Nova Southeastern University 

H. Wayne Huizenga School 

of Business & Entrepreneurship

Assignment for Course: FIN4120

Submitted to: Professor Francisco De Cossio
Submitted by: Joel De Jesus
N01086801

Date of Submission: 1/23/2011

Title of Assignment: Case Wk 2

CERTIFICATION OF AUTHORSHIP: I certify that I am the author of this paper and that
any assistance I received in its preparation is fully acknowledged and disclosed in the
paper. I have also cited any sources from which I used data, ideas or words, either
quoted directly or paraphrased. I also certify that this paper was prepared by me
specifically for this course.

Student's Signature: __Joel De Jesus__

*****************************************************************

Instructor's Grade on Assignment:

Instructor's Comments:
The Financial Detective, 2005 2

Case 6: The Financial Detective, 2005

An Analytical Perspective

Joel De Jesus

Nova Southeastern University

The Financial Detective, 2005 3

Case 6: The Financial Detective, 2005

Companies vary in many different forms, but the two most important factors
which financially characterize companies today are the economics of their industry and
the choice of firm strategy. These two factors differentiate companies from one another
in a way that can be quantified and verified through an analytical study of their financial
footprints of the past. These footprints come in the form of financial statements which
present stakeholders a transparent look into the firms, and how they relate to each other
and industry variables for comparison.

In my case study I am going to compare two companies with an industry and

match them with the corresponding financial data. I will then provide a broader look at
all the industries and provide example of key differences.

Health Products

Company A is the world's largest prescription-pharmaceutical company, with a

large R&D budget. They have divested a lot of non-pharmaceutical businesses leaving
them much leaner and primed as the leader in licensing with other firms. This licensing,
or form of outsourcing is evident in the large accounts payable as a byproduct of no
longer doing some things in-house.

Company B specializes in over the counter products and a large, broader scope
of product offerings, and drugs over the counter, clues are found in their lower inventory
turnover ratio when compared to company A with their very specific prescription drugs.
Their increased brand development is quite evident in their intangible costs for
maintaining such a large number of brand awareness within their target market and
patents. Their focus on management as a major element is also found by the slightly
higher SG&A expenses on the income statement.

Beer

Company D is a mass marketing company on a national level which sells a

variety of names under an extensive network of breweries and distribution systems.
Companies of this stature usually contain a large number of stockholder equity as a
means of financing large operations. So we can assume large current assets and
stockholder equity numbers compared to company C. The large number of related
businesses and theme-parks only adds to the enormous number of assets on the
balance sheet.
The Financial Detective, 2005 4

Company C is a smaller distributor of beers who produce a more specific higher

priced brand and outsources its brewing activities. This high priced beer is evident in the
larger number of cost of goods sold in the income statement. Its low cash investments
reflects their conservative nature. And their recent cost-saving actions can be seen in
their extremely low SG&A expenses.

Computers

Company E focuses exclusively on mail order, built-to-order PCs. They assemble

the parts from suppliers and interact with its customers through its website. This is most
evident in its extremely low SG&A expenses when compared to company F, and its
value of 0 for intangible assets. The large supply of parts they must keep in inventory
from third party supplies can be seen in their large amount of liabilities and accounts
payable to their suppliers.

Company F addresses its retail strategy through a "brick & mortar" approach
coupled with proprietary software products, which is reflected in its financial statement
by its intangible assets of 1.2 compared to company E's value of zero.

Books and Music

One company focuses on selling primarily through their network of retail store
presence. This would entail a large SG&A expense, as can be seen by company H and
their large depreciation. Being a retail store mostly they would also contain a larger
amount of inventories (38.6) when compared to company G whose presence is mostly
online and the sale of media.

Company G sells mostly through the internet and has recently became profitable
while following an aggressive strategy of acquiring related businesses, hence the larger
amount of short term investments of 54.8 when compared to Company H. Company G
also benefits from a very liquid form of product, such as media files over the internet,
this is reflected in its high turnover number, less product inventory when compared to a
company still utilizing a physical store front approach.
The Financial Detective, 2005 5

Paper Product

The paper product industry is exemplified by two companies. One followed a

vertical integration strategy all the way up to the lumber mills. The other firm is a smaller
company that produces printing, writing, and technical specialty paper. They purchase
the wood fiber from the open market and has a diversified product strategy including
towel and tissue products.

The smaller company relies on marketing and brand name recognition. Brand
names are a key term that is correlated with a higher intangible asset value (14.9) when
compared to the other company. Therefore company I is the smaller firm and company
J is the larger firm

Hardware and Tools

Company L is a global manufacturer and seller of hardware and tools. Selling

mostly to retailers, wholesalers, and distributors under a variety brand names to end
users This would entail large overhead and SG&A expenses as evident by the larger
value compared to the other company.

Company K sells specialized tools to professional users from mobile franchise

dealers and representatives, which is seen in its larger COGS. What is perplexing is
why they would have a smaller amount of receivables considering they offer financing
options to their professional users and large orders.

Retailing

Company M is the large discounter retailer of rapidly growing chain of upscale

discount stores. Its partnership with leading designers is evident in its larger number of
intangible assets compared to the other retailer and its strategy to support earnings
growth can be seen by its lower earnings compared to the other retailer. Also it is
important to note that company M offers credit to qualified customers and under the
financial statement there is a large number of asset management receivable turnover,
abnormally large indicating extended credit and inefficiency, therefore, company N is
the large discount retailer carrying a wide variety of advertised merchandise.
The Financial Detective, 2005 6

Newspapers

Company O is the firm which owns a number of newspaper. the large amount of
goodwill on its balance sheet can be found under intangible assets (76.8) which is larger
than the other company. This company's decentralized managerial and decision-making
strategy usually can be indicated by lower SG&A expenses in comparison.

Company P is the diversified media company caught in fierce competition. This

fierce competition results in lesser earnings compared to the other company. Also
evident is the larger number of assets and liabilities/debt resulting from the recent
construction of a large office building.

With two companies O and P, the newspaper industry has company O with a high value
in intangibles of 76.8 which fits the significant amount of goodwill of the firm involves in
the Midwest and southwest. On the other hand, due to its global size, the high value in
net fixed assets of company P reflects the description of the newspaper selling both
locally and internationally. Also the high value in equity of company O is most likely the
result of the strategy of decentralized decision making and administration which usually
contribute in an increase of equity.

Conclusion

I found the differentials between online companies compared to those following

the traditional "brick & mortar" approach quite interesting. The lean and flexible
approach from a internet-savvy company seems more effective in today's economy,
especially with the increasing emphasis of corporate agility. Even more interesting was
comparing these internet-enabled companies with the sad figures in aging industries
such as the newspaper industry. The numbers themselves speak tenfold towards what
is going on in today's economy as oppose to the past.