A summary of selected historical results is presented below for three Canadian companies: Barrick Gold, WestJet Airlines, and Le Groupe Jean Coutu. Each of these companies has grown in size over time by acquiring assets and investing in other companies. (Amounts are in millions of dollars.)

Required:
1. Compute the net profit margin and the return on equity ratios for each company for each of the years 2006-2008 using the table below.

2. Based on the computed ratios, rank these companies from most successful to least successful in generating income for shareholders.
3. Assume that you are interested in investing in one of these three companies, which company would you choose? Write a brief report to justify your choice.
4. Analysts examine both profit and cash flow from operating activities in evaluating a company. One measure that relates these two numbers is the quality of earnings ratio, which equals cash flow from operations divided by profit. The higher the ratio, the higher the quality of earnings. Compute this ratio for 2006-2008, and rank the three companies from highest to lowest, based on the quality of their earnings.

Transcribed Image Text:

2008 2007 2006 2005 2004 2003 Barrick Gold Total shareholders' equity Total revenue Profit $15,277 $15,256 $14,199 7,913 6,332 5,630 785 1,119 1,506 $3,850 $3,574 $3,481 2,350 1,932 1,035 401 248 200 Operating cash flow 2,206 1,732 2,122 726 509 519 WestJet Airlines To:al shareholders' equity 1,086 950 806 670 590 581 Total revenue 2,549 2,127 1,774 1,393 1,058 864 Profit (Loss) 178 193 115 24 (17) 61 Operating cash flow 461 541 336 247 144 192 Le Groupe Jean Coutu Total shareholders' equity 753 1,223 1,906 1,412 853 1,020 Total revenue 1,676 13,265 11,143 9,617 3,043 4,052 Profit (Loss) (251) 163 104 104 133 164 Operating cash flow 146 192 165 222 186 214