Fundamentals and Principles of Corporate Finance

Question: Discuss about the Fundamentals and Principles of Corporate Finance. Answer: Introduction: The objective is to match the balance sheet with the various companies that are offered based on the constituent elements and also on the basis of the given ratios. The balance sheet belongs to the retail grocery chain. Certain indictors are the presence of high revenue per asset generation but low profitability. Also, the account payables are moderately high as suppliers would need to be paid. Besides, there is moderate distribution of assets in the form of receivables, inventory along with plant and equipment which is essentially on expected lines in this business (Damodaran). The balance sheet belongs to a bookstore chain. This is apparent from the presence of high level of inventory along with investment in plant and equipment. The low receivable collection period is also expected considering the business. The high payables are also on expected lines as books on credit are displayed in the stores and payment for the same is made later (Northington). This balance sheet belongs to the online direct factory to customer personal computer vendor. This is because again the inventory levels are quite small while the inventory turnover is very high which is indicative of the online business. This makes sense as the company directly ships from the factory and hence maintains very low inventory levels. Also, the high accounts receivables period witnessed clearly reflects the sales to business customers (Brealey, Myers and Allen). This balance sheet belongs to a pharmaceutical manufacturer. This is because more than 50% of the assets are attributed to other assets which may be on account of intangible assets such as patents. The receivable collection period is also high which is indicative of the focus being non-retail. Also, the profit percentage of the business is very high (second highest amongst the 14 companies given) which also indicates towards a drug manufacturer (Parrino and Kidwell). This balance sheet belongs to the parcel delivery service. The zero inventory level is indicative of the service nature of the business. Further, there are significant development in the supply chain and logistics which is reflected in the plant and equipment. A lot of investment is required and the high collection period is reflective that the business tends to serve the businesses directly which forms a bulk of the business (Northington). This balance sheet belongs to the computer software developer. As expected, the plant and machinery are low since the business is essential service oriented and also inventory is very low. Besides, other assets and cash are significant assets which may be attributed to the high profitability of the business and presence of trademarks respectively. The profit margins are the highest which go well with the software development business (Damodaran). This balance sheet belongs to the social networking service. The zero inventory level is indicative that it is a service business. Also, a high degree of the assets are in the form of cash which is quite expected. There are very few current liabilities for such a business which accounts for very high current ratio. Further, the net profit/net worth is the lowest for the lot which clearly indicates that even though the business does not generate much profits but it is valued at very high levels primarily because of the expected growth potential (Brealey, Myers and Allen). This balance sheet belongs to the restaurant chain. This is apparent from the high inventory turnover ratio which is expected in perishable food business. Besides, the receivables collection period would also be low which the case here is. Also, high inventory for serving customers is required besides having significant amount of plant and equipment(Parrino and Kidwell). This balance sheet belongs to the drug retail chain. This is apparent from high amount of inventory in the form of medicines coupled with a low receivable collection period due to the nature of business. Also, due to physical presence, significant investment in plant and equipment would be required. Besides, there is presence of moderate account payables in the form of supplies coupled with a mix of both long term and short term financing depending on the business usage(Damodaran). This balance sheet belongs to the Departmental Store Chain with their own credit card. The expected balance sheet items would show a distribution similar to that of a retail grocery chain except that the receivables period would be comparatively higher on account the credit card and also the inventory turnover would be comparatively lower(Brealey, Myers and Allen). This balance sheet belongs to the online retailer. The high inventory may suggest that the retailer may be relying on private labels or might offtake large amount from supplies and then sell this through online mode. Besides, there is sizable investment in the enabling infrastructure so as to be able to reach the consumers reflected in plant and machinery. The low receivable indicate that the company processes order either on cash payment or advance payment. Further, it gets credit period from the suppliers(Northington). The balance sheet belongs to the electric gas utility company. The significance of revenues from gas is the presence of inventory which would have been absent for a pure electric utility company. Besides, there is high investment in plant and equipment and the majority debt is long term due to large gestation period of these projects. Besides, the receivable period is quite high at 57 months which is expected as first the bills are generated and then within a month or so, these are cleared(Parrino and Kidwell). The balance sheet belongs to the airline. The zero inventory level reflects the service nature of business. Besides, a high amount of plant and equipment is expected on account of significant investment in airplanes and related infrastructure. Also, the receivables collection days would be low only as ticket prices are collected mostly before-hand. Besides, the profitability of the industry is low which is reflected from the low profit margins(Damodaran). The balance sheet belongs to the commercial bank. The zero inventory level reflects the service nature of business. This is apparent from the receivables forming about 83% of thee total assets as loans are extended to various entities. Further, the high collection period of 8047 days is always indicative of the long term loans and lending business of the concerned entity(Brealey, Myers and Allen). References Brealey, R, S Myers and F Allen. Principles of Corporate Finance. London: McGraw Hil Publications, 2008. Damodaran, Aswath. Corporate Finance. London : Wiley Sons, 2008. Northington, S. Finance. New York: Ferguson, 2011. Parrino, R and D Kidwell. Fundamentals of Corporate Finance. London: Wley Sons, 2011.