The objective of this exercise is to develop your ability to perform a comprehensive analysis on a set of financial statements. Use the copy of the 2018 annual report of Dollarama Inc. (year end January 28, 2018) from Appendix A. You may need to go to Dollarama’s website to get the full annual report including the annual information return.

Requirement 1 

Basic information (provide sources):

Using a site such as D&B Hoovers, Google Finance, or Yahoo Finance, look up discount stores. List two competitors of Dollarama.

Describe Dollarama’s risks related to business operations.

Does Dollarama own any other companies?

What is Dollarama’s largest asset? Largest liability?

How many common shares are they authorized to issue?

How many are issued? Outstanding?

Did Dollarama repurchase any common shares during the year? If so, how many?

When does Dollarama record revenue?

What inventory method does Dollarama use?

Does Dollarama have any business interests in foreign countries? Explain your answer.

Requirement 2

Using information you have learned in the text and elsewhere, evaluate Dollarama’s profitability for 2018 compared with 2017. In your analysis, you should compute the following ratios and then comment on what those ratios indicate. NOTE: You will have to look up the annual report for 2017 to obtain total assets and shareholders’ equity for 2016. See www.sedar.com or use Dollarama’s website.

Return on sales

Asset turnover Return on assets

Leverage ratio Return on equity

Gross profit percentage Earnings per share (show computation)

Book value per share

Requirement 3

Evaluate the company’s ability to sell inventory and pay debts during 2018 and 2017. In your analysis, you should compute the following ratios, and then comment on what those ratios indicate. Since the 2018 annual report only includes the balance sheets for 2018 and 2017, you will need to look up the annual report for 2017 for information about 2016 accounts receivable, inventory, and accounts payable.

Accounts receivable turnover and days’ sales outstanding

Inventory turnover and days’ inventory outstanding

Accounts payable turnover and days’ payable outstanding

Cash conversion cycle

Current ratio Quick (acid-test) ratio

Debt ratio

Times interest earned

Requirement 4

Evaluate Dollarama’s cash flow.

For 2018, what are Dollarama’s two main sources of cash?

For 2018, is Dollarama’s net cash flow from operations greater than or less than net income? What is the primary cause of the difference?

For 2017 and 2018, what is the primary source of cash from investing activities? What is the primary use of cash from investing activities for 2017 and 2018?

For 2017 and 2018, what is the primary source of cash from financing activities? What is the primary use of cash from financing activities for 2017 and 2018?

What trend(s) do you detect from this analysis?

Requirement 5

Other financial analysis.

Compute common-size percentages for sales, gross profit, operating income, and net income for 2015–2018. Comment on your results.

Compute trend percentages, using 2015 as the base year, for total revenues and net earnings. Comment on your results.

Requirement 6

Evaluate Dollarama’s shares as an investment.

What was the closing market price of Dollarama’s shares on January 29, 2018, the next trading day after the balance-sheet date of January 28, 2018?

Compute the price-earnings ratio using your EPS calculation and the market price you just determined. Google Dollarama’s stock price on Yahoo Finance; Dollarama’s ticker symbol is DOL.TO.

Based on Management’s Discussion and Analysis (annual report) as well as any business news (Google Finance is an example), would you evaluate the company’s shares as a “buy,” “hold,” or “sell”? State your reasons.