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Selected Industries:
Nature of Business Model:
Selected Focus Areas:
Business Services (for example, temporary help, advertising, and consulting.)
• People are key assets.
• Much of the company value is likely to be intangible (not on the balance sheet).
• Revenue recognition.
• Recurring sources of revenue (for
example, long-term
contracts).
• Gross margin (1 –
cost of goods as % of revenue) since it tells you about "pricing power" with customers.
Computer Hardware
• Rapid price deflation (decrease in price-to- performance).
• Rapid inventory turnover.
• Rapid innovation and product
obsolescence.
• Revenue breakdown into no. of units x avg. price per unit (how many units are selling?).
• Cash conversion cycle (days
inventory + days receivable – days payable).
• Quality of research and development (R&D) spending and joint ventures.
Consumer Goods
• Brand value is critical.
• Companies require efficient inventory because it is often perishable.
• Industry sees relatively low
margins.
• Cash conversion cycle and inventory turnover.
• Gross margin.
• Operating margin
(for example, EBIT
or EBITDA margin).
• Key factors not in
statements: new product development and investment in the brand.
Industrial Goods (materials, heavy equipment)
• Cyclical.
• If commodities, then
market sets price.
• Heavy investment in
long-term assets.
• High fixed costs.
• Long-term assets and depreciation methods.
• Asset turnover (sales/assets) and asset utilization (for example, return on
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