The Comprehensive Guide on How to Read a Financial Report: Wringing Vital Signs Out of the Numbers, + Website

CHAPTER 6

OUR CASE STUDY—COMPANY INTRODUCTIONS

Company Overviews

Through the balance of the book, all future references center on our case study, which presents two different companies operating in the same industry and executing the same basic business plan. For all-intensive purposes, these companies are alike in every way as noted in the following summary of key operating, marketing, and legal strategies:

• The companies generate revenue (or sales) from two primary sources, including the sale of annual enterprise resource planning (ERP) software licenses and the necessary technology hardware (i.e., computers, servers, mobile devices) to support the ERP system. All annual ERP software licenses are billed in advance for the next 12-month period. All sales of hardware are billed at the point of delivery and sign-off or acceptance by the customer.
• The companies do not manufacture the hardware technology but rather purchase it from third-party suppliers and then resell the products to their customers. The equipment is purchased and stored at the companies’ facilities to support future deliveries (so inventory is maintained).
• Total operating expenses for both companies are similar as it relates to the number of employees, compensation rates, benefits, facility requirements and expenses incurred, and so on. However, each company may elect to allocate the total operating expenses to different internal functions (e.g., sales and marketing versus research and development versus general ...