THE FINANCIAL

DETECTIVE

D j e r i O k t a f y a n W o w i l i n g
N I M : 2 9 3 1 9 1 6 2
 A N A L Y S I S O N H E A L T H P R O D U C T
C O M P A N I E S
Company A Company B

Company A is the manufacturer of a broad Company B is the manufacturer of

line of name-brand toiletries, non-prescription
drugs and consumer and baby-care products
primarily because of a larger market, which
comprises of 165 decentralized subsidiaries;
there is a presence of a higher gross margin
which accounts for 63.1% of the total
revenue.
pharmaceuticals and a variety of low-margin
hospital supplies which were marketed
primarily through direct sales to doctors and
hospitals because of the presence of a lower
gross margin of 36.0%. In addition, its “other
assets” comprise a large percentage of its
total assets (40.6%) , which can attributed to
the goodwill stemming from acquiring a large
hospital supply company.
 R E C O M M E N D A T I O N O N H E A L T H
P R O D U C T C O M P A N I E S
Company A Company B

Company A should continue to penetrate its
market in order to sustain the margin
percentage. However, cost-benefit
considerations should also be considered
such that if maintaining its market would
entail more cost and will provide less
benefits, it would be advisable to reduce the
number of its subsidiaries.
Company B should expand its market. It can
be achieved by having advertising projects
aimed to mass market their products in an
effort to attract more consumers and generate
larger revenue.
 A N A L Y S I S O N A P P L I A N C E S
C O M P A N I E S
Company C Company D

Company C is the marketer of high quality
washers, dryers, dishwashers and
refrigerators under its own name, primarily
because of a presence of lower cost of goods
sold (72.8%) which infers that manufacturing
and selling under one brand name entails a
lower cost. In addition, its sales to assets
ratio is much higher (223.0%) which says
that they are much concentrated in utilizing
their assets to generate more sales.
Company D is the marketer of the same
products, but under 3 different brand names.
The presence of a higher cost of goods sold
(79.3%) infer that manufacturing and selling
under different brand names would require
higher cost.
R E C O M M E N D A T I O N O N A P P L I A N C E S
C O M P A N I E S
Company C
Company C should maintain its strategy to
operate under a single brand name. In
addition, if the company’s sales to assets
ratio can still be improved, much better.
Company D
Company D, since selling under 3 different
brand names entail more cost, they should
make an effort to reduce brand names.
However, qualitative factors should also be
considered such as the market demand for
that particular brand, its impact on consumers
and its contribution to the company’s total
income.
 A N A L Y S I S O N C O M P U T E R S
C O M P A N I E S
Company E
Company E is the manufacturer of large
mainframe computers which also provides
financial and insurance services.
Receivables comprise 18.7 percent of total
assets which is significant in financing type of
business. In addition, when a company offers
financial services, it generates other income
in the form of interest, which can be seen in
their income statement (2.7%).
Company F
Company F is the manufacturer of
supercomputer systems for scientific
applications. Its output may be small, but its
price tag is the highest in the industry, which
is why they have a lower cost of goods sold
(35.7%) due to a small number of units
produced, but a higher gross margin (64.3%)
because of higher selling prices. In addition,
since the computers were used for physical
research, the company incurs research and
development expense (15.8%).
R E C O M M E N D A T I O N O N C O M P U T E R S
C O M P A N I E S
Company E
Company E, which also engages in financial
and insurance services, should take a closer
look and emphasize on credit management;
that is, efficient management of receivables,
credit granting, and taking precautions with
regards to uncollectible accounts. In addition,
it should generate larger income in the form
of interest.
Company F
Company F should provide a balance of all
sorts. A company may have a larger margin
but with its high selling prices, it would not be
attractive on the consumers’ point of view.
The company should expand on its production
and maintain reasonable level of R & D costs.
 A N A L Y S I S O N R E T A I L I N G
C O M P A N I E S
Company G
Company G is the firm that operates
discount department store and wholesale
clubs. Its inventory is large (51.7%) which is
typical for a wholesaler. In addition, the
presence of a nominal amount of receivable
in its assets (1.9%), a very quick receivable
turnover (166.37) and a very short days’
receivable outstanding (2 days) reflect that
the company is selling largely on cash.
Company H
Company H is the firm that operates a credit-
based department store. Its receivable
comprise 34.7% of its total assets. In addition,
the presence of a very slow receivable
turnover (1.86) and a long days’ receivable
outstanding (196 days) reflect that the
company is relying largely on credit sales.
 R E C E O M M N D A T I O N O N
C O M P A N I E S
Company G
Company G should sell more on credit. A
healthy business enterprise allows for selling
goods on credit because it will generate more
revenue and would be attractive from the
consumers’ viewpoint. However, focus is still
on the possibility of uncollectible accounts,
but nonetheless, it is still a necessary cost of
credit sales.
R E T A I L I N G
Company H
Company H should improve its financial
ratios. They may be selling on credit, but the
realization of receivables to cash is still very
slow. They should improve the collection
methods which in turn will improve receivable
turnover, and days’ receivables outstanding.
Note that selling on credit only postpones the
collection of cash, and not to make it
uncollectible.
 A N A L Y S I S O N E L E C T R O N I C S
C O M P A N I E S
Company I
Company I is the firm that produces semi-
conductors, with the defense industry as its
primary market and specializes on small
desktop and hand-held computing
equipment. Compared with Company J, its
total current assets is only 50.9% as against
60.2% of Company K which represents that it
is less financially conservative.
Company J
Company J is the financially-conservative
firm that produces semi-conductors, which
specializes on radio and television equipment.
Its total current assets are 60.2%, 15.6 % of
which is on cash & equivalents. This means
that the company is financially conservative.
Aside from semi conductor manufacturing, it
is also involved in manufacturing of television
and radio equipment, which will explain the
other income of 3.9%.
R E C O M M E N D A T I O N O N E L E C T R O N I C S
C O M P A N I E S
Company I Company J

Company I should be more financially Company J should maintain its being

conservative. Note that having sufficient cash financially conservative. They should continue
is the ultimate requirement of being liquid. to provide sufficient cash balance, enough to
Cash is still what every business wants. maintain working capital necessary for
operations.
 A N A L Y S I S O N
Company K
Company K is the firm that operated a
worldwide chain of high-quality hotels and
motels in addition to a smaller line of casinos.
In contrast with Company L, the long-term
debt is much lower (21.6%) which can be
inferred that it personally finances its
operations and does not rely too much on
debt financing, or those that are financed by
creditors.
H O T E L C O M P A N I E S
Company L
Company L is the largest food contractor in
the country. Its financing is through off-
balance sheet limited partnerships. This can
be proven by the percentage of long-term
debt to its total assets (46.5%). It means that
hotel operations rely too much on the finances
provided by creditors on a long-term basis.
 R E C O M M E N D A T I O N O N
C O M P A N I E S
Company K
Company K should maintain its reliance on
equity financing, while also taking into
consideration the advantages of tapping debt
in some situations.
H O T E L
Company L
Company L should consider the advantages and
disadvantages of relying on debt financing. It is
advisable to rely on debt if the firm is liquid
enough to pay its obligation upon maturity,
however, there are disadvantages of debt
financing the entity should consider such as: (1)
Since debt requires a fixed charge, there is a risk
of not meeting this obligation if the earnings of
the firm fluctuate; (2) Debt adds risk to the firm;
(3) Certain managerial prerogatives are usually
given up in the contractual relationship outlined in
the contract (Example: specific ratios must be
kept above certain level during the term of the
loan, restrictions in paying dividends).
 A N A L Y S I S O N N E W S P A P E R S
C O M P A N I E S
Financing Decision
Company M is the newspaper company that
owns a number of small newspapers
throughout the Midwest. Broadcasting, which
is its secondary line of business accounts for
the total other income of 11.8%. In addition,
the presence of a higher “other assets”
(61.7&) results from the goodwill stemming
from acquisitions.
Investment Decision
Company N is the large flagship newspaper
that sells around the country and around the
world. As compared to Company M, its other
assets is lower (25.2%), but since it operates
worldwide, its assets should comprise mostly
of property, plant and equipment which
corresponds to Company N’s net PPE of
56.2%.
R E C O M M E D N A T I O N O N N E W S P A P E R S
C O M P A N I E S
Company M
Company M should improve on its
broadcasting operations, since it provides
benefit on the firm’s operations. It would be a
great mix if the firm could find the balance
between the print media and visual media
operations.
Company N
Company N should maintain its international
operations. Aside from the non-financial
benefits of operating on a global market, the
worldwide operation would attract more
market, and would be a cause of larger
revenue. In addition, they should utilize more
their property, plant and equipment in their
operations.
 A N A L Y S I S O N T R A N S P O R T A T I O N
C O M P A N I E S
Financing Decision Investment Decision

Company O is the large national trucking
and freight forwarding company. Since this is
a service type of business, it does not incur
cost of goods sold, which can be clearly seen
in its income statement. Majority of its
expenses are operating, which can be
inferred as the “cost of service” which is
typical for a freight-forwarding company
Company P is the railroad company. 20% of
revenues was said to be derived from real
estate business which will reflect on the
company’s receivables which comprises
18.7% of the total assets. Its sales to assets
ratio (191%) reflects that it has diverse and
high selling products like real estate.
 A N A L Y S I S O N T R A N S P O R T A T I O N
C O M P A N I E S
Company O Company p

Company O should reduce the cost of Company P should improve on its real estate
service at a reasonable level. Note that business, since, like Company M in the
incurring more costs would decrease net Newspaper industry, it provides additional
income. benefits on the company.