Linear Technologies - a Case of Unidentified Industries

A CASE OF UNIDENTIFIED INDUSTRIES

MATCHED INDUSTRIES

A. ONLINE BOOKSELLER

B. BOOKSTORE CHAIN

C. ONLINE DIRECT FACTORY TO CUSTOMER PERSONAL COMPUTER VENDOR

D. PHARMACEUTICALS MANUFACTURER

E. ADVERTISING AGENCY

F. COMPUTER SOFTWARE DEVELOPER

G. HMO

H. FAMILY RESTAURANT CHAIN

I. RETAIL GROCERY CHAIN

J. DEPARTMENT STORE CHAIN

K. RETAIL DRUG STORE

L. ELECTRIC AND GAS UTILITY

M. AIRLINE

N. COMMERCIAL BANK

Looking at exhibit 1 from the case, industries E, G, M, N have no inventory, this goes to show that these industries provide services and therefore do not have any inventory. These industries are the advertising agencies, HMO, airline and commercial bank.

Industry E and G also has high accounts receivable and a very high receivables collection period, which shows that this industry extends a lot of credit to its customers and customers take a long time to pay, which may indicate a problem with the accounts receivable department. Given that a HMO offers low cost health care nationwide its revenues will be higher than that of the advertisement agency but also since it is non profit it will be less profitable than the advertisement agency, given that the advertisement agency is there to make profit and they charge relatively high prices.

Looking at industry N which is most likely the commercial bank, it has the highest accounts receivable and receivables collection period, which is typical of a bank. One of the services of a commercial bank is to give out long-term loans to customers. This can accounts for why the accounts receivable and collection period is high.

Looking at industry M, its high plant and equipment use, its high use of long term debts, its low accounts receivable indicates that this is the airline industry among the four industries with zero inventory. The high use of machinery can be due to all their airplanes. Since the airline industry is an expensive one they will rely heavily on long-term debts and equity.

Another category of industries that have very low inventory include C, D, F, L. this can also be an indicator of the nature of these industries. Industry C which is most likely the online direct factory to customer personal computer vendor (ODFC), most of its products are outsourcing, It gets the order first and then buys the components directly from the factory, so therefore it will keep very little inventory. Most of its business is online so plants and machinery will be low. Its inventory turnover is high because customers order first and receive their orders, so in other words their products are sold immediately they are made.

Industry F which is most likely the computer software developer, this industry has the highest profitability; this is so because the most