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Unidentified Industries: Australia 2014 Case Solution & Answer

Unidentified Industries: Australia 2014 Case Solution 

Introduction

The case is based upon the identification of industries for the firms, related to which balance sheets and financial ratios data have provided. This case would help in understanding the key characteristics of industries, based on given financial data. The balance sheet has been provided in the common size balance sheet format and few financial ratios have been given for the 12 unidentified, listed in the Australian Stock Exchange (Fruhan, 2015). While identifying the firms for given industries, the industries operating characteristics must be put into consideration along with usage of balance sheet and several financial ratios.

Problem Statement

In this case study, the key problem is to identify the firms operating in different industries based upon the characteristics of industries and their financials including the ratio analysis and the common size balance sheets.

Identification of Industries for Firms

·Airline – Firm C

The firms operating in the airline industry have quite low inventories, as the airline industry provide services to the customers. In addition, the airline operators have a high plant, property and equipment ratio in the balance sheets. Further, the airline operators have a short days sales outstanding period, as the services are rendered in exchange of cash.

The analysis over the airline industry (based on Delta, American and Virgin Airline Companies) further provide an idea that of airline industry having a low inventory ratio i.e. 1.6%, a high property plant and equipment ratio i.e. 40.5%.

According to these general characteristics and real time airline companies’ analysis, Firm C has highest level of property, plant and equipment i.e. 71.8%, along with a low inventory level of 4% and a lower accounts receivable collection i.e. 25 days.

·Commercial Bank

The commercial banks don’t have inventories, as it’s based upon services. In addition, banks have a high total debt to total assets ratio, as the money deposited into the banks creates a debt for the bank. Lastly, the receivable collection period of banks is quite higher, due to loans granted to different clientele base.

According to these general characteristics of commercial banks, firm L is identified as a commercial because it has no inventory and it has a high receivables collection period of 71.9 days with a debt to total assets ratio of 17.2%.

·Computer & Electronics Retailer

The computer and electronic business in the industry have high account receivables and it has low plant and equipment rates in the industry. It has high inventory. The real time data also prove that the computer and electronic retailers have high sales collection period of 82.2 days and a low property, plant and equipment of 7.2%.

The firm E is in the computer and electronic firm because the firm E have high account receivables i.e. 8.2% and low plant and equipment i.e. 21.1% along with that the inventory level is high that is 53.3%.

·Department Store

The companies in department store relatively have high plant and equipment also inventories. The departmental stores have their own charge cards so they have high account receivable percentage and it contain long account receivable collection period. The departmental stores real time data reveals that the departments have a high property plant and equipment of 49.5% and have a high inventory turnover i.e.121.1 days.

The firm I is comes in department store industry because it has high days of receivables i.e. 74 days and relatively high accounts receivables and i.e. 11.2%…………………..

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