In the “All About You” feature, you learned that there are online investment services that provide advice to investors. These services off er stock quotes, company research reports, personal finance information, news, online seminars, podcasts, and message boards. However, it is also important that as an investor you differentiate good information from bad information. Reading the financial statements and preparing a ratio analysis is one step in evaluating an investment. You have recently inherited $10,000 cash and you are considering investing in Canadian Tire Corporation, Limited’s shares.

Instructions

Go to Canadian Tire’s website at http://corp.canadiantire.ca and click on “Investors” then click on “Financial Reporting,” followed by “Annual Disclosures,” and go to the 2016 annual report.

a. Included in the annual report is Management’s Discussion and Analysis (MD&A), which provides highlights of the company’s operations, explanations for changes in the company’s financial position, and strategic plans for the future. How might the MD&A provide useful information in your evaluation of the financial statement ratios?

b. On the “Investors” section of Canadian Tire’s website, click on “Shareholders” and then click on “stock information”, scroll down to “Historical Stock Quote.” What were Canadian Tire shares’ closing price on the following dates?

1. December 29, 2017

2. December 30, 2016

c. Calculate the following ratios for the 2016 fiscal year. Compare these with the 2017 ratios shown in the chapter for Canadian Tire and reproduced in parentheses after each ratio below. For each 2017 ratio, has it improved or deteriorated from 2016?

1. Current ratio (1.9:1)

2. Inventory turnover (5.1 times)

3. Debt to total assets (64.3%)

4. Interest coverage (9.1 times)

5. Gross profit margin (34.5%)

6. Profit margin (6.1%)

7. Return on assets (5.3%)

8. Return on equity (14.5%)

9. Price-earnings ratio (15.3 times) (use basic EPS)

10. Payout ratio (20.7%)

d. Under “Shareholders,” click on “Stock Information” and select “All” under the Stock Chart. Comment on the changes in the price of Canadian Tire’s shares over the five years.

e. Based on your brief analysis of Canadian Tire’s ratios and share prices, do you think buying Canadian Tire’s shares is a good investment for you? Explain.

f. If you are investing in the stock market, will you rely solely on your analysis of the financial statements? The history of Canadian Tire’s share price? Or do you think you might rely on both your financial statement analysis and the history of the share price? Explain.

g. In the “All About You” feature, we learned that critics of message boards on investment services’ sites say that message boards can intensify the rumour mill. Do you think that you should ignore message boards when making investment decisions? Explain.