The first question is if I am a potential short-term creditor, which company is better to choose? (please provide an analysis that compares Fallsview and Canamora )

Second question, If I am a potential common stock investor, which company is better to choose? (please also provide an analysis that compares Fallsview and Canamora )

Thank you.

Case 22-3 Forest Industry You are evaluating two public companies in the forest industry. Both companies follow IFRS and are integrated companies that own or lease timber properties (biological assets), harvest trees, and make building supplies and paper products. This industry is very volatile. The profiles are as follows: Canamora Forest Products Inc. Canamora Forest Products Inc. (CFP) is a leading Canadian-integrated forest products company. The company employs approximately 6,800 people. The company has extensive production facilities in British Columbia and Alberta, and a lumber remanufacturing plant in the United States. The company is a major producer and supplier of lumber and bleached kraft pulp. It also produces semi-bleached and unbleached kraft pulp, bleached and unbleached kraft paper, plywood, remanufactured lumber products, hardboard panelling, and a range of specialized wood products, including baled fibre and fibremat. Products are sold in global markets. Fallsview Building Materials Ltd. Fallsview is a North American-based producer of building materials, including oriented strand board, medium-density fibreboard, hardwood plywood, lumber, I-joists, specialty papers, and pulp. The company is also the United Kingdom's largest producer of wood-based panels, including particleboard and value-added products. The company employs over 2,600 people in North America and 1,000 in the United Kingdom. You have obtained some limited industry norms that relate to years prior to those presented for the two companies; industry norms are difficult to establish for the current years. Page 1587 Selected ratios for the forest industry in Canada: 20X5 20X4 20X3 Long-term interest-bearing debt-to-equity (%) 0.81 0.68 0.72 Operating profit margin 15.8 13.4 7.7 Return on assets (using year-end balance for denominator) 7.6 6 0.7 Return on equity (using year-end balance for denominator) 17.4 12.5 1.5 Current ratio 2.1 2.1 1.9 Summarized financial data for each company is shown in Exhibit 1. A standard financial statement analysis form is included. Exhibit 1 COMPARATIVE FINANCIAL STATEMENTS (IN MILLIONS) Statements of Financial Position Fallsview Assets Cash and cash equivalents Temporary investments Accounts receivable Inventory Total current assets Property, plant, and equipment Biological assets Total assets Liabilities Current liabilities Accounts payable Current portion of long-term debt Total current liabilities Long-term debt Other liabilities Deferred income tax Total liabilities Shareholders' equity Preferred shares Common shares Retained earnings Total liabilities and equity Canamora 20X6 20X5 20X6 20X5 $ 208 $ 17 $ 20 $ 67 24 - 304 321 267 242 325 381 515 530 861 719 802 839 1,469 1,518 1,984 1,903 230 190 27 22 $2,560 $2,427 $2,813 $2,764 $480 $364 $323 $316 53 49 4 15 533 413 327 331 556 384 1,077 921 170 65 96 97 147 363 38 873 812 1,211 1,406 1,225 1,538 60 657 657 889 497 545 326 1,154 1,202 1.275 $2,560 $2.427 $2,813 112 1,130 1,461 60 880 363 1,303 $2,764 STATEMENTS OF COMPREHENSIVE INCOME Fallsview 20X6 20X5 $1,986 $2,265 Manufacturing/product costs 1,809 1,642 Change in fair value of biological assets Depreciation and depletion Selling and administration Interest expense Other (income) expense Income before income tax Income tax expense (recovery) Net income and comprehensive income Dividends Preferred Common Net sales Costs and expenses Operating income (50) 106 58 1.923 63 64 (20) 113 67 1,802 463 60 (6) (9) 8 409 (18) 84 $26 $325 $ 74 $ 25 I Canamora 20X6 $2,066 1,803 (10) 148 90 2.031 35 52 (62) 45 tA 20X5 $2,134 1,730 (8) 144 90 1.956 178 40 25 113 (34) $147 $ 2 54 $ 50 26 $ 19 $ 2 $ LA The companies both have unqualified audit reports and have similar accounting policies except for the following: 1. Fallsview uses FIFO while Canamora uses weighted-average cost for inventory. 2. Both companies use a combination of straight-line and units-of-production depreciation methods for property, plant, and equipment, but Fallsview uses useful lives that are approximately 25% longer than those used by Canamora. Required: Provide an analysis that compares Fallsview and Canamora from the perspective of: 1. A potential short-term creditor. 2. A potential common stock investor. Case 22-3 Forest Industry You are evaluating two public companies in the forest industry. Both companies follow IFRS and are integrated companies that own or lease timber properties (biological assets), harvest trees, and make building supplies and paper products. This industry is very volatile. The profiles are as follows: Canamora Forest Products Inc. Canamora Forest Products Inc. (CFP) is a leading Canadian-integrated forest products company. The company employs approximately 6,800 people. The company has extensive production facilities in British Columbia and Alberta, and a lumber remanufacturing plant in the United States. The company is a major producer and supplier of lumber and bleached kraft pulp. It also produces semi-bleached and unbleached kraft pulp, bleached and unbleached kraft paper, plywood, remanufactured lumber products, hardboard panelling, and a range of specialized wood products, including baled fibre and fibremat. Products are sold in global markets. Fallsview Building Materials Ltd. Fallsview is a North American-based producer of building materials, including oriented strand board, medium-density fibreboard, hardwood plywood, lumber, I-joists, specialty papers, and pulp. The company is also the United Kingdom's largest producer of wood-based panels, including particleboard and value-added products. The company employs over 2,600 people in North America and 1,000 in the United Kingdom. You have obtained some limited industry norms that relate to years prior to those presented for the two companies; industry norms are difficult to establish for the current years. Page 1587 Selected ratios for the forest industry in Canada: 20X5 20X4 20X3 Long-term interest-bearing debt-to-equity (%) 0.81 0.68 0.72 Operating profit margin 15.8 13.4 7.7 Return on assets (using year-end balance for denominator) 7.6 6 0.7 Return on equity (using year-end balance for denominator) 17.4 12.5 1.5 Current ratio 2.1 2.1 1.9 Summarized financial data for each company is shown in Exhibit 1. A standard financial statement analysis form is included. Exhibit 1 COMPARATIVE FINANCIAL STATEMENTS (IN MILLIONS) Statements of Financial Position Fallsview Assets Cash and cash equivalents Temporary investments Accounts receivable Inventory Total current assets Property, plant, and equipment Biological assets Total assets Liabilities Current liabilities Accounts payable Current portion of long-term debt Total current liabilities Long-term debt Other liabilities Deferred income tax Total liabilities Shareholders' equity Preferred shares Common shares Retained earnings Total liabilities and equity Canamora 20X6 20X5 20X6 20X5 $ 208 $ 17 $ 20 $ 67 24 - 304 321 267 242 325 381 515 530 861 719 802 839 1,469 1,518 1,984 1,903 230 190 27 22 $2,560 $2,427 $2,813 $2,764 $480 $364 $323 $316 53 49 4 15 533 413 327 331 556 384 1,077 921 170 65 96 97 147 363 38 873 812 1,211 1,406 1,225 1,538 60 657 657 889 497 545 326 1,154 1,202 1.275 $2,560 $2.427 $2,813 112 1,130 1,461 60 880 363 1,303 $2,764 STATEMENTS OF COMPREHENSIVE INCOME Fallsview 20X6 20X5 $1,986 $2,265 Manufacturing/product costs 1,809 1,642 Change in fair value of biological assets Depreciation and depletion Selling and administration Interest expense Other (income) expense Income before income tax Income tax expense (recovery) Net income and comprehensive income Dividends Preferred Common Net sales Costs and expenses Operating income (50) 106 58 1.923 63 64 (20) 113 67 1,802 463 60 (6) (9) 8 409 (18) 84 $26 $325 $ 74 $ 25 I Canamora 20X6 $2,066 1,803 (10) 148 90 2.031 35 52 (62) 45 tA 20X5 $2,134 1,730 (8) 144 90 1.956 178 40 25 113 (34) $147 $ 2 54 $ 50 26 $ 19 $ 2 $ LA The companies both have unqualified audit reports and have similar accounting policies except for the following: 1. Fallsview uses FIFO while Canamora uses weighted-average cost for inventory. 2. Both companies use a combination of straight-line and units-of-production depreciation methods for property, plant, and equipment, but Fallsview uses useful lives that are approximately 25% longer than those used by Canamora. Required: Provide an analysis that compares Fallsview and Canamora from the perspective of: 1. A potential short-term creditor. 2. A potential common stock investor