The case of unidentified industries 2013 Case Solution
The Case of Unidentified Companies 2013
A, Online Book Seller
It can clearly be seen that category A has high inventory turnover and a low inventory ratio of total assets, these are the advantages of online book stores because the process of purchasing books is relatively a quick and selling them is also an easy process. Since the business is online, the property plant and equipment costs are also low due to this.
B, Book Store Chain
It is highly likely that retail book store chains have lower accounts receivable period than whole sale or other manufacturing businesses.On the other hand, retail book store chains have high amount of property plant and equipment. Additionally the inventory turnover is also very low because the books are not a necessity and not purchased on a daily basis. So only category B fulfills this criteria.
C, Online Direct Factory to Customer Personal Computer Vendor
The Fact that the company is pre-sold, the inventories might be substantially low.Furthermore, almost 50% of the clients are business customers, which makes it more likely that the account receivables are high. On the other hand, the manufacturing process is outsourced which means that there is no need for heavy property plant and equipment. Most successful computer producing company, Dell, might be the best example of this industry.
D, Pharmaceutical Manufacturing
Since it is a manufacturing business, inventory and other current assets might be high because it requires high amount of materials in order to produce more units. E and G cannot be included in this category because they are service providers with no inventories. D and J are only available to fall in this category, now the receivable period is compared to these two companies which indicates that D is a pharmaceutical manufacturing company because it has high receivable turnover days. High receivable turnover days are a clear indication of manufacturing industry.
E, Advertising Agency
As a service provider, the company doesn’t have any sort of inventory, so, just E,G,M,N are shortlisted. Advertising agencies provide service on credit terms which might indicate that they have high receivable turnover days, therefore, just E, G, N are left. It can be argued that media agencies don’t settle their creditors until they have received from their debtors, so the account receivables and payables should be equal, so E might be the advertising agency.
F, Computer Software Developer
Since the software developers are providing services, the inventory should have to be zero, however, it can be said that software developers might have small amount of inventory, as per this point only C, D, F, H, L have a chance to fall in this category. Since the software developer focuses on wholesale, the inventory turnover ratio will be very low so C and H might be excluded. Since the software developer provides service, the property plant and equipment cost might be very low. It can be said that Microsoft best fits into this category, the current ratio and profitability is highest among other industries and the receivable turnover days are also very high.
G, Health Maintenance Organization
As compared to other service providers, the inventory might be zero and property plant and equipment might be low, which eliminates M. Moreover, the health maintenance organization largely involves health insurance and health care benefit plans which doesn’t involve large amounts of cash, so, the receivables and payables should be very high. On the other hand, the HMO doesn’t own large amount of tangible assets, therefore, only G matches the above mentioned criteria.
H, Family Restaurant Chain
The revenue/total assets are very high in family restaurant chains and most of the customers pay cash at the time of settlement, in this industry. The success of restaurants mainly depend on the location of the restaurants.The value of property plant and equipment should be very high and the inventory turnover should also be high in this sector. Only H category have all the qualities of successful family restaurant chain.
I, Retail Grocery chain
The inventory in retail grocery stores should be very high and property plants and equipment should also be very high. Additionally, the inventory turnover should also be very high because most customers pay cash, thus, the account receivables and receivable days should be lower. The fact that grocery retail chains have high profits and low profit margins suggest that I is might be the retail grocery chain........................................
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