Case # 2: The Financial Detective

Airlines

The first airline is a major airline that flies domestically and internationally. This airline

corresponds with the financial statements for Company A. The company description discloses

that the airline merged with one of the largest airline carriers in the United States. Goodwill is

an indicator of mergers and acquisitions because it represents the premium paid for the

acquisition, and the financial statements for Company A have a goodwill balance of 28% of total

assets, versus Company B’s 1%. The second airline is the leading low-cost carrier operating

primarily in the United States. This airline corresponds with the Company B financial

statements. The Company B statements have a lower profit margin (10.6) than Company A

(11.1) which make sense for the second airline because they are the leading low-cost carrier.

Additionally, The company only has three models of aircraft, which correlates with the lower

cost of goods sold on the Company B statements (60% of Revenue vs 70% of Company

A).

Beer

The first beer company is a national brewer of mass-market consumer beers. This beer company

corresponds with the financial information for Company C. The company description discloses

that the beer company acquired several large brewers from around the globe. As discussed

above, goodwill is an indicator of mergers and acquisitions, and the goodwill balance for the

Company C statements are 70% of total assets versus the 1% of Company D. Additionally,

Company C’s net income is 19% of revenue versus Company D’s of 10%. Given that this

company owns beer-related businesses such as snack-foods, aluminum-container manufacturing

companies and theme parks, it makes sense that the net income would be higher than Company

D. The second beer company is the largest craft brewer in the United States. This beer company

corresponds with the financial information for Company D. This company is described as

financially conservative, which corresponds with the 0% balance of long-term debt versus the

32% of Company C. This company is described as financially conservative, which correlates

with the high current assets (35% of total assets vs 14% of Company C), low liabilities (29% of

total liabilities and stockholders’ equity vs 66% of Company C), and high liquidity ratios

displayed in the Company D financials.

Computers

The first computer company is financially conservative and sells supercomputers to government

agencies, universities, and commercial businesses. This computer company corresponds with the

Company F financial statements. This company is described as financially conservative, which

correlates with the high current assets (84% of total assets vs 31% of Company E), low liabilities

(29% of total liabilities vs 59% of Company E), and high liquidity ratios displayed in the

Company F financials. The company sells high performance computers to various entities,

which corresponds with the higher R&D (13% of revenue vs 3% of Company E). The second

computer company uses a vertical integration strategy to sell personal computers, handheld

devices and software. This computer company corresponds with the Company E financial

statements. Seeing as the company utilizes a vertical integration system, it has a lower inventory

(1% of total assets versus 16% for Company F). The product carries premium prices

domestically and globally, which corresponds with the high net income (23% of revenue vs 4%

of Company F) and high profit margin (22.8% vs 3.8% of Company F).

Hospitality

The first hospitality company operates hotels and residential complexes. This hospitality

company corresponds with the Company H financial information. The company description

discloses that this hospitality company’s growth is inorganic and fueled by the company buying

rights to manage existing hotel chains/ the rights to use the hotel’s brand name. As discussed

above, goodwill is an indicator of mergers and acquisitions, and the goodwill balance for the

Company H statements is 39% of total assets versus the 9% of Company G. The company earns

revenue monthly from long-term contracts with the hotel owners, which correlates with the

higher accounts receivable in Company H’s financial information (18% of total assets vs 4% of

Company G). The second hospitality company owns and operates chains of upscale full-service

hotels and resorts. This hospitality company corresponds with the Company G financial

information. This company owns its hotels, which corresponds to the high Net PP&E in

Company G’s financial statements (53% of total assets vs 17% of Company H). Owning and

operating full-service hotels and resorts is associated with higher COGS, which is reflected in

Company G’s financial information (63% of revenues vs 26% of Company H).

Newspapers

The first newspaper company owns and operates two newspapers in the southwestern United

States. This newspaper company corresponds with the Company J financial information. The

company description discloses that this newspaper company has been acquiring firms in more

profitable industries. As discussed above, goodwill is an indicator of mergers and acquisitions,

and the goodwill balance for the Company J statements is 19% of total assets versus the 5% of

Company I. The second newspaper company is sold domestically and around the world. This
newspaper company corresponds with the Company I financial information. The description

claims that the company has remained profitable due to its strong central controls, and Company

I is the only profitable company presented (Net income 4% of revenue vs -7% of Company J).

Pharmaceuticals

The first pharmaceutical company sells both human and animal products. This pharmaceutical

company corresponds with the Company L financial information. The primary strategy for this

company is through the discovery and development of new and innovative drugs, which

corresponds with the high R&D of Company L’s financials (24% of revenue vs 3% of Company

K). The second pharmaceutical company sells generic pharmaceuticals and medical devices.

This pharmaceutical company corresponds with the Company K financial information. The

primary strategy for this company is through highly leveraged acquisitions, participating in over

100 in the past 8 years. As discussed above, goodwill is an indicator of mergers and acquisitions,

and the goodwill balance for the Company statements is 85% of total assets versus the 26% of

Company L. Additionally, Company K financials have higher long-term debt than Company L,

corresponding with the highly leveraged acquisitions (62% of total liabilities and shareholders’

equity vs 22% of Company L).

Power

The first power company focus on solar power. This power company corresponds with the

Company N financial information. The company manufactures, sells, and performs maintenance

on their systems, which corresponds with the high current assets on Company N’s financial

statements (46% of total assets vs 19% of Company M). Additionally, Company N spent money

on R&D, which is logical for a company in the solar power industry in order to stay relevant and
up-to-date (4% of revenue vs 0% of Company M). The second power company owns coal-

powered electric-power-generation plants globally. This power company corresponds with the

Company M financial information. This company owns power plants, which corresponds to the

high PP&E in Company M’s financial information (62% of total assets vs 19% of Company N).

Most of the revenue comes from power-purchase agreements, which corresponds with the high

long-term debt in Company M’s financial statements (50% of total liabilities and shareholders’

equity vs 4% for Company N).

Retail

The first retail company is the leading e-commerce company selling media and electronics. This

retail company corresponds with Company O’s financial information. Working in the electronic

industry requires higher R&D, which is reflected in Company O’s financial statements (12% of

revenue vs 0% for Company P). An online retailer will have a higher inventory turnover ratio

than a brick-and-mortar, which is also displayed in Company O’s financial information (7.7 days

vs 4.9 days of Company P). The second retail company is a traditional brick-and-mortar apparel

retailer. This retail company corresponds with the Company P financial information. The brick

and mortar store platforms require higher PP&E (49% of total assets vs 33% of Company O),

SG&A (28% of revenue vs 19% of Company O), and higher inventory (25% of total assets vs

16% of Company O) than its online counterpart, all of which are reflected in the Company P

financials.