A full set of financial statements., a Canadian chain of dollar stores has been provided.

Use the attached financial statements to answer the questions.

Show all formulas and calculations.

Questions:

1) What happened to total Shareholders Equity from 2016 to 2017? What was the largest contributing factor? Why might a board of directors make this decision?

2) Calculate the following for both years;

a. Inventory turnover ratio (for 2016 just use one year for the average inventory)

b. Days to sell inventory

c. Accounts payable turnover (assume general, administrative expenses are credit purchases) (for 2016 just use one year for the average)

d. Accounts payable payment period

3) What was the free cash flow for 2017? What does this number mean or represent to a user of the financial statements?

A D E 1 2 B DOLLARAMA INC. Consolidated Statement of Financial Position as at (Expressed in thousands of Canadian dollars) 3 4 5 6 January 29, January 31, 2017 $ 2016 Note $ $ Assets Current assets Cash and cash equivalents Accounts receivable Deposits and prepaid expenses Merchandise inventories Derivative financial instruments 59,178 11,118 62,015 $ 15,386 7,162 465,715 8,787 559,065 8,900 470,195 67,542 616,933 14 Non-current assets Property, plant and equipment Intangible assets Goodwill Total assets 6 7 7 437,089 139,515 727,782 1,863,451 332,225 136,934 727,782 1,813,874 8 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 Liabilities and shareholders' equity Current liabilities Accounts payable and accrued liabilities Dividend payable Income taxes payable Derivative financial instruments Finance lease obligations Current portion of long-term debt 198,486 11,591 16,597 8,085 166,171 11,087 45,638 14 9 278,643 513,402 588 3,542 227,026 Non-current liabilities Long-term debt Deferred rent and lease inducements Deferred income taxes Total liabilities 9 11 13 1,050,101 81,827 117,837 1,763,167 920,772 71,632 127,592 1,347,022 12 Shareholders' equity Share capital Contributed surplus Retained Earnings (Deficit) Accumulated other comprehensive income (loss) Total shareholders' equity 12 12 420,266 24,321 (342,957) (1,346) 100,284 439,296 20,136 (62,375) 69,795 466,852 Total liabilities and shareholders' equity $ 1,863,451 $ 1,813,874 D 29-Jan-17 31-Jan-16 445,636 385,146 17 11 A B 1 DOLLARAMA INC. 2 Consolidated Statement of Cash FIOWS for the years ended 3 (Expressed in thousands of Canadian dollars) 4 Note 5 Operating activities 6 Net earnings for the year 7 Adjustments for: 8 Depreciation of property, plant and equipment and 9 Amortization of deterred tenant allowances 10 Amortization of deferred leasing costs 11 Amortization of debt issue costs 12 Recognition of realized gains on foreign exchange contracts 13 Cash settlement of gains on foreign exchange contracts 14 Deferred lease inducements 15 Deterred tenant allowances 16 Share-based compensation 17 Financing costs on long-term debt 18 Deferred income taxes 19 Loss on disposal of assets 20 21 Changes in non-cash working capital components 22 Net cash generated from operating activities 11 11 12 57,748 (4,795) 519 1,481 (46,269) 16,108 6,020 8,970 6,932 268 16,105 40 508,763 (3,595) 505,168 48,085 (4,929) 584 1,301 (76,665) 97,921 4,811 11,275 6,114 (304) 4,118 641 478,098 (28,861) 449,237 13 18 23 Investing activities 24 Additions to property, plant and equipment 25 Additions to intangible assets 26 Proceeds on disposal of property, plant and equipment 27 Net cash used in investing activities 6 7 (153,574) (12,640) 462 (165,752) (83,231) (11,199) 670 (93,760) 9 124,834 235,000 9 28 Financing activities 29 Proceeds from long-term debt - Series 1 Floating Rate Notes 30 Net proceeds (repayments) from (of) Credit Facility 31 Proceeds from long-term debt - 2.337% Fixed Rate Notes 32 Payment of debt issue costs 33 Repayment of finance lease 34 Issuance of common shares 35 Dividends paid 36 Repurchase and cancellation of shares 37 Net cash used in financing activities 38 (120,000) 525,000 (2,319) (588) 4,892 (46,936) (696,628) (336,579) (1,003) (978) 2,702 (45,116) (651,941) (336,502) 39 Increase in cash and cash equivalents 2,837 18,975 40 Cash and cash equivalents - beginning of year 59,178 40,203 41 Cash and cash equivalents ending of year 62,015 59,178 42 A B D 5 6 7 8 DOLLARAMA INC. Consolidated Statement of Net Earnings and Comprehensive Income (Loss) for the years ended (Expressed in thousands of Canadian dollars, except share and per share amounts) Note 29-Jan-17 Sales 2,963,219 Cost of goods sold 17 1,801,935 Gross profit 1,161,284 31-Jan-16 2,650,327 1,617,051 1,033,276 9 10 11 General, administrative and store operating expenses Depreciation and amortization Operating income 17 458,026 57,748 645,510 435,816 48,085 549,375 17 Financing costs (Interest) Earnings before income taxes Income taxes Net income for the year 33,083 612,427 166,791 445,636 21,395 527,980 142,834 385,146 13 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Other comprehensive income (loss) Items to be reclassified subsequently to net earnings Unrealized gain (loss) on derivative financial instruments, net Income taxes relating to components of other comprehensive Total other comprehensive income (loss), net of income Total comprehensive income for the year (97,001) 25,860 (71,141) 374,495 4,789 (1,290) 3,499 388,645 Earnings per common share Basic net earnings per common share Diluted net earnings per common share Weighted average number of common shares outstanding Weighted average number of diluted common shares 16 16 16 16 $3.75 $3.71 118,998 120,243 $3.03 $3.00 127,271 128,420 B D 1 Statement of Shareholders Equity 29-Jan-17 31-Jan-16 122,225,104 (7,420,168) 246,413 115,051,349 129,790,354 (7,729,391) 164,141 122,225,104 439,296 (26,669) 4,892 2,747 420,266 462,734 (27,456) 2,702 1,316 439,296 $ 3 DOLLARAMA INC. 4 Consolidated Statement of Changes in Shareholders' Equity for the years ended 5 (Expressed in thousands of Canadian dollars, except share amounts) 6 7 8 9 Number of common shares 10 Opening Balance 11 Repurchase and cancellation of shares 12 Issuance of common shares 13 Ending Balance 14 15 Share capital 16 Opening Balance 17 Repurchase and cancellation of shares 18 Issuance of common shares 19 Reclassification related to exercise of share options 20 Ending Balance $ 21 22 Contributed surplus 23 Opening Balance 24 Share-based compensation 25 Reclassification related to exercise of share options 26 Ending Balance $ 27 28 Retained earnings/(deficit) 29 Opening Balance 30 Net earnings for the year 31 Dividends declared 32 Repurchase and cancellation of shares 33 Ending Balance 34 35 Accumulated other comprehensive income (loss) 36 Opening Balance 37 Unrealized gain (loss) 38 Ending Balance $ 39 40 41 42 43 Total Shareholders Equity $ 44 20,136 6,932 (2,747) 24,321 $ 15,338 6,114 (1,316) 20,136 (62,375) 445,636 (47,440) (678,778) (342,957) $ 196,112 385,146 (45,722) (597,911) (62,375) 69,795 (71,141) (1,346) $ 66,296 3,499 69,795 100,284 $ 466,852