Financial Detective – Books & Music Industry

Company 1

 Focuses on selling through vast retail-store presence

 Leader in traditional book retailing which is built on ‘community store’ concept

 Uses regular discount policy

 Maintains an online presence and owns a publishing imprint

Company 2

 Sells books, music and video via the internet

 More than three-quarters of sales are media

 Has recently become profitable

 Has followed an aggressive strategy of acquiring related online businesses

Analysis

Company 1 is Company H and Company 2 is Company G.

Reasons for this are:

 Company 2/G is described as a largely online business meaning that level of inventory (14.8)

should be relatively lower than that of Company 1/H (38.6).

 Company 2/G is described as to have recently become profitable and this is evident in the

high level of LT Debt (56.9) as compared to 7.4 for Company 1/H.

 The Shareholder’s Equity of Company 2/G is also negative (-7) meaning that its Liabilities

exceed the Assets. This is also reinforced by the relatively high Total Debt/Total Assets

Ratio.