Chapter 14: Industry classification

Question 1

List the ten industry groups used in the FTSE industry used the FTSE classifcation systems

Answer 1

• Financials
• Technology
• Basics materials
• Utilities
• Consumers goods
• Industrials
• Consumers services
• Health care
• Oil and Gas
• Telecommunications

Question 2

Define the oil and gas economic group

List four typical characterics of such compoanies

Answer 2

Oil and Gas

• Involved in the extraction and suuply of oil and gas products

Key characteristics

• Large
• Commodity Price dependent
• high risk
• Global

Question 3

Describe the types of companies in the consumer goods sector

List 6 features of such companies

Answer 3

• Manufacture consumer durables (cars, furniture, televisions and white goods) and non - durables (food and drink pharaeuticals, tobacco, health and household products, beverages and packaging)

Six features

• Cyclical (durables) non cyclical (non durables)
• increasingly capial intensive
• moderate to high intensive
• moderate to high gearing
• low profit margins - due to extreme compeition
• importance of brand names
• increasingly international

Question 4

List the types of companies found in the consumer services sector.

State three key features of such companies

Answer 4

• Consumer service companies include food, drug and general retailers, transport, hotel and media companies, distributors, restaurants and pubs and support services

Three key features

• Labour intensive
• more defensive companies in the group have high gearing
• domestic market is most important

Question 5

Describe the type of companies found the utilities sector

List 6 key features of such companies

Answer 5

Supply continously demanded services to households and business premises, eg electricity, water and distribution

6 features

• Vulnerable to political risk, price controls and changes in regulations under which they operate
• requrie extensive physical infrastructure; hence capital intensive
• mostly nature monopolies
• generally have low growth prospects/ leads to high gross dividend yield
• despoite stable demand and large capital requirements, financial gearing is low
• largely dependent on domestic market, although some companies diversifying internationally

Question 6

Describe the compaies found in the financial sector

Answer 6

• Includes banks, general insurance companies,life assurance companies, investment trusts and real estates companies
  
  • Tend to be capital intensive, otherwise
    
    • Bank’s highly geared and have volatile profits
    • General insurers have volatile profits and virtually no borrowings
    • Life iinsurers have stable profits and low gearing
    • Labour costs important for many companies in group
    • Domestic market most important but increasing globalisation

Question 7

Describe the companies found in the technology sector

Answer 7

• Companies involved in hardware, software and provision of computer services
• Many companies yet to make profit or pay dividends
• Dividend yields on are therefore low, and assets can be largely intangible

Question 8

Describe the companies found in the healthcare sector

Answer 8

• Companies involved in providing healthcare, medical equipment and supplies, as well as pharaceuticals
• Tend to be non - cyclical

Question 9

Describe the companies found in the telecommunications sector

Answer 9

Companies involved in fixed line and mobile telephone services