Analyze Financial Detective

1837 Words8 Pages
The Financial Detective, 2005
Financial characteristics of companies vary for many reasons. The two most prominent drivers are industry economics and firm strategy. Each industry has a financial norm around which companies within the industry tend to operate. Each company within industries has different financial characteristics and strategies which can produce striking differences in financial results for firms in the same industry.
Health Products Industry
Health Products are categorized as highly differentiated products that enjoy high pricing freedom. The companies in this industry can benefit from high gross profit margin of an average of 80%.
Company A – is the world’s largest prescription-pharmaceutical company. In
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Its weakness is the ability in controlling its indirect costs; such as selling and advertising expenses to improve its Net Profit.
Paper Industry
Paper industry is a good example of commodity industry which is subject to strong price competition which would be expected to have a lower gross margin of average of 22%.
Company I – world’s largest maker of paper, paperboard, and packaging. The company has spent the last few years rationalizing capacity by closing inefficient mills, implementing cost-containment initiatives, and selling nonessential assets.
Statement of Problem: Comparing to Company J, the major problem of Company I is its high Long-Term Debt balance. With higher “Total Debt/Total Assets” and “LT Debt/Shareholders’ Equity” ratios, more of its assets have been financed by debts. It has been aggressive in financing its growth with debt. The cause of these actions might be because of its big investment in high capacity paper producing machines. Anyhow, might be because of its maturation, it has more profitability with the money shareholders have invested.
Company J – is a small producer of printing, writing, and technical specialty papers, as well as towel and tissue products.
Statement of Problem: Comparing to Company I, the major strength of Company J is its management of asset. Also, Company J has higher “Net Profit Margin” and “Asset
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