Question

E13-4 LO13-1, 13-2, 13-3, 13-5, 13-6 Using Financial Information to identify Companies The following selected financial data pertain to four unidentified companies COMPANIES 7.1% 35.6 26.0 5.4% 8.8 65.7 11.6% 4.6 7.0 56.0 6.6% 18.9 45.8 20.3 Balance Sheet Data (component %) Cash Accounts receivable Inventory Property and equipment Income Statement Data (component %) Cost of goods sold Profit before taxes 10.1 21.9 43.3% 63.6% 1.4 85.9% 1.1 84.2% 0.9 2.7 1.3 Selected Ratios Current ratio Inventory turnover ratio 0.7 30.0 16.7 The above financial information pertains to the following companies: a. Full-line department store b. Wholesale fish company c. Automobile dealer (low-priced used cars) d. Restaurant Required: Match each company with its financial information.

Answer 1

a. full line department store is company 3

reason: A departmental store must have a huge inventory and very high cost of goods sold, this is consistent with 65.7% and 85.9% of company 3. Also, departmental stores mostly deals in cash, hence company 3's low receivables of 8.8% is also consistent.

b. Whole Sale Fish Company is company 4

Reason: A whole sale company must have receivables as they mostly deal in credit. This is consistent with company 4's 35.6% Receivables. Also, since it is FMCG the cost of good sold ratio should also be high. Company 4 satisfies this too (84.2%)

c. Auto-Mobile Dealer is company 2

Reason:Automobile dealer in expected to have a greater inventory than that of a restaurant, which is justified with company 2's 45.8% inventory. Also the COGS should be higher for a car dealer in relation to a restaurant. This is again justified with high COGS of 63.6% of company 2. Also, the current ratio should be high as they have higher inventories than a restaurant.

d. Restaurant is company 1

Reason: A restaurant nature of work is not expected to require a high inventory but it does needs a high fixed capital investment over the premise. Both these conditions are satisfied by company 1 which has an inventory of 7% and property of 56%. This also reflected in the current ratio of the company. Profitability too is expected to be high for a restaurant as it provides luxury services.