Mariñas, Leanne Patrish T. Peñafiel, Cyril C. Financial Statement
Industry
A
Online Retailer
B
Bookstore Chain
C
Online direct factory to customer personal computer vendor
D
Pharmaceutical Manufacturer
E
Parcel Delivery Service
F
Computer Software Developer
Justification There are four Retail industries [A, I, J, K] in the case, a department store chain, an online retailer, a retail drug chain, and a retail grocery chain. Among those four, Balance Sheet A only has 22% of Plant and Equipment compared with I’s 605, J’s 32%, and K’s 36%. The balance sheet with the lowest plant and equipment should be for the Online Retailer Industry because they will not need a huge percent of plant and equipment in the conduct of their business. Additionally, among those four balance sheets, only balance sheet A has a receivable collection period, which is 20, that is near to 30 days, the usual payment in availing payment for discounted purchases. [A] Bookstores needs to have lots of inventories [A, B, I, J, K] with low inventory turnover [narrowed to A, B, J, K]. There will be a low inventory turnover because bookstores ends with more inventories being kept than what it sold. Another, since it is a bookstore, National Bookstore for example, will have a low accounts receivable [A, B, K] because there is a direct transaction between the business and the customer, thus, having the shortest receivables collection period [A = 20, B = 8, K = 11]. [B] An online direct factory to customer personal computer vendor is an industry where low inventories [C, D, F, H, L] are necessary due to its pre-selling type of business. Since the business sells to business customers, there will be high accounts receivable [C, F] due to sales on account. Another, since it outsource it manufacturing, it will tend to have low percentage for plant and equipment [C = 4; F = 7]. [C] Pharmaceutical Manufacturers do have lots of raw materials for the production of the goods. Those raw materials are classified under other assets categories, thus, pharmaceutical manufacturer industry will have a high percentage for other assets [C, D, E, H, K, L]. This industry must have inventory units, thus removing Balance Sheet E from the options [C, D, H, K, L]. Among the remaining choices, Balance Sheet D has the highest receivables collection period [C = 63; D = 77; H = 8; K = 11; L =51]. The highest collection period is the basis because buyers of a pharmaceutical manufacturer tend to pay late due to the high prices marked on the products. [D] Parcel Delivery Service industry will not have any inventories [E, G, M, N] but will have a high plant and equipment for delivery trucks and machines [E, M]. Also, parcel delivery services industry tends to have long receivable collection period because the inflow of cash happens upon delivery of the service. [E] A business in a computer software developer industry will have low inventories [C, D, F, H, L] because they focus on providing services, also will have only few percentage for
G
Social Networking Service
H
Restaurant Chain
I
Retail Grocery Chain
J
Department Store Chain
K
Retail Drug Chain
L
Electric and Gas Utility
M
Airline
N
Commercial Bank
plant and equipment [C, D, F]. Since computer software developer industry sales in wholesale, there will be only a low inventory turnover [D, F] and a long receivables collection period [D = 77; F = 82]. [F] Social Networking Services, such as Facebook, will have no Inventories [E, G, M, N]. And since businesses in the Social Networking Services will have low profit, thus will have low return on equity [E = 0.171; G = 0.005; M = 0.060; N = 0.039]. [G] Restaurants have high plant and equipment [E, H, I, J, K, L, M], like kitchen utensils, etc. and with inventories [H, I, J, K, L]. Restaurants have high inventory turnover [H = 31.5; I = 14.9; J = 5.5; L = 2.3] because goods are perishable. [H] Groceries will have high inventories [B, I, K] with also high inventory turnover [B = 3.7; I = 14.9; K = 7.3] because groceries experience stock outs. Also, groceries will have a short receivable collection period [B = 8; I = 4; K = 11] because customers pay at the counters. [I] Department stores will have high plant and equipment [E, H, I, J, K, L, M] with inventories [H, I, J, K, L]. Since these department stores have its own brand of charge card, there will be a high percentage for accounts receivable [I, J, K]. And, since it is a charge card, there will be a long receivable collection period [I = 4; J = 64; K = 11]. [J] Since drug chains are chain stores, there will be a high percentage for inventories [B, I, K]. Since the products are drugs, it will be expensive to the customers, thus having accounts receivables higher than the cash collected [B = 4 = 4; I = 4 < 5; K = 6 > 4]. [K] Electric and Gas Utilities Industry will have low inventories [C, D, F, H, L] because only 20% of its revenue are based on natural gas sales. Also, electric and gas utilities industries have low inventory turnover [D, L] because they never experience stock outs. Lastly, like Meralco, these companies have high plant and equipment [D = 8; L = 60]. [L] Airlines don’t have any inventories [E, G, M, N]. Airlines also have a short receivables collection period [E = 41; G = 52; M = 7; N = 8,047] since services are rendered upon payment of cash. Also airlines have high plant and equipment [E = 46; G = 16; M = 69; N = 0] for airplanes and such. [M] Banks don’t have inventories [E, G, M, N]. Banks alos have high total debt/total assets ratio [E = 0.33; G = 0.10; M = 0.17; N = 0.63] because of the money deposited to them. Also, banks have long receivables collection period [E = 41; G = 52; M = 7; N = 8,047] due to loans, etc. [N]
