Financial Reporting, Financial Statement Analysis and Valuation a Strategic Perspective, 7th Edition James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

14514 Words59 Pages
CHAPTER 1

OVERVIEW OF FINANCIAL REPORTING, FINANCIAL STATEMENT ANALYSIS, AND VALUATION

Solutions to Questions, Exercises, and Problems, and Teaching Notes to Cases

1. Value Chain Analysis Applied to the Timber and Timber Products Industry. Exhibit 1.A below contains a depiction of the value chain. The links in the value chain are as follows:

1. Timber Tracts: Plant and maintain timber tracts (Weyerhaeuser) 2. Logging: Harvests timber (Weyerhaeuser) a. Sawmills: Cut timber into various grades of wood (Weyerhaeuser) b. Pulp and Paper Manufacturing: Grinds timber into pulp and converts the pulp into various grades of paper and cardboard (International Paper) a. Intermediate Users of Wood:…show more content…
Manufacturing. The manufacturing process is labor-intensive. The manufacturing process is relatively simple, and firms source their apparel from Asia, which has low wages.

Marketing. Because of the large number of suppliers selling similar products, apparel-retail firms must stimulate demand with attractive store layouts, colorful product offerings, and various sales promotions.

Investing and Financing. Firms must finance inventory, usually with a combination of supplier and bank financing. The risk of inventory obsolescence is somewhat high if the product offerings in a particular season do not sell. Firms tend to rent retail space in shopping malls, so they need to engage in extensive long-term borrowing.

4. Identification of Commodity Businesses.

Dell. Dell’s products—computers, servers and printers—are commodities. Dell tends not to develop the technologies underlying these products. Instead, it purchases the components from firms that develop the technologies (semiconductors and computer software). Dell’s direct-to-customer marketing strategy is not unique, but the extent to which Dell performs this strategy better than anyone else in the industry gives it a competitive advantage. Its size, purchasing power, quality control, and efficiency permit it to operate as a low-cost provider.

Southwest Airlines. Airline transportation is a commodity service in
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