Ratios Tell a Story--2007

4 Pages Posted: 10 Jun 2009

See all articles by Mark E. Haskins

Mark E. Haskins

University of Virginia - Darden School of Business

Abstract

This short case challenges students to review a series of corporate financial metrics and to match them to one of the thirteen industries listed for them.

Excerpt

UVA-C-2285

RATIOS TELL A STORY—2007

Financial results 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 product-pricing structure permits companies to earn significant profits per sales dollar, while in other industries the product-pricing structure imposes a much lower profit margin. In most low-margin industries, however, companies often experience a relatively high rate of product throughput.

A second reason for some of the variation in financial results 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 expansion. Also, some companies finance their assets with borrowed funds, while others avoid that leverage and choose to finance their assets with owners' equity. And some corporate management teams choose to not pay dividends to their owners, preferring to reinvest those funds in the company.

Of course, one other reason for some of the variation in reported 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.

Those differences in industry characteristics, in company policies, and in management performance are reflected in the financial statements published by publicly held companies, and can be highlighted through the use of financial ratios.

. . .

Keywords: analysis financial performance ratio, financial metrics, financial statement

Suggested Citation

Haskins, Mark E., Ratios Tell a Story--2007. Darden Case No. UVA-C-2285, Available at SSRN: https://ssrn.com/abstract=1417158

Mark E. Haskins (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924 -4826 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/haskins.htm

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