Identify the Industry - Case 5

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  Introduction: Companies as being artificial person demonstrate their own characteristics, which can be measured by the companies’ norms, their business operations and practices, their relationships to the stakeholders and their financial reports. These features can better be measured as companies form a certain industry. Above all mentioned characteristics are commonly similar for almost all companies in a certain industry. Besides, above mentioned major features can be measured by the financial reports, As companies practices are represented by their asset portfolio, leverage,  profitability or any other significant financial information. These major financial information are income statement, balance sheet, statement of cash flow and statement of changes in owners’ equity, which in combine reports the operating activities, financial position, flow of changes in cash and equity. Stakeholders can mold the financial information through ratio analysis/ financial statement analysis to get a certain conclusion about a certain company or industry. These ratios can be used to identify the industries; a particular business is operating in. The accounting ratios are used to analyze different business about what are they doing, in what field their operations are, what is the profitability, turnover, liquidity, soundness of business etc. This information is useful for many purposes by stakeholders of the business. Problem: Using the data provided in the case study, we are required to identify the companies’ business that which data pertains to which category of business. Analysis and Discussion:  In this study, financial informed judgment and ratio analysis is used to identify the company or industry. In some cases, the financial information of some companies such as M/s. Marathon Oil Company are referred to identify the industry. Company E Company E has been identified as regional bank because of the following justifications. i.   First of all, key feature of a bank is its leverage. Banks tend to have a high leverage normally ranging from 70% to 90%, as company E has a leverage of 92.1% with accounts payable of 84.7%. ii.   The second feature of a bank is its financing. Normally 60% to 70% of banks assets are consist of financing which is 63.1% in Company E. iii.   Besides, as primarily banks are borrow er of demand deposits, that’s why banks normally have a high amount of cash on hand, which is 32.7% in Company E. iv.   Finally as a services organization, banks don’t keep any inventory, where company E has no inventory in its financial reports. This feature may also be found in other services company but above three features classify Company E as a regional bank.

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