RONA Inc. (www. rona. ca), founded in 1939, is Canada€™s leading distributor and retailer of hardware, home improvement, and gardening products. It has a network that exceeds 600 stores across Canada. Its sales grew from $ 478 million in 1993 to $ 4,884 million in 2012. Its financial statements for 2011 and 2012 are shown on the next few pages.
Required:
1. Examine RONA€™s balance sheets. Why did the company€™s assets increase significantly in 2012? Which sections of the annual reports would include information that helps the reader answer this question? Which assets show the largest increases, and how did the company finance the increase in these assets?
2. RONA€™s current assets include a prepaid expenses account with a balance of $ 20,162. What does this account represent, and what type of transactions would cause an increase or a decrease in the account balance? Explain.
3. Compute the total asset turnover ratio, return on assets, return on equity, and net profit margin ratio for both 2011 and 2012. Comment on the profitability of RONA€™s operations in both years. RONA€™s total assets and shareholders€™ equity at December 26, 2010, amounted to $ 2,921,620 and $ 1,911,697, respectively.
4. RONA€™s operations generated significant amounts of cash during both 2011 and 2012. The company also made significant investments in 2012. How did the company finance these investments?
5. Compute and interpret the quality of earnings ratio for both 2011 and 2012.
6. Access one of the online information services listed in the chapter, search for RONA Inc. (RON. TO), and look for analyst estimates. What is the average analysts€™ estimate of RONA€™s earnings per share (EPS) for the next two years? Do analysts expect RONA€™s EPS to increase or decrease in the future? What information did the analysts take into consideration in computing their EPS estimates for the next two years?

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RONA Inc. Consolidated Statements of Financial Position December 30, 2012 and December 25, 2011 in thousands of dollars) 2012 2011 Assets Current Trade and other receivables (Note 10) Other financial asets (Note 11) Current tax assets Inventory (Note 6) Prepaid expenses $ 21,006 363,152 1,440 15,145 90,437 20,162 1311,342 S 17.149 370,094 1.468 7,616 Current assets 1,257 450 Other financial assets (Note 11) Property, plant, and equipment (Note 12) Non-current assets held for sale (Note 13) Goodwill (Note 14) Intangible assets (Note 15) Other non-current assets (Note 16) Deferred tax assets(Note 7) 15,045 813,901 22,898 428,180 143,725 5,114 13.617 874.246 10,455 426,968 126,968 5.435 Total assets Liabilities Current S 4.377 487,864 2,527 Bank loans Trade and other payables Dividends payable Current tax liabilities Derivative financial instruments (Note 25) Provisions (Note 20) Instalments on long-term debt (Note 18) $ 11,332 495,698 2,258 3,553 16,335 Current liabilities 540,859 522,663 Long-term debt (Note 18) Other non-current liabilities (Note 19) Provisions (Note 20) Defe rred tax liabälities (Note 7) 05,020 34,741 17,712 232,073 33,653 3.606 Total liabilities 22,882 824,754 RONA Inc. Consolidated Statements of Financial Position December 30, 2012 and December 25, 2011 (in thousands of dollars) 2012 2011 $ 764,882 1,071426 12,521 Share capital (Note 22) $ 793416 1,115,801 11,386 (505) 1.920,098 Retained eamings Contributed surplus Accumulated other comprehensive inoome Total equity attributable to owners of RONA Inc. Non-controlling interests Total equity Total liabilities and equity 1,846,232 37.344 1,883,576 $2,806458 1.955,624 $2.780,378 The accompanying notes are an integral part of the consoidated financial statements. RONA Inc. Consolidated Income Statements Years ended December 30, 2012 and December 25, 2011 in thousands of dollars, except per share amounts) 2012 4,884,016 2011 Revenues (Note 4) Operating profit before impairment and restructuring costs, 4804,584 impairment of non-financial assets and other charges (Note 5.1) Goodwill impaiment (Note 14) Restructuring costs, impairment of non-financial assets and 5,563 156,900 (117,000) other charges (Notes 54) Operating profit flces) Finance income (Note 25) Finance costs (Note 25) 41,295 5,333 5,262 15.243) 29,467 Income (loes) before income tax expense Income tax expense (Note 7) Net income (loss) Net income (loss) attributable to: 26,062 19,083 $ 17,297 (60,910) (74.773 Owners of RONA Inc. Non-controling interests $ (78,382) 3,609 S (74.773 1.786 Net income loss) per share attributable to owners of RONA Inc. (Note 29) Basic Diluted 0.07 0.07 $10.66) The related notes fom an integral part of these consolidated financiai statements. RONA Inc Consolidated Statements of Cash Flows Years Ended December 30, 2012, and December 25, 2011 (in thousands of dollars) 2012 2011 Operating activities Income (loss) before inoome tax expense 26,052 $(60,910) Depreciation, amortzaton and impairment of non-finajncial assets iNote 5.2 Change in provision for restructuring costs Change in fair value of derivative financial instruments 115735 ee 149.736 23,135 (628) (3,973) 159) (1,123) 117,000 (2,684) Stock-based compensaton expense (recovery) (Note 23) Diffe rence between amounts paid for post-employment benefits and 3,676 3,036) 159,738 (2.855) 202.313 (14.877) 66,682 268.995 3,898 Net change in working capital (Note 8) 44,861 3,825 (23139 (42.648 125,547 230.245 Cash flows from operating activities Acquisition of property, plant, and equipment (Note 12) Acquisition of intangible assets (Note 15) Acquisition of other financial assets Proceeds on disposal of property, plant, and equipment Proceeds on disposal of other financial assets Interest received Cash flows from investing activities 11,808) (47,707) (37,971) (70.198) (39,225) (6,049) 10,216 4.765 1.365 48.403) (2968) 16,498 2,612 813 (81.22 146.833) Financing activities Bank loans Other long-term debt Financing o0sts Repayment ot other long-term debt Repurchase of debentures Proceeds from issue of common shares Proceeds from issue of preferred shares Fees related to issue to preferred shares Repurchase of common shares (Note 22) Cash dividends paid by a subsidiary to non-controlling interests Dividends on common shares Dividends on preferred shares Interest paid 4,073 80,912 (80) (326) 92,112 (2,541) (19,99) 33,886) 283,171) 4.406 172.500 (5484) (66,767) (31768) (3.920) (17,191) (18253) (5458) 18.033 (26.051) 5,676 9,062) Cash flows from financing activities (40463) 141840) Net increase (decrease) in cash Cash, beginning of year Cash, end of year 3,857 17,149 58428) 75,577 $21,006 17,149 The reiated notes form an integral part of these consoldated Noancial statements