The Financial Detective 2016 Case Solution

2. Analysis

Considering the two companies in the airlines industry, Company A has large scale operations as it provides domestic as well as international flights. Its additional services of providing travel packages and repair services are sources of additional revenue for the business. Also, the merger with a large US carrier company ensured enhanced market share for the company. Company B on the other hand is a US based carrier offering limited routes and having a small fleet of three aircrafts, which would mean lower costs for the business in terms of maintenance. However, the goodwill for the company A is substantial as compared to company B. Similarly, the company A also earns from the additional services offered indicated by the other revenue. Company B on the other hand enjoys lower costs due to simple business model and a smaller fleet, which ensures operational efficiency and lower maintenance costs. Hence, the higher Gross Profit and Earnings before tax for Company B can be justified. Apart from this, the investor ratios like return on equity and dividend payout is high for Company because of its large scale, which allows it to earn higher returns owing to its large market share.

Comparing companies C and D in the beer industry, company C seems to be a large company with widespread network as it caters to the national market by providing its product under various brand names. Company B on the other hand is a craft beer provider, hence targets a niche market segment. The goodwill for company C is high because of the number of brands that come under it whereas company D just has a particular craft beer brand. The cost of goods sold for Company C is lower than Company D as Company C enjoys economies of scale, which is not the case for Company D, which is a specialty beer manufacturer. Hence, this justifies the higher profitability.

Company E targets a niche computer market segment by providing computer equipment to commercial bodies whereas Company F provides personal computer and equipment and provides its own operating system. The pricing is premium because of the differentiated offering. In terms of financial performance, it can be seen that inventory for Company E is low because of the limited demand it caters to. Cost of goods sold for Company F is high as it not only produces computer equipment but also develops operating system incurring additional costs.