Case Study: Understanding the Financial Statements as per Industry

specifications

Objective : This case study enables you in linking your existing knowledge of a particular
industry to the financial statements of that particular industry. You will be able to learn analysis
of financial statements using your existing general knowledge of the industries.
Study Material Provided : This case consists of common-size balance sheet, selected financial
data of nine companies, Required Ratios and their interpretations.

The balance sheets of nine companies from nine different industries in percentage form are
presented in Table-2. In percentage form of balance sheet, each item of balance is presented as a
percentage of total assets. For example, if cash and bank is 5 percent, it means cash and bank
balance is 5 percent of total assets of the company. Presenting balance sheet in this form for
analysis is called “common-size balance sheet”.

Methodology: Based on the students general knowledge of the characteristics and operating
conditions of the nine different industries, students are supposed to Match the Industries in Table
A with the financial data provided through common size Balance Sheet in Table B.

Submission Format:

• Table showing the Nine Industries from Table A and their corresponding coloumn from
Table B
• Interpretations and Reasons on which the above tables were matched.
• Hand written Case study analysis has to be submitted. On each page Students Name,
Class, Date has to be visible.

1|Page
Case Study: A few selected financial indicators based on income statement and balance sheet of
these companies are also presented in Table-2. These selected indicators are:
a. Current Ratio: Currents assets divided by current liabilities
b. Quick Ratio: Quick assets divided by current liabilities
c. Total Assets Turnover: Sales revenue divided by total assets
d. Inventory Turnover: Sales revenue divided by inventory
e. Accounts Receivables Collection Days: 360 days divided by accounts receivables
turnover
f. Inventory holding Days: 360 days divided by inventory turnover
List of nine companies from different industries are given below in Table 1. These nine industries
are selected such way that there is significant difference in the way the business activities are
performed and hence, there is significance difference between financial statements of these
industries.
Table 1: List of Nine Industries
• Stock Broking Sector (Capital Market Intermediary)
• Information Technology Industry
• Non-Banking Finance Companies Sector
• Pharmaceutical Industry
• Online Travel Agency Industry
• Jewellery Industry (Retail)
• Hotel Industry
• Retail Sector (Super Market)
• Aerospace and Defence Manufacturing Industry

Using common-size balance sheet and select financial indicators, you try to match these nine
industries given in Table-1 with the nine companies given in the Table -2. You may also identify
major three uniqueness of each of these industries in financial statements.

2|Page
 Table 2: Common-size Balance Sheet of nine companies from nine different industries.
S. A B C D E F G H I
No. Particulars (%) (%) (%) (%) (%) (%) (%) (%) (%)
Cash and
Marketable
1 Securities 5.00 7.22 0.22 2.88 4.16 3.05 11.18 21.73 22.08
Accounts
2 Receivables 93.43 22.18 27.64 3.50 23.13 1.08 23.79 25.63 3.19
3 Inventories 0.00 9.68 45.18 0.91 65.08 22.52 0.0 0.0 0.0
4 Other 0.00 18.42 5.26 5.71 2.20 2.34 45.16 45.07 5.31
Current
Assets
Plant,
property and
Equipment
5 (PPE) 0.66 20.47 14.16 55.18 0.77 65.48 9.08 3.29 0.78
6 Intangible 0.02 8.26 3.91 12.66 0.01 0.15 2.47 1.22 65.00
assets
Other
noncurrent
7 assets 0.90 13.77 3.62 19.15 4.65 5.37 8.31 3.06 3.61
8 Total Assets 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
Short-term
9 Borrowings 41.53 11.90 11.57 0.05 27.28 4.27 0.00 0.00 0.01
10 Accounts 0.30 4.10 5.21 3.75 16.50 6.55 5.47 31.49 9.95
Payables
Short-term
11 Provisions 2.12 3.31 8.91 1.48 0.03 0.18 2.26 0.49 0.00
Other
current
12 liabilities 18.87 8.03 47.39 9.59 4.09 6.32 11.48 6.75 1.37
Long term
13 borrowings 13.78 5.66 0.20 24.84 0.15 1.80 0.04 0.00 0.02
14 Long term 0.00 0.38 3.01 0.89 0.59 0.00 0.29 0.00 0.21
provisions
other
noncurrent
15 liabilities 2.19 0.53 2.19 6.51 0.00 0.93 2.25 0.17 0.14
16 Equity 21.22 66.10 21.51 52.89 51.36 79.94 78.21 61.11 88.30

3|Page
 Total
liabilities
17 and Equity 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Selected Financial
Indicators

18 Current Ratio 1.57 1.75 0.45 0.81 0.62 0.37 4.17 2.39 2.70

19 Quick Ratio 1.57 1.40 -0.17 0.75 -0.74 -0.93 4.17 2.39 2.70
Total Assets
20 Turnover 0.19 0.57 0.39 0.44 1.09 2.85 1.27 0.47 0.38
21 inventory 0.00 5.84 0.87 47.87 1.68 12.64 0.00 0.00 0.00
turn-over
Accounts
Receivables
Collection
22 days 1828 143 255 29 77 1 68 199 30
Inventory
Holding
23 Days 0.00 63 418 8 218 29 0.00 0.00 0.00

*****

4|Page
 ANSWERS
COMPANY A: NON- BANKING FINANCE COMPANY:
1. As it is a service provider, so it has zero or no inventories.
2. This sort of firms deals in lending money to people for a shorter period, so they have more
accounts receivables.
3. NBFC’s also borrow money for funding the advances they give to other people; hence they
have more amount of short- term borrowings.
COMPANY B: PHARMACEUTICAL:
1. Pharma companies have a significant investment in property, plant, and equipment which is
shown here.
2. Pharma companies also must maintain a high amount of equity to fund their investments and
experiments and so here they have a significant amount of equity.
3. They have a significant amount of inventory as well as they have to maintain the stock of
medicines and other pharmaceutical things.
COMPANY C: AEROSPACE:
1. Aerospace industry has a significant amount of inventory of different arms, weapons, and
arsenal which needs to be maintained.
2. Aerospace industry does not have any assets that can be easily converted into cash hence it
has a very low cash and marketable securities.
3. Aerospace industry has a significant amount of property, plant, and equipment in form of
arms, ammunition, and weapons.
COMPANY D: HOTEL:
1. Hotels need to invest a lot into properties and buildings and hence they have a very high
amount of property, plant, and equipment.
2. Hotels have a significant amount of goodwill which adds up to its intangible assets.
3. To fund their investments in properties, hotels have a higher amount of long- term
borrowings.
COMPANY E: JEWELLERY:
1. Jewellery business has a very high amount of inventory as it must store all the ornaments at
its stores.

5|Page
 2. Jewellery business only needs to invest in a store and so it does not require investment in
property, plant, and equipment.
3. Jewellery business also does not have any intangible assets as it does not have any form of
goodwill, etc.
COMPANY F: RETAIL:
1. Retail business needs to have a significant amount of inventory of its products.
2. Retail business needs to have a significant amount of investment in property, plant, and
equipment as it needs to have a lot of stores and warehouses.
3. Retail business does not have any intangible assets as it does not have any form og
goodwill, etc.
COMPANY G: ONLINE TRAVEL BOOKING AGENCY:
1. It does not need to maintain any sort of inventory in its business.
2. It deals with more cash on a day-to-day basis and hence has more cash and marketable
securities.
3. It also has a higher current and quick ratio which indicate that it has a higher short- term
liquidity.
COMPANY H: STOCK BROKING SECOTR:
1. It has a very high amount of equity as it deals with the trading of equity and other securities.
2. It does not require any form physical inventory and so it has a very low inventory.
3. It has a significant amount of cash and marketable securities as it deals with securities on a
day-to-day basis.
4. It does not require any heavy investment in property, plant, and equipment as it is a service
provider.
COMPANY I: INFORMATION TECHNOLOGY INDUSTRY:
1. IT industry does not need to maintain any physical form of inventory, so it has zero
inventory.
2. IT industry has a lot of intangible assets in the form of copyrights for its software.
3. IT industries can easily generate cash by selling their software or applications and hence has
more cash and marketable securities.

SUBMITTED BY: SHIVAM TRIPATHI (PGDM QF)

6|Page
 ROLL NO: 10
SUBJECT: MANAGERIAL ACCOUNTING

7|Page