You are hired by a large hedge fund based in Ontario as an equity researcher and are assigned to a team that covers the consumer staples industry. As a rookie researcher, your boss asks you produce some analysis reports on some local small-cap stocks and make some recommendations. Among the list of stocks, Andrew Peller Limited caught your attention because you read that the company's fundamentals have been decent and that the company recently announced an increase in dividend payment to its shareholders.
You asked your boss whether Andrew Peller could be a good starting point that fits the hedge fund's investment vision. Your boss quickly scanned through the company's financials and replied, "it looks like a company that has stable operations and pays its dividends, but our fund is really looking for those small-cap stocks that can have good growth potentials...... Also, this company only does alcoholic beverage products in Canada, seems like it can be risky too."
Your boss continues,
"As a starting point, crunch some numbers and show me how the company has been doing over the last 3 years. In particular, please try to answer for yourself the following three questions."
(1) How is the company's financial performance over the last three fiscal years (i.e., FY2021, FY2020, FY2019)? Why has the company's gross margin decreased in 2021, yet its EPS increased? (15 Marks)
(2) What do the relevant ratios tell you about the most recent balance sheet as well as any changes over time? Are there any ratios that we should be worried about? (15 Marks)
(3) What do the cash flow patterns of the company tell you? Is there evidence that the company is stable and growing and why? Is the company's plan to increase dividends justified (hint: check the free cash flows to shareholders)? (15 Marks)
2018 363897 150325 97465 Sales Gross margin selling and admin expenses Current assets current liabilities share holders equity COGS Gross profit EBIT Net earnings Cash from operating Investing activities Financing activites Goodwill Intangable assets Inventories AR Total liabilities 2021 393036 156518 93472 225302 54618 265574 236518 146380 37453 27786 41119 36539 1843 53638 39650 178727 28896 276,947 2020 382306 166250 104749 214114 130460 245523 216056 156193 32465 23494 31543 2019 381798 159008 106113 196770 99395 234791 222788 151259 49044 21958 49044 23368 21747 97812 23308 8235 53638 25067 170779 34096 268396 106879 116257 2020 2021 Corby Andrew Ratios 1. Liquidity Current Ratio Quick Ratio 2019 1.978 0.317 2021 4.125 0.763 1.641 0.3 Constellation Ratios 1. Liquidity Current Ratio Quick Ratio 2.298 Ratios 1. Liquidity Current Ratio Quick Ratio 2021 3.98 2.7 0.98 12.47 Accounts receivable Turnover Average collection period 2. Activity Inventory Turnover Days to sell inventory Accounts payable turnover Accounts payable payment period 29.27 1.38 264.4 5.52 66.37 11.9 30.6 1.3 280.7 4.469 12.47 29.27 1.353 269.7 4.873 Accounts receivable Turnover Average collection period 2. Activity Inventory Turnover Days to sell inventory Accounts payable turnover Accounts payable payment period 11.33 32.2 3.11 117.36 7.99 45.6 Accounts receivable Turnover Average collection period 2. Activity Inventory Turnover Days to sell inventory Accounts payable turnover Accounts payable payment period 5.15 70.8 1.016 359.25 1.55 235.4 81.8 74.94 0.499 Debt to equity 3. Solvency Net debt as a % of total capitalization Cash flows of total liabilities Interest coverage 0.12 0.112 0.33 0.208 9.55 0.67 0.304 0.11 9.7 0.66 0.39 0.148 10 Debt to equity 3. Solvency Net debt as a % of total capitalization Cash flows of total liabilities Debt to equity 3. Solvency Net debt as a % of total capitalization Cash flows of total liabilities 0.213 0.615 39.8 47 Gross margin Profit margin 4. Profitabilit Return on equity Return on assets 41.6 5 9.6 43.48 6.14 9.78 7 10.8 Gross margin 4. Profitabilit Profit margin Return on equity Return on assets loss loss loss Gross margin 4. Profitabilit Profit margin Return on equity Return on assets 4.78 4.7 5.2 5. Equity 5. Equity 5. Equity Dividend payout Class A Class B Net free cash flow 40.1 40.4 39 38.9 33.5 33 4580 Dividend payout Class A Class B loss loss Joss Dividend payout Class A Class B 25676 8235 2018 363897 150325 97465 Sales Gross margin selling and admin expenses Current assets current liabilities share holders equity COGS Gross profit EBIT Net earnings Cash from operating Investing activities Financing activites Goodwill Intangable assets Inventories AR Total liabilities 2021 393036 156518 93472 225302 54618 265574 236518 146380 37453 27786 41119 36539 1843 53638 39650 178727 28896 276,947 2020 382306 166250 104749 214114 130460 245523 216056 156193 32465 23494 31543 2019 381798 159008 106113 196770 99395 234791 222788 151259 49044 21958 49044 23368 21747 97812 23308 8235 53638 25067 170779 34096 268396 106879 116257 2020 2021 Corby Andrew Ratios 1. Liquidity Current Ratio Quick Ratio 2019 1.978 0.317 2021 4.125 0.763 1.641 0.3 Constellation Ratios 1. Liquidity Current Ratio Quick Ratio 2.298 Ratios 1. Liquidity Current Ratio Quick Ratio 2021 3.98 2.7 0.98 12.47 Accounts receivable Turnover Average collection period 2. Activity Inventory Turnover Days to sell inventory Accounts payable turnover Accounts payable payment period 29.27 1.38 264.4 5.52 66.37 11.9 30.6 1.3 280.7 4.469 12.47 29.27 1.353 269.7 4.873 Accounts receivable Turnover Average collection period 2. Activity Inventory Turnover Days to sell inventory Accounts payable turnover Accounts payable payment period 11.33 32.2 3.11 117.36 7.99 45.6 Accounts receivable Turnover Average collection period 2. Activity Inventory Turnover Days to sell inventory Accounts payable turnover Accounts payable payment period 5.15 70.8 1.016 359.25 1.55 235.4 81.8 74.94 0.499 Debt to equity 3. Solvency Net debt as a % of total capitalization Cash flows of total liabilities Interest coverage 0.12 0.112 0.33 0.208 9.55 0.67 0.304 0.11 9.7 0.66 0.39 0.148 10 Debt to equity 3. Solvency Net debt as a % of total capitalization Cash flows of total liabilities Debt to equity 3. Solvency Net debt as a % of total capitalization Cash flows of total liabilities 0.213 0.615 39.8 47 Gross margin Profit margin 4. Profitabilit Return on equity Return on assets 41.6 5 9.6 43.48 6.14 9.78 7 10.8 Gross margin 4. Profitabilit Profit margin Return on equity Return on assets loss loss loss Gross margin 4. Profitabilit Profit margin Return on equity Return on assets 4.78 4.7 5.2 5. Equity 5. Equity 5. Equity Dividend payout Class A Class B Net free cash flow 40.1 40.4 39 38.9 33.5 33 4580 Dividend payout Class A Class B loss loss Joss Dividend payout Class A Class B 25676 8235
