Assessing A Company's Future Financial Health

The list of companies matched with their corresponding balance sheets and financial ratios are as follows : -

A – Electric Utility
B – Discount General Merchandise Retailer
C – Japanese Automobile Manufacturer
D -
Automated test equipment/systems company
E - Upscale apparel retailer

It can be observed from exhibit 3 that the fixed assets(The property and equipment cost and other non-current assets) for Company A are 74.5%. Out of the five companies given the electric utility company was highly likely to have more expensive non-current assets. It is also understandable that even during a period of economic crisis, the common man cannot do without electricity entirely but can only cut down his usage. The inventories is also only 1.8%.

Company B has a fixed asset percentage of 49.6 and Company C has 34.1. Intuitively, one could assume these to be the automobile manufacturer and the general merchandise retailer. The inventories for B and C are 24.6 and 13.7 respectively. Both of which are high. Given the economic condition in 2009, I assume that less number of people were interested in buying cars than they were in buying general commodities. It was likely that the automobile industry had a higher liability or debt ration which is 62. The days of inventory 62 as compared to that of the merchandise's 32 which makes sense since the automobile inventory period is likely to be higher. The inventory for the general merchandise is also high and their profitability low. This could have been due to the way the prices of commodities were hit during the recession.

Company D is most likely to be the automated test equipment company as the inventories is minimal(4.7). An automated test equipment company is not expected to have much inventory since they do not manufacture goods but only test the equipment of their