The Financial Detective 2005

4168 Words Nov 6th, 2010 17 Pages
Part 1 : Examine and analyze the financial ratios for eight pairs of unidentified companies and match the description of the company with the financial profile derived from the financial ratios.

Beer

Company D has higher current ratio and quick ratio which is higher 2.43x and 2.3x respectively. This was because Company D had higher cash and short term investment which was 55.6% while Company C only has 1.4%. It proves that Company D is financially conservative and it matches with the second described company.

Beside that, Company D keep more stock which is 11.9% compare with Company C 4.3% because their company produces seasonal and year round beers with smaller production volume and their beers’ demand is not whole year long. Hence
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Company A has higher receivables (12.8%) than Company B, 8.1%. This is probably because Company A distributes their products to institutions like hospitals, clinics and etc. Institutions take

longer time to pay, while Company B distributes their diversified health-products to end-consumers or to the mass market by cash settlement or short credit term.

Inventory turnover for Company A (3.08x) is higher than Company B (0.93x), that means inventories are sold and replaced faster than Company B. Company A has higher turnover because those institutions, especially hospitals “consume” health products faster and more. Lastly its show Company A has deep pipeline of its ethical pharmaceuticals.

On the other hand, Company A has net fixed assets of 19.6%, higher than Company B (14.9%), which probably because Company A has more equipments to support their robust research and development. Intangibles e.g. goodwill for Company B (46.1%) is higher compared to Company A (22.2%) because B focus more on their brand development.

Company B (88.9%) has a higher gross profit margin most likely because the firm not only manufactures and mass markets a broad line of prescription pharmaceuticals, over-the-counter remedies, consumer health and beauty products but also manufactures medical diagnostics and devices. Company A is lower (76.1%) due to its limited product range (only manufactures drugs).

In conclusion, Company A fits the first set

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