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UVA-C-2381

Jul. 26, 2016

Ratios Tell a Story2015

Corporate financial performances and conditions vary among companies for a number of reasons. One
reason for the variation can be traced to the characteristics of the industries in which companies operate. For
example, some industries require large investments in property, plant, and equipment (PP&E), while others
require very little. In some industries, the competitive product-pricing structure permits companies to earn
significant profits per sales dollar, while in other industries the product-pricing structure necessitates a much
lower profit margin. In most low-margin industries, however, companies often experience a relatively high rate
of product throughput (i.e., turnover).
A second reason for some of the variation in financial performances and conditions among companies is
the result of management philosophy and policy. Some companies reduce their manufacturing capacity to
match more closely their immediate sales prospects, while others carry excess capacity to be prepared for future
sales growth. Also, some companies choose to finance their assets with borrowed funds, while others are more
conservative, preferring to avoid the buildup of debt. Some corporate management teams opt to not pay
dividends to their owners, preferring to reinvest those funds in the company. And, some companies aim to
grow organically (i.e., increasing sales of internally developed products and/or services), while others focus on
mergers and acquisitions as their dominant means for growth.
Of course, another reason for some of the variation in reported financial results among companies is the
differing competencies of management. Given the same industry characteristics and the same management
policies, different companies may report different financial results simply because their managements perform
differently.
And last, one other reason for differing corporate financial performances and conditions is that some
industries, and even some companies within an industry, are more susceptible to macroeconomic factors than
others. This can be true when macroeconomic conditions (e.g., foreign exchange rates, interest rates, and taxes)
are weak and deteriorating as well as when they are strong and improving. Or this can also be true when such
conditions are stable versus volatile.
Those differences in industry characteristics, in company policies, in management performance, and in
responsiveness to the macroeconomic environment are reflected in the financial statements published by
publicly held companies. Furthermore, they can be highlighted through the use of financial ratios. Exhibit 1
presents common-size balance sheets (i.e., balance sheets in percentage form) and selected financial ratios
computed from fiscal year 2015 financial data for 13 companies from the following industries:

This case was prepared by Professor Mark E. Haskins, Darden School of Business, and has benefited from collaborations with various colleagues over
the years on earlier versions. It was written as a basis for discussion rather than to illustrate effective or ineffective handling of an administrative situation.
Copyright 2016 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to
sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by
any meanselectronic, mechanical, photocopying, recording, or otherwisewithout the permission of the Darden School Foundation.

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UVA-C-2381

airline

railroad

pharmaceuticals

commercial banking

wireless communication hardware, software, and services

discount general-merchandise retail

electric utility

fast-food restaurant chain

wholesale food distribution

supermarket (grocery) chain

Internet retailing

advertising agency services

computer software development

Study the balance sheet profiles and the financial ratios listed for each of the 13 companies as presented in
Exhibit 1.1 Your assignment is to use your intuition, common sense, and basic understanding of the unique
attributes of each industry listed above to match each column in the exhibit with one of the industries. There
is no need to proceed in any particular orderfeel free to make the matches you are most confident about
first. Be prepared to give the reasons for your pairings, citing the data that seems to be consistent with the
characteristics of the industry you selected. Ours is not a perfect world, however, and for the class discussion,
it will be helpful if you also identify those pieces of data that seem to contradict the pairings you have proposed.
Please note that using the data available here, you will find it difficult to identify those companies whose
financial results differ because of management policy and competence.

1 Please note in Exhibit 1: OCI = other comprehensive income, CFFO = cash flow from operations, ST = short term, LT = long term, and net
contributed capital is net of stock buybacks (i.e., treasury stock purchases).

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UVA-C-2381

The ratios in Exhibit 1 are based on the following formulas:


1. ROS (return on sales)

Net income
Net sales

2. Asset turnover

Net sales
Total assets

3. ROA (return on assets)

Net income
Total assets

ROS Asset turnover

4. Financial leverage

Total assets
Total owners equity

5. ROE (return on equity)

Net income
Total owners equity

ROA Financial leverage

6. Current ratio

Total current assets


Total current liabilities

7. Inventory turnover

Cost of goods sold


Ending inventory

8. Receivables collection

Accounts receivable
Net sales/365 days

9. Revenue growth

This years net salesLast years net sales


Last years net sales

10. Gross margin

Net salesCost of goods sold


Net sales

11. Dividend payout

Cash dividends
Net income

12. R&D ratio

or

or

Research and development expense


Net sales

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UVA-C-2381
Exhibit 1
Ratios Tell a Story2015
Selected Financial Data for 13 Companies
(balance sheet amounts are percentage of total assets)
Year end
Assets: Cash
Accts. Receivable
Inventory
Other CA
Total Current Assets

1
12.31.15

2
12.31.15

3
11.27.15

4
6.30.15

5
12.31.15

6
1.30.16

7
12.31.15

8
1.30.16

9
12.31.15

10
2.29.16

11
12.31.15

12
12.31.15

13
12.31.15

14.4%
2.9%
1.8%
1.5%
20.6%

20.3%
3.4%
0.3%
1.5%
25.4%

34.0%
5.7%
0.0%
1.4%
41.1%

28.5%
18.6%
15.0%
1.8%
63.9%

11.8%
32.7%
5.1%
4.6%
54.2%

3.5%
5.1%
18.2%
2.3%
29.2%

2.1%
2.3%
0.8%
3.3%
8.4%

9.1%
0.9%
21.4%
3.7%
35.1%

4.1%
2.8%
1.0%
0.6%
8.5%

43.0%
6.1%
2.6%
2.8%
54.4%

30.3%
9.8%
15.7%
0.0%
55.7%

12.5%
9.9%
9.7%
3.3%
35.4%

2.0%
64.8%
0.0%
11.8%

56.8%
8.4%
14.1%

60.9%
6.6%
7.0%

6.7%
45.8%
6.4%

22.1%
10.9%
3.1%

3.1%
39.2%
3.4%

57.9%
8.0%
4.9%

70.6%
0.9%
20.1%

62.6%
0.0%
2.3%

86.1%
0.0%
5.4%

7.4%
11.2%
27.0%

33.4%
5.7%
5.2%

22.6%
11.4%
30.6%

1.0%
4.1%
16.4%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

3.2%
4.6%
20.3%
28.1%

2.3%
0.0%
5.5%
7.8%

0.8%
0.0%
18.1%
18.9%

16.0%
28.1%
8.2%
52.3%

44.4%
4.6%
15.4%
64.3%

16.9%
7.0%
14.4%
38.3%

2.2%
5.0%
3.2%
10.3%

18.4%
2.0%
10.9%
31.3%

2.2%
0.1%
3.3%
5.6%

4.9%
0.0%
13.9%
18.8%

31.2%
5.0%
15.6%
51.8%

3.8%
0.0%
19.4%
23.1%

71.0%
1.7%
2.9%

37.9%
22.4%
88.4%

63.6%
10.0%
81.3%

16.3%
5.2%
40.3%

12.6%
5.6%
70.5%

16.1%
5.7%
86.2%

28.6%
13.0%
79.9%

26.3%
34.7%
71.4%

29.7%
6.8%
67.8%

30.5%
30.6%
66.7%

23.1%
0.2%
42.0%

12.6%
15.2%
79.5%

22.4%
13.4%
59.0%

11.3%
0.0%
87.0%

Equity:Noncontrolling Int.
Net Contr. Cap.
Ret. Inc. + OCI
Total Equity

0.0%
24.0%
-12.3%
11.6%

0.0%
-91.3%
110.0%
18.7%

0.0%
-0.7%
60.4%
59.7%

0.2%
-14.3%
43.5%
29.5%

2.7%
-30.3%
41.4%
13.8%

-0.1%
-19.2%
39.3%
20.1%

0.0%
8.7%
19.9%
28.6%

0.0%
13.4%
18.8%
32.2%

0.0%
3.1%
30.2%
33.3%

0.0%
44.2%
13.7%
58.0%

0.0%
17.7%
2.8%
20.5%

0.1%
17.3%
23.7%
41.0%

0.0%
7.1%
5.9%
13.0%

Total Liab. & Equity

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

18.6%
0.85
15.7%
8.59
135.0%
0.73
13
N/A
N/A
3.7%
-3.9%
N/A
6,249

17.8%
0.67
11.9%
5.35
63.9%
3.27
19
55.5
66.3%
71.3%
-7.4%
N/A
6,539

13.1%
0.41
5.4%
1.67
9.0%
2.18
51
N/A
92.0%
0.0%
15.6%
17.99%
1,470

1.4%
2.71
3.8%
3.39
13.0%
1.22
25
14.9
17.6%
101.2%
4.7%
N/A
1,555

7.2%
0.68
4.9%
7.23
35.8%
0.84
174
N/A
N/A
45.4%
-1.2%
N/A
2,172

1.9%
3.24
6.0%
4.99
30.0%
0.76
6
13.9
22.2%
18.9%
1.3%
N/A
4,833

9.5%
0.28
2.6%
3.49
9.1%
0.81
31
2.1
66.7%
61.4%
-2.8%
0.36%
3,277

4.6%
1.83
8.4%
3.11
26.0%
1.12
2
6.0
29.5%
40.5%
1.6%
N/A
5,844

16.7%
0.34
5.6%
3.00
16.9%
1.52
30
N/A
N/A
34.9%
10.4%
N/A
3,370

-9.6%
0.39
-3.8%
1.73
-6.5%
2.90
57
6.6
-5.9%
0.0%
-35.2%
21.71%
257

0.6%
1.64
0.9%
4.89
4.5%
1.08
22
7.0
9.6%
0.0%
20.2%
11.72%
11,920

12.1%
0.56
6.8%
2.44
16.5%
1.53
64
1.5
74.8%
88.3%
1.7%
24.03%
2,773

18.7%
0.05
0.9%
7.68
7.1%
N/A
4796
N/A
N/A
48.4%
1.8%
N/A
2,915

Net PP&E
Goodw ill
Intangibles & oth
Total Assets
Liabilities: Accts. Pay.
ST Debt
Other
Total Current Liabilities
LT Debt
Other
Total Liabilities

ROS
Asset Turnover
ROA
Financial Leverage
ROE
Current ratio
Receivables collection
Inventory Turnover
Gross margin
Dividend payout
Revenue grow th
R & D ratio
CFFO (millions)

Data source: Author calculations using various company 10-K financial data via the SEC website.