CASE 5

Financial Statements
and Industry Structure, 2007

DESCRIPTION
Demonstrate how financial statements reflect industry characteristics.

LEARNING
OBJECTIVE
Predict the firm and its industry group using disguised financial
statements.

SUBJECTS
COVERED
Financial Management, Financial Ratios.

This case was prepared by Vishwanath S.R. of Institute of Management Technology, Nagpur.
 Case 5: Financial Statements and Industry Structure, 2007 115

Susy Thomas, after graduating from a premier Business school joined a prominent investment bank
as an Equity Analyst. In the first year of training, she was given an assignment in Financial Statement
Analysis. She was given the financial statements of 8 companies drawn from 8 different industry
groups. Exhibits 1, 2 and 3 present the balance sheets, percent balance sheets, and select financial
data. She was asked to match the Eight companies with the (Eight) set of financial data. The
companies in the set belong to one of the following groups:
· Power Generation · Internet Service provider
· Pharmaceuticals · Advertising
· IT software · Banking
· Airline
She was told that in order to disguise the identity of the bank, loans/advances were classified as
receivables and deposits as accounts payable. Help Susy identify the companies.

Exhibit 1 Structure of Assets

Company A B C D E F G
Mar Mar Mar Mar Mar Jun Mar
2007 2007 2007 2007 2006 2006 2007
Net fixed assets 3811.35 937.89 3107.00 7135.87 144.82 2.00 4030.03
Capital WIP 781.05 280.61 957.00 3994.52 1.94 0.00
Investments 3570.15 830.21 839.00 68.93 69.60 0.00 91257.83
Deferred tax assets 63.25 17.17 79.00 37.85 0.00 0.00 1264.29
Inventories 396.42 487.60 0.00 438.99 2.92 0.00 0.16
Receivables 2277.65 2067.09 3359.00 1842.87 145.31 1.88 211505.58
Sundry debtors 1478.22 1055.71 2292.00 603.90 83.12 1.49 NA
Cash & bank balance 1367.72 1456.71 5602.00 1082.61 269.13 0.00 37121.32
Intangible / DRE not written off 6.18 24.74 0.00 156.14 2.55 0.00 133.25
Total assets 11492.72 5821.41 12986.00 10763.26 634.33 3.88 345312.46

Structure of
Total Assets (%) A B C D E F G
Net fixed assets 33.16 16.11 23.93 66.30 22.83 51.55 1.17
Capital WIP 6.80 4.82 7.37 37.11 0.31 0.00 0.00
Investments 31.06 14.26 6.46 0.64 10.97 0.00 26.43
Deferred tax assets 0.55 0.29 0.61 0.35 0.00 0.00 0.37
Inventories 3.45 8.38 0.00 4.08 0.46 0.00 0.00
Receivables 19.82 35.51 25.87 17.12 22.91 48.45 61.25
Sundry debtors 12.86 18.13 17.65 5.61 13.10 38.40 NA
Cash & bank balance 11.90 25.02 43.14 10.06 42.43 0.00 10.75
Intangible / DRE not written off 0.05 0.42 0.00 1.45 0.40 0.00 0.04
Total assets 100.00 100.00 100.00 100.00 100.00 100.00 100.00
Source: CMIE Prowess.
116 Cases in Corporate Finance

Exhibit 2 Structure of Liabilities

Company A B C D E F G
Mar Mar Mar Mar Mar Jun Mar
2007 2007 2007 2007 2006 2006 2007
Net worth 6033.11 4373.36 11162.00 2237.25 411.19 3.47 24663.26
Paid-up equity capital 197.92 83.96 286.00 86.33 42.39 4.35 899.35
Preference capital 0.00 0.00 0.00 0.00 0.00 0.00 350
Reserves & surplus 5835.19 4289.40 10876.00 2150.92 368.80 –0.88 23413.91
Free reserves 4273.44 4270.81 10870.00 1962.90 1599.76 0.00 17992.16
Borrowings 3633.36 329.90 0.00 6210.91 0.53 0.16 70661.14
Deferred tax liabilities 68.95 74.91 0.00 368.91 0.00 0.00 654.33
Current liabilities & provisions 1757.30 1043.24 1824.00 1946.19 222.61 0.25 249333.73
Total liabilities 11492.72 5821.41 12986.00 10763.26 634.33 3.88 345312.46

Structure of
Total Liabilities (%) A B C D E F G
Net worth 52.50 75.13 85.95 20.79 64.82 89.43 7.14
Paid-up equity capital 1.72 1.44 2.20 0.80 6.68 112.11 0.26
Preference capital 0.00 0.00 0.00 0.00 0.00 0.00 0.10
Reserves & surplus 50.77 73.68 83.75 19.98 58.14 –22.68 6.78
Free reserves 37.18 73.36 83.71 18.24 252.20 0.00 5.21
Borrowings 31.61 5.67 0.00 57.70 0.08 4.12 20.46
Deferred tax liabilities 0.60 1.29 0.00 3.43 0.00 0.00 0.19
Current liabilities & provisions 15.29 17.92 14.05 18.08 35.09 6.44 72.21
Total liabilities 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Composition of
Total Burrowings (%) A B C D E F G
Bank borrowings 0.41 97.34 0.00 47.83 0.00 100.00 0.00
Short-term 0.41 97.34 0.00 13.78 0.00 0.00 0.00
Long-term 0.00 0.00 0.00 34.05 0.00 100.00 0.00
FI borrowings 0.00 0.58 0.00 7.33 0.00 0.00 0.00
Govt. / sales tax deferral borrowings 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Debentures / bonds 22.67 0.00 0.00 0.00 0.00 0.00 0.00
Fixed deposits 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Foreign borrowings 47.15 0.00 0.00 5.68 0.00 0.00 0.00
Borrowings from corporate bodies 14.04 0.00 0.00 0.00 0.00 0.00 0.00
Group / associate cos. 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Borrowings from promoters / directors 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Commercial paper 13.76 0.00 0.00 0.00 0.00 0.00 0.00
Hire purchase borrowings 0.00 0.00 0.00 39.16 100.00 0.00 0.00
Other borrowings 1.96 2.08 0.00 0.00 0.00 0.00 0.00
Total Borrowings 100.00 100.00 0.00 100.00 100.00 100.00 100.00
Source: CMIE Prowess.
 Case 5: Financial Statements and Industry Structure, 2007 117

Exhibit 3 Imporatant Financial Ratios

A B C D E F G
Current Ratio 2.3 3.845 4.913 1.729 1.875 7.52 0.997
Quick Ratio 2.074 3.378 4.913 1.503 1.862 7.52 0.997
Debt Equity Ratio 0.602 0.075 0 2.776 0.001 0.046 2.865
Interest Coverage Ratio 5 27.29 90.21 90.21 –0.15 NA 1.25
Net Profit / Net Sales 14.23% 27.30% 28.78% 53.46% –1.30% –31.82% 13.53%
Debtors Collection Period (Days) 94 68 53 27 58 351 NA
Creditors Payment Period (Days)* 59 83 NA NA NA NA NA
Working Capital Cycle (Days)* 88 98 NA NA NA NA NA
R&D / Sales 0.10% 6.65% NA NA NA NA NA
Return on Investment 9.91% 30.15% 38.79% 51.25% –0.13% –9.37% 21.46%
Fixed Asset Turnover 1.29 4.6 4.23 0.99 3.2 0.55 5.71
Working Capital Turnover 2.14 1.45 1.84 4.99 2.38 0.67 –32.54
* Source: CMIE Prowess.