The Case of the Unidentified Industries Case

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them. The low turnover of the inventory also makes sense considering the slow moving nature of the product (when compared to drugs or food).

Then, we took a look at both Industries H and L as they have a very high percentage of assets within Plant and Equipment compared to the other remaining choices. Of the possible match, Family Restaurant Chain and Electric and Gas Utility industries were the 2 most likely choice to have a huge amount of their assets in this category. The first for the number of locations and the second for all the infrastructures is requires to operate.

The Family Restaurant Chain could be identified as Industry H. The main reason is the lower receivable collection period as it is a BtoC company where people are charged and have to pay immediately by either cash or credit card. The high inventory turnover also makes sense for a restaurant.

Consequently, the Electric and Gas Utility will be linked to Industry L. Since it is a predictable business (steady stream of revenue and easily predictable spending) but also very demanding in terms of financing for its infrastructure, we can expect lower current assets and liabilities as well as a higher long term debts and high capitalization ratio.

Of the remaining industries (A, C, D and F), we identified the Online Direct Factory to Customer Personal Computer Vendor as Industry C. As the manufacturing processes are mostly outsourced, we can expect a low Plant and Equipment asset percentage. Also, as it is a presold product, it allows the company to place an order only when they get one and, therefore, it can keep its inventory low with a very high turnover.

The Online Bookseller corresponding industry is Industry A. This was determined by the higher inventory turnover and lower receivable collection period, which fits a BtoC consumer product company better by comparison with the remaining choices. The low percentages in Inventories and Plant and Equipment assets are concordant with an online business.

The Computer Software Developer can be identified as Industry F. Software makers don’t need as much Plant and Equipment as Pharmaceutical Manufacturers (the last remaining choice) as they have an office environment and don’t require big R&D centers. Also, their net margin (net profit/revenue) is very high and typical of High-Tech companies.

Finally, by elimination process, the Pharmaceutical Manufacturer will be associated with Industry D. This can be confirmed because of the high percentage in Other Assets (patents and other intangibles) which is in line with the kind of Industry.

We could establish those associations by doing financial data analysis combined with prior industry knowledge, common sense and problem solving logic. Here is a table to sum up our findings:

Industry Name Corresponding Letter on Exhibit 1

Advertising Agency E

Airline M

Bookstore Chain B

Commercial Bank N

Computer Software Developer F

Department Store Chain J

Family Restaurant Chain H

Electric and Gas Utility L

Health and Maintenance Organization G

Online Bookseller A

Online Direct Factory to Customer Personal Computer Vendor C

Pharmaceutical Manufacturer D

Retail Drug Chain K

Retail Grocery