Case 7 Financial Detective

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Health Products:

Company A is Johnson & Johnson, which is a diversified manufacturer of prescription pharmaceuticals, health and beauty aids, over-the-counter drugs, and medical devices. Company B is Pfizer Inc., which develops, manufactures, and markets patented pharmaceuticals such as Liptor and Celebrex. The most significant strategic differences between the two firms lie in their product mix and their customer focus. J&J sells most of its products directly to the consumer while Pfizer sells exclusively to doctors and institutions.

Firm B has intangibles worth more than twice as much as firm A, which may reflect firm’s B’s higher investment in R&D. Firm B may also have higher intangibles due to their ownership of patents and its
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Company E’s COGS is higher due to its strategy of making money on volume rather than from individual product margins.

Company F has higher gross profit than company E due to its premium pricing. However, Company E’s net profit margin is almost twice as large as company F’s, which reflects their low-cost focus.

Company E has low cost mail-order strategy, which leads to a lower SG&A percentage compared to company F’s who goes with a more unique retail store concept.

Company F has a higher receivables turnover, which reflects the fast payments made by consumers in the form of credit card purchasers.

Company E’s asset turnover is more than twice as large as company F’s. This might reflect E’s strategy as an assembler of components that have been manufactured by its supplier.

Books and Music:

Company G is Amazon.com, the online retailer of books and music plus a variety of other consumer goods. Company H is Barnes & Noble, Inc., the largest bookseller in the United States. The main difference between the two is that one being an established, traditional retailer and the other being a relatively new online business.

Company G has more than half of its assets in cash and cash equivalents, which could be explained by its carefulness in a volatile online retail business.

Company H has significantly higher proportion of inventory than company G because they have to maintain stocks of books,
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