unidentified industries
The Case of the Unidentified Industries—2006
FIRM A- Department Store Chain Looking at the balance sheet of firm A, we can notice several things right away. We can see that a large chunk (54%) of its assets is in cash and marketable securities. From this fact we can deduce that this firm does a majority of their business with consumers and not other businesses. On the liabilities side, we can see that the company has large percentages of accounts payable and long-term debt (37% and 41% respectively). When we put these pieces of information we can see how a department store can have financial data that is consistent with firm A. The majority of transactions would be cash sales; however the company still has some accounts receivables, this could be explained by the customers who choose to use the department store’s own credit card. The large amount of accounts payable is used to buy inventory for the department store. The large chunk of long-term debt can be explained by the loans the firm took out to pay for the expensive space that their stores take up. Department stores are very large and are often located in malls, where space is expensive.
FIRM B- Retail Drug Chain Firm B’s balance sheet shows that the firm has few accounts receivable, a lot of liabilities, including a significant percentage of other liabilities. It also has a large percentage (42%) of its assets allocated to inventory. This suggests that the firm is likely to be a retail firm. The large inventory percentage suggests that the goods sold at the firm would be of high value. This would fit the model of a retail drug chain. The drugs sold at a retail drug chain would have a high value and that the fact that there is not that many accounts receivable, suggests that the firm would most likely be conducting business with customers directly and not other firms. The high amount of other liabilities can be explained by the extra costs that are associated with a store that carries drugs, such
FIRM A- Department Store Chain Looking at the balance sheet of firm A, we can notice several things right away. We can see that a large chunk (54%) of its assets is in cash and marketable securities. From this fact we can deduce that this firm does a majority of their business with consumers and not other businesses. On the liabilities side, we can see that the company has large percentages of accounts payable and long-term debt (37% and 41% respectively). When we put these pieces of information we can see how a department store can have financial data that is consistent with firm A. The majority of transactions would be cash sales; however the company still has some accounts receivables, this could be explained by the customers who choose to use the department store’s own credit card. The large amount of accounts payable is used to buy inventory for the department store. The large chunk of long-term debt can be explained by the loans the firm took out to pay for the expensive space that their stores take up. Department stores are very large and are often located in malls, where space is expensive.
FIRM B- Retail Drug Chain Firm B’s balance sheet shows that the firm has few accounts receivable, a lot of liabilities, including a significant percentage of other liabilities. It also has a large percentage (42%) of its assets allocated to inventory. This suggests that the firm is likely to be a retail firm. The large inventory percentage suggests that the goods sold at the firm would be of high value. This would fit the model of a retail drug chain. The drugs sold at a retail drug chain would have a high value and that the fact that there is not that many accounts receivable, suggests that the firm would most likely be conducting business with customers directly and not other firms. The high amount of other liabilities can be explained by the extra costs that are associated with a store that carries drugs, such