Lessons from a Masters In Business Administration: Ranking Industries

Ranking Industries: in your MBA program, you might be expected to look at a list of twelve industries, from a basic chemical company and a grocery chain to an airline and a retail bank, and then compare it with a list of unlabeled balance sheet percentages and ratios. The assignments then asks you to match the industry to the correct set of numbers.

Q: How are ratios, and percentages related to a given business model?

Companies that have inventory are always trying to balance the cost of storage with supply. You might want to buy large quantities but not so much that you cannot house them. If the ratio is 1 to 1, then the inventory is equal to how much it sells. In a grocery chain you would expect a high ratio as inventory is replenished on a daily basis. In jewelry, you would expect a ratio might be below one, as each item is held for a long time before it finds a buyer. A company with many fixed assets such as a store + factory would likely have more debt than say a deal a day site whose main assets were people. Banks don’t like lending to law firms, or deal a day sites because they can walk out the door, and leave at anytime.

[This is a synopsis of several books on the MBA experience including What They Teach You At Harvard Business School by P.D. Broughton]