. . These are the answers to the Chapter 14 questions that were distributed with the PowerPoint slides that we reviewed during the class. You should have attempted them on your own before you review these answers. Current ratio = 3,444 / 1,933 = 1.78:1 Quick ratio = (3,444 - 2,010)/1,933 = 0.74:1 Interest coverage = (601 +94) / 88 = 7.90:1 Inventory turnover ratio = 4,786 / 2,010 = 2.38 x Inventory turnover in days = 365 / 2.38 = 153.1 days ROE = 328 / 1,907 = 17.20% Net profit margin = 328 / 6,933 = 0.0473 Asset turnover =6,933 / 4,895 = 1.4163 Financial leverage = 4,895/1,907 = 2.5669 DuPont analysis = 0.0473 x 1.4163 x 2.5669 = 17.1959 Gross profit margin = (6,933 - 4,786)/6,933 = 30.97% Debt/equity ratio = (904 + 893 + 100)/1,907 = 0.99:1 Apparent tax rate = 279 / 607 = 45.96% Net return on invested capital = [328 +(88 x (1 0.4596)]/(904 + 893 + 100 + 1,907) = 9.87% Asset coverage = [4,895 - (1,933 - 904)] / (904 + 893 + 100) = 2.038:1 . 2. Note: It is assumed that Trans-Canada Retail Stores Ltd. is a non-food retail chain. Trans-Canada Retail Stores Ltd. CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at December 31, 20XX ASSETS 1. Property, plant and equipment Goodwill Investments in associates Total Non-current assets Inventories Prepaid expenses Trade receivables Cash and cash equivalents Total Current Assets 10. TOTAL ASSETS 3. 4. 5. 6. $ 6,149,000 150,000 917,000 7,216,000 9,035,000 59,000 975,000 2,169,000 12,238,000 $ 19,454,000 7. 8. 9. EQUITY AND LIABILITIES 11. Share capital 12. Retained earnings 13. Non-controlling interest 14. TOTAL EQUITY 15. Long-term debt 16. Deferred tax liabilities 17. TOTAL NON-CURRENT LIABILITIES 18. Current portion of long-term debt 19. Taxes payable 20. Trade payables 21. Short-term borrowings 22. TOTAL CURRENT LIABILITIES 23 TOTAL EQUITY AND LIABILITIES Approved on behalf of the Board: [Signature], Director [Signature], Director $ 2,314,000 10,835,000 13,149,000 157,000 $ 13,306,000 1,350,000 485,000 $ 1,835,000 120,000 398,000 2,165,000 1,630,000 $ 4,313,000 $ 19,454,000 $ Trans-Canada Retail Stores Ltd. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended December 31, 20XX OPERATING SECTION 24. Revenue 25. Cost of sales 26. Gross Profit 27 Other income 28. Distribution costs 29. Administration expenses 30. Other expenses 31. Finance costs 32 Share of profit of associates Income tax expense 34. Profit Other comprehensive income 35. Total comprehensive income 43,800,000 (28,250,000) 15,550,000 130,000 (7,984,800) (4,657,800) (665,400) (289,000) 5,000 (880,000) 1,208,000 0 1,208,000 33. $ Trans-Canada Retail Stores Ltd. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended December 31, 20XX Share Capital 1,564,000 Retained Earnings Total 10,026,500 11,590,500 Non- controlling interests 145,000 Total Equity 11,735,500 750,000 Balance at January 1, 20xx Changes in equity for 20xx Issue of share capital Dividends Total comprehensive income Balance at December 31, 20xx (387,500) 1,196,000 10,835,000 750,000 (387,500) 1,196,000 13,149,000 750,000 (387,500) 1,208,000 13,306,000 12,000 157,000 2,314,000 $ 1,208,000 Trans-Canada Retail Stores Ltd. CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended December 31, 20XX OPERATING ACTIVITIES 34. Profit Add or subtract) items not involving cash 36. Depreciation 32. Share of profit of associates 37 Change in net working capital NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES 496,000 (5,000) (401,000) 1,298,000 $ CANADIAN SECURITIES INSTITUTE (2017) CHAPTER 14 | COMPANY ANALYSIS 14- Trans-Canada Retail Stores Ltd. CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended December 31, 20XX FINANCING ACTIVITIES 38. Proceeds from issue of share capital 39. Repayment of long-term debt Proceeds from new long-term debt 41. Dividends paid NET CASH PROVIDED BY FINANCING ACTIVITIES $ 40. 750,000 (400,000) 50,000 (387,500) 12,500 42. $ 44. INVESTING ACTIVITIES Acquisitions of capital assets 43. Proceeds from disposal of capital assets Dividends received from associates NET CASH FLOW USED IN INVESTING ACTIVITIES 45. INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTSYEAR END AUDITORS' REPORT To the Shareholders of Trans-Canada Retail Stores Ltd. $ (900,000) 75,000 2,000 (823,000) 487,500 2,169,000 46. Week 6 Assignment Compare and evaluate the Q2 financials for CN and CP railways Six months ended June 30, 2020 The links are located at the bottom of the page at each company's web site. You can use the financial ratios that we reviewed last week as a template. Submit one document by 12:00 noon on Friday, Oct. 23, 2020. The most thorough analysis receives the highest mark. See document in Week 6 folder for details. 1 Assignment (continued) CN is due to release its Q3 results on Tuesday, October 20 Do not use these figures as you must compare similar periods Q2 covers six months (for each railway) You cannot compare Q3 for one firm with Q2 for the other firm This also allows you to complete the project this weekend instead of waiting until Oct. 20 FIN 2062 Week 6 Company Analysis Assignment You are an investment advisor for GBC Financial Services Inc., and you have a high net worth client who has $1,000,000 to invest. The client tells you that he overheard a conversation between two other investors about the following two stocks: CNR CP Using your laptop computer and the information in the textbook (Chapter 14: Company Analysis), you are to provide your client with a comprehensive analysis of both stocks. Specifically: Develop a spreadsheet to calculate the ratios that we reviewed two weeks ago for each stock and compare the two (for the six months ended June 30, 2020) Review each company's Web site to help determine investment potential and expected future earnings growth. Examine other Web sites that may provide you with additional information to support your analysis. The client will only invest in one of these two stocks, so you must provide a specific recommendation, supported by a thorough analysis and a summary of the reasons that explain why you prefer one stock over the other. Your client is very impatient and expects you to provide a recommendation no later than: 12:00 noon, October 23, 2020 You must complete your own calculations and not rely on advice from third parties, such as other investment advisors or their research departments. As in the real world, you are expected to provide your client with an original analysis that provides a specific recommendation within the required deadline. . . These are the answers to the Chapter 14 questions that were distributed with the PowerPoint slides that we reviewed during the class. You should have attempted them on your own before you review these answers. Current ratio = 3,444 / 1,933 = 1.78:1 Quick ratio = (3,444 - 2,010)/1,933 = 0.74:1 Interest coverage = (601 +94) / 88 = 7.90:1 Inventory turnover ratio = 4,786 / 2,010 = 2.38 x Inventory turnover in days = 365 / 2.38 = 153.1 days ROE = 328 / 1,907 = 17.20% Net profit margin = 328 / 6,933 = 0.0473 Asset turnover =6,933 / 4,895 = 1.4163 Financial leverage = 4,895/1,907 = 2.5669 DuPont analysis = 0.0473 x 1.4163 x 2.5669 = 17.1959 Gross profit margin = (6,933 - 4,786)/6,933 = 30.97% Debt/equity ratio = (904 + 893 + 100)/1,907 = 0.99:1 Apparent tax rate = 279 / 607 = 45.96% Net return on invested capital = [328 +(88 x (1 0.4596)]/(904 + 893 + 100 + 1,907) = 9.87% Asset coverage = [4,895 - (1,933 - 904)] / (904 + 893 + 100) = 2.038:1 . 2. Note: It is assumed that Trans-Canada Retail Stores Ltd. is a non-food retail chain. Trans-Canada Retail Stores Ltd. CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at December 31, 20XX ASSETS 1. Property, plant and equipment Goodwill Investments in associates Total Non-current assets Inventories Prepaid expenses Trade receivables Cash and cash equivalents Total Current Assets 10. TOTAL ASSETS 3. 4. 5. 6. $ 6,149,000 150,000 917,000 7,216,000 9,035,000 59,000 975,000 2,169,000 12,238,000 $ 19,454,000 7. 8. 9. EQUITY AND LIABILITIES 11. Share capital 12. Retained earnings 13. Non-controlling interest 14. TOTAL EQUITY 15. Long-term debt 16. Deferred tax liabilities 17. TOTAL NON-CURRENT LIABILITIES 18. Current portion of long-term debt 19. Taxes payable 20. Trade payables 21. Short-term borrowings 22. TOTAL CURRENT LIABILITIES 23 TOTAL EQUITY AND LIABILITIES Approved on behalf of the Board: [Signature], Director [Signature], Director $ 2,314,000 10,835,000 13,149,000 157,000 $ 13,306,000 1,350,000 485,000 $ 1,835,000 120,000 398,000 2,165,000 1,630,000 $ 4,313,000 $ 19,454,000 $ Trans-Canada Retail Stores Ltd. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended December 31, 20XX OPERATING SECTION 24. Revenue 25. Cost of sales 26. Gross Profit 27 Other income 28. Distribution costs 29. Administration expenses 30. Other expenses 31. Finance costs 32 Share of profit of associates Income tax expense 34. Profit Other comprehensive income 35. Total comprehensive income 43,800,000 (28,250,000) 15,550,000 130,000 (7,984,800) (4,657,800) (665,400) (289,000) 5,000 (880,000) 1,208,000 0 1,208,000 33. $ Trans-Canada Retail Stores Ltd. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended December 31, 20XX Share Capital 1,564,000 Retained Earnings Total 10,026,500 11,590,500 Non- controlling interests 145,000 Total Equity 11,735,500 750,000 Balance at January 1, 20xx Changes in equity for 20xx Issue of share capital Dividends Total comprehensive income Balance at December 31, 20xx (387,500) 1,196,000 10,835,000 750,000 (387,500) 1,196,000 13,149,000 750,000 (387,500) 1,208,000 13,306,000 12,000 157,000 2,314,000 $ 1,208,000 Trans-Canada Retail Stores Ltd. CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended December 31, 20XX OPERATING ACTIVITIES 34. Profit Add or subtract) items not involving cash 36. Depreciation 32. Share of profit of associates 37 Change in net working capital NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES 496,000 (5,000) (401,000) 1,298,000 $ CANADIAN SECURITIES INSTITUTE (2017) CHAPTER 14 | COMPANY ANALYSIS 14- Trans-Canada Retail Stores Ltd. CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended December 31, 20XX FINANCING ACTIVITIES 38. Proceeds from issue of share capital 39. Repayment of long-term debt Proceeds from new long-term debt 41. Dividends paid NET CASH PROVIDED BY FINANCING ACTIVITIES $ 40. 750,000 (400,000) 50,000 (387,500) 12,500 42. $ 44. INVESTING ACTIVITIES Acquisitions of capital assets 43. Proceeds from disposal of capital assets Dividends received from associates NET CASH FLOW USED IN INVESTING ACTIVITIES 45. INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTSYEAR END AUDITORS' REPORT To the Shareholders of Trans-Canada Retail Stores Ltd. $ (900,000) 75,000 2,000 (823,000) 487,500 2,169,000 46. Week 6 Assignment Compare and evaluate the Q2 financials for CN and CP railways Six months ended June 30, 2020 The links are located at the bottom of the page at each company's web site. You can use the financial ratios that we reviewed last week as a template. Submit one document by 12:00 noon on Friday, Oct. 23, 2020. The most thorough analysis receives the highest mark. See document in Week 6 folder for details. 1 Assignment (continued) CN is due to release its Q3 results on Tuesday, October 20 Do not use these figures as you must compare similar periods Q2 covers six months (for each railway) You cannot compare Q3 for one firm with Q2 for the other firm This also allows you to complete the project this weekend instead of waiting until Oct. 20 FIN 2062 Week 6 Company Analysis Assignment You are an investment advisor for GBC Financial Services Inc., and you have a high net worth client who has $1,000,000 to invest. The client tells you that he overheard a conversation between two other investors about the following two stocks: CNR CP Using your laptop computer and the information in the textbook (Chapter 14: Company Analysis), you are to provide your client with a comprehensive analysis of both stocks. Specifically: Develop a spreadsheet to calculate the ratios that we reviewed two weeks ago for each stock and compare the two (for the six months ended June 30, 2020) Review each company's Web site to help determine investment potential and expected future earnings growth. Examine other Web sites that may provide you with additional information to support your analysis. The client will only invest in one of these two stocks, so you must provide a specific recommendation, supported by a thorough analysis and a summary of the reasons that explain why you prefer one stock over the other. Your client is very impatient and expects you to provide a recommendation no later than: 12:00 noon, October 23, 2020 You must complete your own calculations and not rely on advice from third parties, such as other investment advisors or their research departments. As in the real world, you are expected to provide your client with an original analysis that provides a specific recommendation within the required deadline
