The Role of the Balance Sheet and Income Statement in Strategy
- Read: Introduction to Financial Ratios and Financial Statement Analysis
- Complete: Case of the Unidentified Industries
In this Sudoku like exercise, the balance sheets (in percentage form) and other selected financial data for 14 firms drawn from 14 different industries are presented.
- Match the 14 firms operating in the 14 industries with the 14 sets of financial data presented in the case. The objective is to understand how the strategy of a business is reflected in its financial statements.
- Why does each of the industries have the patterns of asset use revealed in Exhibit 1? The sources of financing? The profitability? The inventory turnover? The accounts receivable collection period?
- What questions would you have if a company's financials were "outliers". not fitting the industry norm
For this exercise, form groups
of 3-5 students for the analysis, discussion, and identification of companies. Students may choose to form groups on their own, or groups will be formed by the instructor as needed. Multiple inputs will dramatically improve your accuracy.
- Service providers: A good way to begin segmenting the information is to separate the service providers (who have no inventory) from the other firms
- Banks: For purposes of this case the loans of the commercial bank are classified as accounts receivable in Exhibit 1 of the case and the deposits as accounts payable.
- The advertising agency is E
- Business to consumers: Firms which transact with customers in cash on a face-to-face basis will have a “zero” day accounts receivable collection period, since accounts receivable will never be created. Firms which transact with customers on a credit card basis (with the card issued by an unrelated entity) will usually receive payment from the card issuing bank within a week or two of the charge date, not when the customer pays the credit card bill.
- Business to business: Transactions usually have credit terms of 30 days or longer.