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The Financial Detective, 2005 2
An Analytical Perspective
Joel De Jesus
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.
Health Products
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
Computers
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.
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 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
Retailing
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.
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