This one can be immediately identified as a charge card payment system will incur a higher receivable collection period, for example at a department store chain such as Kohl’s. Also, the inventory turnover in department stores tends to be much lower than food or drug retail.
The Retail Grocery Chain corresponding industry is Industry I. This can be identified as Inventories and its turnover indicate high volume, quantity and movability as food products need to sell quickly. Also, net margins are low in the food industry.
The Retail Drug Chain can be associated with Industry K. Net margins are much better in drugstore industry than in book retail or grocery retail. Also, inventory turnovers are lower than grocery store.
The remaining company within the retail chain category is the Bookstore Chain and can be associated with Industry B. The higher percentage in the inventory asset by comparison to the Plant and Equipment is concordant with high value of books versus the infrastructure needed to sell