Ratios Tell a Story—2013
4 Pages Posted: 30 May 2017
This case challenges students to review a series of corporate financial metrics and to match them to one of the 13 labeled and listed industries. It is suitable for MBA and undergraduate students ready to expand their basic understanding of financial metrics.
Jun. 23, 2014
RATIOS TELL A STORY—2013
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 competitive 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 (i.e., turnover).
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 sales growth. Also, some companies finance their assets with borrowed funds, while others avoid that leverage and choose instead to finance their assets with owners' equity. Some corporate management teams choose to not pay dividends to their owners, preferring to reinvest those funds in the company. And some companies choose 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 growing.
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 might report different financial results simply because their managements perform differently.
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Keywords: DuPont model, ratio balance sheets, financial ratio metrics, industry comparison
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Ratios Tell a Story—2013
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