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Comparison within Industries Essay

The first company holds a substantial number of patents on original research. Therefore it would have a higher profit margin, as there is little to no competition in the area of original products. Because distributes drugs to only doctors and hospitals it would have a relatively low inventory and receivables. This would result in a lower current ratio. In contrast the second company mass markets a broad line of over-the-counter products and therefore would face higher competition, resulting in a lower profit margin.

Furthermore since it adopts a mass-market approach it would have a relatively higher inventory, and a higher asset turnover ratio. Based on the above analysis, I conclude that the first company is

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Company B, and the second company is Company A. Household Appliances: The first of the Household appliance companies focuses on a high quality with a commensurate price strategy and therefore would expect to see a higher profit margin.

The second company currently has a multiyear contract with one of the leading retailers in the US and therefore has more certain future cash flows, meaning that the company is less risky; highlighted by the lower Beta. Based on the above analysis, I conclude that the first company is

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Company D, and the second company is Company C. Computers: The first company is a mail-order seller, and therefore would have a higher receivables turnover as most payment is made through online credit card payment.

Its key target is to achieve high sales at lower prices and therefore would have a lower profit margin and higher inventory turnover. The second company sells through dealers and a sales force. I would therefore hold higher levels on inventory and have a lower inventory turnover ratio. The company aims to be the market leader in service and quality and therefore would have a correspondingly higher profit margin. Lastly the company aims to offer a broad product line and therefore due to this diversification would be a less risky company; reflected by a lower beta.

Based on the above analysis, I conclude that the first company is

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Company F, and the second company is Company E. Retail: The first company in the Retail sector sells largely on credit, reflecting a dramatically higher receivable. The company primarily leases its properties and therefore would have lower fixed assets and hence a much higher debt to asset ratio. The second company is a rapidly growing chain and therefore to fund this growth would have a lower dividend payout ratio. The company is known for its ability to underprice competition in order to obtain higher unit-sales.

This is reflected by a high asset turnover ratio. Also to meet the demand created from the extensive advertising this company would have to maintain higher inventory levels. Based on the above analysis, I conclude that the first company is

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Company G, and the second company is Company H. Hotels: The first Hotel owns one of the largest food-service contractors and therefore has a higher inventory turnover. The company key strategy is to not own, but manage its hotels. This factor combined with the high turnover of food products means the company would have a notably high asset turnover ratio.

The second hotel’s main stand out difference is that it owned a small line of casinos. Being that casino’s are highly profitable companies this hotel would have a significantly higher profit margin. Secondly since this hotel owns its own properties, it has a higher proportion of fixed assets and a larger amount on long term debt. Based on the above analysis, I conclude that the first company is

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Company J, and the second company is Company I. Newspapers: The first newspaper is distributed worldwide and faces fierce competition.

This high level of competition would result in a much lower profit margin. The second newspaper owns a number of different newspapers, described as a portfolio of monopolies; therefore it would have very large profit margins. The newspaper also has a significant amount of goodwill, which is reflected by a higher “Other Assets”. In the majority most of the figures and ratios are the same, with just the differences as noted above. Based on the above analysis, I conclude that the first company is

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Company L, and the second company is Company K.

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