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Financial Management

Case Study
THE FINANCIAL DETECTIVE, 2005



Compiled by :
Syndcate 6:
29113385 Faris Hizrian
29113543 Ghea Widya Pratiwi
29113529 Maulana Angga Utama
29113323 Silvia Regina
29113357 Yuthika Fauziyyah

Master of Business Administration
School of Business and Management
Institut Teknologi Bandung
Bandung
2014
INTRODUCTION

The Financial Detective, 2005
Financial Characteristic of company vary vary for many reasons. Each
insutry has a financial norm around which companies within the industry tend
to operate. A steel industry for example would be expected to have a lower gross
margin than pharmaceutical manufacturer because commodities such as steel
are sujected to strong price competition, while highly differentiated product like
patened drugs enjoy much more pricing freedom.
In this following paragraph will describe pairs of participants in a number
of different industries. it could match company description with financial data
and can explain the differences in financial result accross indutries. Here are the
industries in this case:
1) Health Products
Based on this case, the first firm is the worlds largest prescription-
pharmaceutical company. This firm has very broad and deep pipepline
support by robust research and development budget. In recent years, the
company has divested several of its nonpharmaceutical businesses and
looking for partner for licencing deals with other pharmaceutical and
biotechnology firms.
The second company is a diversified health-products ompany that
manufactures and mass market a broad line of prescription
pharmaceuticals, over the counter remedies, consumer health and
beauty products, and medical diagnostic and device. Brand development
and management are a major element of this firms mass-market-
oriented strategy.
2) Beer
The first companies is anational brewer of mass-market consumer
vbeers sold under a variety of brand names, operates an extensive
network of breweries and distriution system and owns a number of beer-
related business.
The second company produces seasonal and year-round beers with
smaller production volume and higher prices, outsources most of its
brewing activity and recently has undergone a major cost-savings
initiative to counterbalance the recent surge in packaging and freight cost.
3) Computers
The first company focuses exclusively on mail-order sales of built-
to-order PCs, including desktop, laptops, notebook, servers, workstation,
printers, and handled devices. The company is an assembler of PC
components y its suppliers and allows its customer to design, price, and
purchase throuh its website.
The second company led by its charismatic founder, the company
has begun to recover from dramatic decline in its market share. The firm
has an aggresive retail strategy intended to drive traffic through its stores
and to expand its instaled base of customers by showcasing its products
in a user-friendly retail atmosphere.
4) Books and Music
The first company focuses on selling primarily to customers through
a vast retail-store presence. The cmpany is the leader in traditional book
retailing and fosters through its community store concept and regular
discount policy and maintain online presence and owns a publishing
imprint.
The second company sells book, music, and video solely its internet
web site. While more than three-quaters of its sales are media, it also sells
electronics and othr general merchandise recently this firm become
profitable, and followed an aggressive strategy of acquiring related online
businesses in recent years.

5) Paper products
The first company is the world largest maker of paper, paperroad,
and packaging. This vertically integrated copany owns timberland;
numerous lumber, paper, paper board, packaging-products facilities, and
papaper distribution network. The companies has spent the last few years
rationalizing capacity by closing inefficient mills, implementing cost-
containment initiatives and selling nonessential assets.
The second company is a small producer of printing, writing , and
technical specialty papers. Most of the companys products are marketed
under branded label. The company purchases the wood fiber used in its
paper making process on the open market.
6) Hardware and Tools
The first companies is a global manufacturer and marketer of
power tools and power-tool accessories, hardware and home-
improvement products, and fastening systems. The firm sells primarily to
retailer,wholesalers, and distributors. Its products appear under varety of
well-kown brand names and geared for the end user.
The second company manufactures and marets high quality
precision tools and diagnostic-equipment systems for professional users,
often broad range product (which sells via its own technical
representatives and mobile franchise dealers), and also provide financing
for franchises and customers large purchases.
7) Retailing
The first company carries wide variety of nationally advertise
general merchandise, known for its low price, breadth of merchandse,
and volume oriented strategy. The company has begun to implement
plans to expand both internationally and in large urban areas.
The second company competes by attempting to match other
discounters prices on similar merchandise and by offering deep discounts
on its diferentiated items. The copany has partnership with several
leading designers, recently divested several nondiscount department-
store businesses, and offer credit to qualified customers to support sales
and earning growth.
8) Newspaper
Based on this case, the first company is a diversified media
company that generates most of its revenues through newspapers sold
around the country and around the world and has a strong central
controls. The competition for subscribers and advertising revenues in this
firms segment is fierce. The company has also built a large office building
for its headquarters.
The second firm has own relative small communities throughout
the Midwest and Southwest. From analyst view this firm as holding
portfolio of small local monopolies in newspaper publishing and has a
significant amount of goodwill on its balance sheet, stemming for
acquisition. This firm using decentralized decision making and
administration.
Analysis

Health products: Companies A and B

We analyze this company based on:
Cash & short-term investments percentage:
Company A have higher proportion of cash and short-term investments than
Company B. That illustrates the Company A highly conservative approach to its
financial management.

Receivables percentage:
Company A has a higher percentage of receivables compared to company B. This
result occurs because company B provides financing, which may cause delays in
repayment. Company A, on the other hand may have more regular payment
schedules.

Intangibles Percentage :
The Intangibles Percentage of Company B is 46.1, and Company A is 22.2. That
shows a proportion of intangibles Company B nearly twice as large as Company
A, the conclusion is Company B have a higher investment than Company A.

Inventories percentage :
Company As proportion of inventories is higher than company Bs, but in Health
Product, the number is not too different.

Current Assets-Total percentage :
Company As Current Assets-Total is 51.2, thats a better than Company B.

Accounts payable percentage :
Company As accounts payable is 9.8, it has a high percentage of accounts
payable than Company B, which may reflect a higher degree of supplier
financing.

Gross Margin:
Company Bs gross margin is 76.1, thats higher than As, which reflects the
higher input costs for company A.

Inventory turnover:
Company A turns over is 3.08, and Company B is 0.93, Company As inventories
far more quickly than company B.

Net profit margin:
Company Bs net profit margin is higher than company As.

Beer: Companies C and D

We analyzed this company based on:
Cash & short-term investments percentage:
Company Ds Cash and short-term investment is 55.6, and Company Cs 1.4.
Company Ds has a extremely higher proportion of cash and short term
investments than Company C.

Receivables percentage:
Company D has a higher percentage of receivables than company C. This result
happened because company C provides financing, which may cause delays in
sales. Company D, on the other hand may have more regular payment
schedules.

Intangibles Percentage :
The Intangibles Percentage of Company C is 7.4, and Company D is 1.3. That
shows a proportion of intangibles Company C larger than Company D.
Net fixed assets:
Company C shows a relatively have high number of Net fixed assets. Company D
has much lower net fixed assets.

Gross profit versus net profit:
Company D has higher gross profit than company C. But, company Cs net profit
margin is almost three times greater than company Ds.

Current ratio:
Company Ds current assets to current liabilities ratio is three times greater than
company Cs, whose current ratio is less than one, illustrating a careful financial
approach.

Inventory turnover:
Cs inventory turnover is significantly higher than Ds turnover.

Asset turnover:
Company Ds asset turnover is much higher than Company C.

Computers
Company E focuses exclusively on mail-order sales of build-to-order PCs,
and allows its customers to design, price, and purchase through its web site. The
company is an assembler of PC components manufactured by its suppliers.
Company F sells a highly differentiable line of computers, consumer
oriented electronic devices, and a variety of proprietary software products. This
company led by a charismatic founder has begun to recover from a dramatic
decline. The firm has an aggressive retail strategy intended to drive traffic
through its stores and to expand its installed base of customers by showcasing
its products in a user-friendly retail atmosphere.
We can see from the line above that company F has begun to recover from
a dramatic decline, it means that this company must have more cash to prevent
the failure. From cost of goods sold side, company E which made exclusive
products based on its customers design will have much more cost than the
company F that made its products by mass production. The company is an
assembler of PC components manufactured by its suppliers, it means that
company E will has a higher accounts payable than company F because of
financing from its suppliers and also reflects that fixed assets turnover company
E also has a higher than company F. Also we can see that SG&A expense
company F has almost three times higher than company E because company F
has a user friendly retail atmosphere store which will bring more expenses than
company E that sell its products by mail-order strategy. Company F sells highly
differentiable products, so it will have much more gross profit than company E,
but otherwise company E has a higher net profit because it reflects lower
expenses to sell it products. Because company E production based on exclusively
order, so customers will make a faster payment by credit for purchasing rather
than company F.

Books and Music
Company G sells books, music, and videos through its internet web site, it
also sells electronics and other general merchandise. The firm has only recently
become profitable, and has acquired related online business in recent years.
Company H is the leader in traditional book retailing focuses on selling
primarily to customers through a vast retail-store presence, which fosters
through its community store concept, regular discount policy, online presence
and owns a publishing imprint.
Because of the acquiring strategy and higher risk in online retail business,
company G must has much more cash and short term investment in their assets.
The firm has only recently become profitable, and has acquired related online
business in recent years, from those sentence we can indicate that this
company is acquired related online business by the debt, so the long term debt
in company G is high. Company H which is a traditional book retailing has much
more inventories and fixed assets than company G that only sell its products by
its internet web site. Beta from company G is higher than company H which
means that this online business has a higher risk because has more debt from its
acquisition. Through web site, company G will has much more order from
overseas so its products will sold faster, also company G also has a lower
inventory so it will be much more easy to manage, this is explains that the
inventory turnover from company G is much more higher than company H.
Because of a regular discount policy and has a offline store, online store, and
publishing imprint, absolutely company H will has much more expenses than
company G, so company G has higher net profit margin.

Paper product

From the data given, one of the company is characterized as the company
who have largest maker of paper, paperboard, and packaging which can be
referred to as company I. The other companies is small producer of printing,
writing, and technical specialty papers which can be referred to as company J
At the cost of goods sold side, we can see that company Is has a lower
percentage of cost of good sold than company Js even though the raw materials
for each companys goods are essentially the same but company Is have their
own forest and lumber operations rather than company J they purchase raw
material on the open market. The second, Company Is selling, general, and
administrative expense are higher than company Js.It shows that the large
companies will be directly proportional to SG&A expense percentage, and this
will have an impact on net profit margin that company Js is higher than Is.

Hardware and tools

From the data given, one of the companies is a global manufacture
and marketer of power tools and power tool accessories which can be referred
to as company K. The other companies is also manufacturer of tools but known
for its high quality which can be referred to as company L
At SG&A expense percentage side we can see that Company L has a higher
level because they have a large direct sales force. This is confirmed by the data
from the income statement a lower net profit margin and a lower return on
equity for company L versus company K. the second Company L has a higher
percentage of receivables compared to company K because company K markets
directly to end-users, which may cause delays in repayment. It will be opposite
condition when company L sells to retailer, which may have more regular
payment schedule.the other thing about Gross profit, company L markets
higher margin precision tools for the commercial customer. As such, company
Ls gross profit percentage is measurably higher than Ks.

Retail
Companies M and N are two large discount retailers. One firm carries a
wide variety of nationally advertised general merchandise. The company is
known for its low prices, breadth of merchandise and volume-oriented strategy.
Most of its stores are leased and are located near the companys expanding
network of distribution centers. The company has begun to implement plans to
expand both internationally and in large urban area.
The other firm is a rapidly growing chain of upscale discount stores. The
company competes by attempting to match other discounters prices on similar
merchandise and by offering deep discounts on its differentiated items.
Additionally, the company has partnerships with several leading designers.
Recently the firm has divested several nondiscount department-store
businesses. To support sales and earnings growth, this company offers credit to
qualified customers.
According to the data, we can see that receivables percentage at company
N are much higher than at company M, reflecting Ns substantial credit activities.
Company Ms inventory has higher relative inventory levels, which may reflect
the companys commitment to providing a vast selection of goods. Cost-of-
goods-sold of company N has a relatively lower cost-of-goods-sold percentage,
reflecting its relatively fuller price for proprietary, designer-made products.
Company M offers low prices, which, all else being equal, would result in a
higher COGS/sales percentage. Company M has a higher receivables turnover,
due to its lower use of credit sales. So we can conclude that the differences are
pricing strategy and product focus.

Newspapers
Companies O and P own newspapers. One is a diversified media company
that generates most of its revenues through newspapers sold around the
country and around the world. Because the company is centered largely on one
product, it has strong central controls. Competition for subscribers and
advertising revenues in this firms segment is fierce. The company has also
recently built a large office building for its headquarters.
Actually the difference between those two entities is along the
centralization/decentralization dimension. Company P has a centralized, well-
managed inventory system, whereas company O corresponds to the profile of a
decentralized publisher.
According to the data, company P has a higher level of net fixed assets than
company O. It reflects company Os recent investment in a large corporate
headquarters. About Intangibles percentage, Company K bears some of the
features of a decentralized operation, perhaps built by acquisition, since its
intangibles comprise almost 77% of total assets, which suggests the existence of
substantial goodwill created by acquisitions or equity interests in
unconsolidated subsidiaries. Cost-of-goods-sold percentage of Company O is
75,3% and Company P is 67,1% Company Ps level of cost of goods sold is lower
than company Os, which may suggest that as a larger centralized company,
company P may be in a better position to negotiate for volume discounts on
inputs, such as newsprint. The SG&A percentage of company O is lower. High
prices may be masking a relatively high SG&A expense. A way to determine this
would be to examine performance ratios such as subscriptions or advertising
revenue per employee. Company Os price-to-earnings ratio is higher than
company Ps, which may indicate the expectations of growth for company O,
which has been able to increase earnings through acquisitions. As the dominant
market player on a larger scale, company P may be unable to grow through
strategic acquisition. Company Ps net profit margin is lower.









Conclusion
Every company has many indicator, moreover in the same company
category, it can be indicated more specifically depends on the type of the
business and the strategy itself. We can also identified the company
characteristic and performance based on it financial data (like income
statement, balance sheet, and etc) and see the factors like Cash & short term
investment percentage, receivables percentage, intangible percentage,
inventories percentage, current assets-total percentage, account payable
percentage, gross marginm and inventory turnover, net profit margin, using
ratio analysis (involves methods of calculating and interpretig financial ratios in
order to analyze and monitor the firms performance), and also differentiable
product from the companies.

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