Introduction

Companies as being artificial person demonstrate their own characteristics, which can be
measured by the companies norms, their business operations and practices, their relationships to
the stakeholders and their financial reports. These features can better be measured as companies
form a certain industry. Above all mentioned characteristics are commonly similar for almost all
companies in a certain industry. Besides, above mentioned major features can be measured by
the financial reports, As companies practices are represented by their asset portfolio, leverage,
profitability or any other significant financial information. These major financial information are
income statement, balance sheet, statement of cash flow and statement of changes in owners
equity, which in combine reports the operating activities, financial position, flow of changes in
cash and equity.
Stakeholders can mold the financial information through ratio analysis/ financial statement
analysis to get a certain conclusion about a certain company or industry. These ratios can be
used to identify the industries; a particular business is operating in. The accounting ratios are
used to analyze different business about what are they doing, in what field their operations are,
what is the profitability, turnover, liquidity, soundness of business etc. This information is useful
for many purposes by stakeholders of the business.
Data Analysis
Using the data provided in the case study, we are required to identify the companies
business that which data pertains to which category of business. In this study, financial informed
judgment and ratio analysis is used to identify the company or industry. In some cases, the
financial information of some companies such as are referred to identify the industry.

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This case provides financial statement data and aims to analyze the common-sized balance
sheet and ratios of 12 companies in order to identify their respective industries. The 12
companies involved are regional bank, temporary office personnel agency, For-profit hospital
chain, warehouse club, major passenger airline, major regional utility company, manufacturer of
oral, personal, and household care products, hotel chain, upscale department store chain,
discount department store chain, international oil company, and defense contractor.

Based on the balance sheet, 12 companies are analysed by common characteristics of

companies operating, which can distinguish between individual companies.

Type of business: Service

A = Major passenger airline

E = Regional bank
G = For-profit hospital chain
J = Hotel chain
K = Temporary office personnel agency

In this case, there are 5 service companies, which are regional bank, temporary office
personnel agency, for-profit hospital chain, major passenger airline, and hotel chain. The
common characteristic of service industry is almost no inventories and negligible inventory
turnover. In balance sheet, the 5 columns that related with this explanation are A, E, G, J, and K
because the ratios of inventory turnover of the companies are not meaningful, even if
quantitative. The ratios of inventories in those columns are quite low.

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Column E should be regional bank as key feature of a bank is its leverage. Banks tend to
have a high leverage normally ranging from 70% to 90%, as banks have very high percentage of
account payable (84.7%), which they have to pay back on the depositors request. Banks are
usually highly leveraged. Thus, stockholders equity (7.9%) is quite low. The second feature of a
bank is its financing. Normally 60% to 70% of banks assets are consist of financing which is
63.1% in Company E. Finally as a services organization, banks dont keep any inventory, where
company E has no inventory in its financial reports. This feature may also be found in other
services company but above three features classify Company E as a regional bank.

Column A should be major passenger airline because of the highest percentage of

unearned revenues in column A (11.6%). Highly unearned revenue of airline business become
from booking and paying in advance of airline passenger.

Column K should be temporary office personnel agency. Other than the data of
inventories, the data of plant and equipment of column K also proved that it is a balance sheet of
temporary office personnel agency. Since, this office is temporary. Company may not have a lot
of plant and equipment.

Column J should be hotel chain because of the ratio of goodwill (17.6%) and the ratio of
investment also highly (10.5%), which is the fact of hotel business that have to have investment.
Finally, Column G should be for-profit hospital chain.

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Type of business: Manufacturing

C = Manufacturer of oral, personal, and household care products

I = Defense contractor

Manufacturing industries from this case are defense contractor and manufacturer of oral,
personal, and household care products, which must have the highly ratio of plant and equipment.
Column C and I are two columns that have the highest ratio of plan t and equipment (71.7%
and 81.1%). Thus,

it is possible that column C and I will be the balance sheets of defense

contractor and manufacturer of oral, personal, and household care products respectively.

The different between C and I is the ratio of inventories which are 6.2% and 1.6%
respectively. Column C has the percentage of inventories more than column I. Thus, column C
should be manufacturer of oral, personal, and household care products. Column I should be
defense contractor.

Type of business: Merchandizing (Wholesaling and Retailing)

B = Upscale department store chain

F = Warehouse club
L = Discount department store chain

In this case, warehouse club, upscale department store chain, and discount

department store chain are merchandizing industry, which must have high and similar inventory
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level and leverage ratio of merchandizing industry should be nearly identical. The top
three columns that have the highest ratio of inventories are column B, F, and L.
Column B should be upscale department store chain because the ratio of goodwill in this
column is quite high (25.7%) which is true that upscale department should have high goodwill
because of their affluent customers. Meanwhile, Column L should be discount department store
chain because inventory turnover of this column is quite high (11.9%). Column F should be
warehouse club which is wholesaling. Thus, when compare with other, this column
will have the highest ratio of inventories (42.6%).

Type of business: Mining

D = Major regional utility company

H = International oil company

The last two columns are column D and H which could be international oil company and
major regional utility company. Column H should be international oil company because it has
the ratio of goodwill (35.9%). Due to oil company is international company, it must have
goodwill. So, Column D should be major regional utility company.

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