Essay on Drivers of Industry Financial Structure

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Drivers of Industry Financial Structure

A. Online Retailer:

- Low Net Plant & Equipment: An online retailer will not have a huge facility as compared to a manufacturer. It will have at most an office building and a warehouse to stockpile some inventory of its own.
- No Receivables/Days of Receivables: Since an online retailer caters to only individual customers, and since the latter pays usually by cash or credit card, accounts receivable will be at most a negligible amount, if not zero.
- Unearned Revenues: Unearned Revenues can exist for an online retailer especially when the company opens up pre-order accounts for various products which are not yet released in the market.
- Research & Development: An online retailer can have an
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- No R&D: Since the airline doesn’t make its own aircraft, it doesn’t incur any R&D expense of its own.

E. Manufacturer and marketer of consumer products:

- Decent Accounts Receivables: Since the manufacturer deals directly with retailers and not with individual customers, the presence of accounts receivables is a normal thing for such a company.
- High Goodwill & Intangibles: As the company is a large manufacturer, it may have acquired patents. It may also have acquired another manufacturer during that year.

F. Pharmaceutical Company:

- High Goodwill & Intangibles: Since this company undertakes a lot of research work, it surely has a lot of medical patents.
- High R&D: For a pharmaceutical company, high R&D expenditure is a necessity to both survive and hold a monopoly in the market.
- High Gross Margin: Since the company produces unique drugs, it can price them high in the market as long as no competitor produces a similar drug. Hence a pharmaceutical company can command a substantial gross margin like the one showed here.
- High Days of Receivables: For the same reason as Company E, and for the fact that goods sold by a Pharmaceutical company are more expensive, the days of receivables is pretty high in this case.
- High Net Income/Sales: Since the company is a price-maker in the market,
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