Consolidated Statement of Financial Position - Metro Inc PDF

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Kuganesh Ketheesh Mrs. McDonald BAT 4M1 January 12, 2019

Financial Accounting (Final ISU) – Quantitative Analysis of Metro Inc.

METRO INC.   

It is known as one of Canada’s leading food and pharmacy retailers as well as distributors, the Corporation operates a network of supermarkets, discount stores and drugstores. Its head office is in Montréal, Québec. Its two business segments, food operations and pharmaceutical operations, are combined into one reportable operating segment due to the similar nature of their operations Just recently they had acquired a new division which open their door to many new possibilities

New Article #1

https://www.newswire.ca/news-releases/metro-inc-to-acquire-the-jean-coutu-group-pjc-inc-for-45-billion649023573.html This article talks about the recent merger between the two companies METRO and the Jean Coutu Group. Due to this action METRO’s pharmaceutical distribution and activities of franchising will be joined by a new management team led by Mr. François J. Coutu of the Jean Coutu Group as a stand- alone division under METRO. Their new combined business will result in an overall network of more than 1,300 stores Metro is expected to now generate approximately $16 billion in revenue, over $1.3 billion in EBITDA, $500 million in free cash flow and about $75 million in expected synergies within three years. Due to this newfound combination of both METRO and Jean Coutu Group, Metro Inc is close to becoming a new leader in food industries as well as pharmaceutical and beauty/health industries. With new extensive networks of more than 400 drugstores and state-of-the-art distribution center, Metro has increased its scale and reach, operational efficiencies and enhanced their potential for growth. Along with this merger word has gotten out that two Jean Coutu Group nominees will join Metro's Board of Directors to welcome them into the company

New article #2 – Metro. Inc.

https://www.cbc.ca/news/business/metro-checkout-minimum-wage-1.4510783

In its experimental stages, the new scan – and go system at Metro Inc. allows them to offset the effects of recent minimal wage changes. Due to this new-found system Metro is expected to see a small increase in their annual sales and revenue. This system is currently practice by many major superstores like Loblaw’s which may as well increase their revenues. The difference between these two major superstores is that Metro Inc. is expected to increase their status and annual sales more efficiently due to placement of stores all around Ontario and Quebec. This allows them to pack while they shop and arrive at the checkout with a pre-scanned list of items, both of which accelerate the payment process Due to this customers are satisfied with getting over the lengthy process of waiting in line to make

payments From this new system Metro Inc is expected to increase its management efficiency and annual sales by about 5% each, If this is available in all Metro Inc stores and subsidiaries then its net income and possibly it profitability would increase to a whole new level.

Accounting Policies

One of the accounting policies is Consolidation, it states that all the consolidated financial statements should include the accounts of the Corporation and its subsidiaries, as well as entities. Then, all intercompany transactions and balances are eliminated on consolidation

(Sales recognition) The sales of goods give a company sale, but for Metro Inc sales are categorized as retail sales. Retail sales are sales made by corporate stores and entity structured stores which are recognized at the time of sale to the customer, and sales relative to stores customers when the goods are delivered. Repayments or reimbursements are granted by the Corporation are recorded as a sales reduction.

Loyalty programs – The Corporation has two loyalty programs. (The first program) the Corporation acts as an agent, belongs to an outside or third party and its cost is recorded as a reduction in sales at the time of sale to the customer. (The second program belongs to the Corporation). When a sale to a customer occurs, a portion of it is listed as a deferred revenue equal to the fair value of the program's issued points. This fair value is determined based on the exchange value of the points presented and the expected redemption rate which are frequently remeasured. The deferred revenue is included in accounts payable and recognized as sales when the points are redeemed.

Income taxes -Current tax assets and liabilities for the present and previous years are measured at the amount anticipated to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to ensure these amounts are those that are placed or substantively placed by tax authorities by the closing date.

Accounts receivable and loans to certain customers are classified as “Loans and receivables”. After their initial fair value measurement, they are measured at amortized cost using the effective interest method. For the Corporation, the measured amount generally corresponds to cost. Inventories - Inventories are measured at the lower of cost and net realizable value. The average cost method net of certain considerations received from vendors helps determine the cost of warehouse inventory. Retail inventories cost are measured by taking the retail price and subtracting the gross margin as swell as some considerations received from vendors. All inventory quanities and conditions of each inventory are kept on record. Leases - leased items are noted as assets by the leasee at the lower of the fair value of the asset and the current value of the minimum lease payments. A debt to the leasor is recorded in the consolidated statement of financial position as a finance lease requirement.The asset is depreciated on a straight-line basis over the term of the lease and interest on the obligation is expensed through net earnings. Lease payments are known as an expense on a straight-line basis over the lease term. Investment properties - Investment properties are recognized at cost and ,are kept to earn rentals and for capital appreciation. main components, except for land which is not depreciated, are depreciated on a straight-line basis over their useful lives which vary from around 20 to 50 years and reviewed annually. Intangible assets- Intangible assets are recorded at cost if they have finite usefl lives. They are amortized on a straight-line basis over their useful lives and are reviewed annually. Goodwill- It is not amortized but recognized at cost because Goodwill represents the excess of purchase price over the reasonable value of the acquired enterprise's distinguishable net assets at the date of acquisition

Impairment of non financial assets -On reporting date, the Corporation must review and determine if there is any indication of depreciation of its fixed assets, intangible assets with finite useful lives, investment properties and investment in an associate.Assets must be tested for impairment if any indication exist. Testing of impairment for intangible assets with indefinite useful lives and goodwill are done at least annually

PART B Calculations (All in CAD millions) Current Assets / Current Liabilities = Current Ratio (By dividing the current assets by current liabilities you can acquire the current ratio which is a liquidity ratio that measures whether a company or firm has enough resources to meet its short – term obligations). 2016 - 1,193.0/1,067.5 =1.1175644  1.12: 1 2017- 1,356.3/1,285.9 =1.05474765 1.05 :1

Current Asset – Current Liabilities = Working Capital (It shows the companies ability to pays its short- terms debts) 2016 – (1193.0 -1067.5) =125.5 2017 – (1356.3-1285.9) =70.4

(Current Assets -Inventory) / (Current Liabilities) = Quick Ratio (It is a liquidity ratio which measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately). 2016 -> (1193.0 – 827.50)/1067.5 = 0.34238876  0.34: 1 2017 -> (1356.3 - 856.6)/1285.9 = 0.38859942  0.39: 1

Cost of Goods Sold / Average Inventory = Inventory Turnover (A ratio that measures the number of times, on average, inventory is sold (turned over) during the period). 2016 –11230/ ((824.2 +827.50)/2) -> 13.59811104 *2017 - 11566 / ((827.50+856.6)/2) -> 13.73552699

Days in Year / Inventory Turnover = Day Sales in Inventory (It converts the inventory turnover ration into a measure of average age of the inventory on hand). 2016 – 365 / 13.59811104= 26.84196349  26.8 days *2017 – 365 / 13.73552699 = 26.57342527 26.6 days

Sales / Average Accounts Receivable = Accounts Receivable Turnover Ratio (A ratio used to measure how effective a company is in extending credit as well as collecting debts) *2017 - 13,175.3/ / ((306.4 + 313.7)/2) =42.49411385

Days in Year / Accounts Receivable Turnover Ratio = Accounts Receivable Turnover Ratio in Days (It means that the company was able to collect its receivables averagely in those specific amount of days) *2017 – 365/42.49411385  8.59 days

Day Sales in Inventory + Accounts Receivable Turnover Ratio in Days = Operating Cycle (It is a measure of operating efficiency of a business) *2017- 26.57342527+ 8.59 = 35.16342527 35.2 days

For 2016, the working capital and the current ratio is higher meaning that during 2016 Metro Inc. is more likely to pay off any short – term company debts than in 2017 and they better company liquidity than they did in 2017. The quick ratio for 2017 is more efficient because it shows that 2017 is more efficient without inventory included into their current assets, this shows that in 2016 Metro Inc. was relying to much on their inventory.2016 has a more efficient inventory turnover because each year the inventory turns over more, and that would mean that sales are being made more efficiently than 2017.2016 has a better accounts receivable turnover and by doing so it mean in 2016 the firm was using their assets more efficiently than in 2017. I would invest in this business even though over the two years its accounting and sale efficiency slightly become worse, this is because recent events indicate that their new merger with the Jean Coutu Group in 2018 Metro Inc would be able to increase their range and network which increase their sales to almost $16 billion per annum. Along with this Metro Inc is now a new company in the beauty and health industries which could expand their horizon and possibly earning them new investors. I would gladly invest in this company because I believe that if I were to do it, I would be able to get that money back in a short amount of time.

Possible Investors Net Income / Average Total Assets = Return on Assets (A profitability ratio that shows a percentage of profit the company earns in relation to its overall resources) 2016 – 572 / ((5,387.1 + 5,606.1)/2) = 0.104:1 2017 – 592/ ((6050.7+ 5606.1)/2) = 0.102:1

Average Common Shareholder Equity = (2016 – 2017 values used for 2017 average) ((6,050.7 - 3,126.8) + (5,606.1-2,912.9))/2 = (2923.9 + 2693.2)/2 = 2808.55

(2015 – 2016 values for 2016 average)

((5,606.1-2,912.9) +(5,387.1-2,729.9)) /2 = 2675.2

(Net Income – Preferred Dividends)/ Average Common Shareholder Equity = Return on Common Shareholders Equity (It is a ratio that measures the ability of a firm or company to generate profits from its shareholder’s investments in the company) 2016 – (572 - 0.14)/ 2675.2= 0.213763569 x 100 = 21.38% 2017 – (592-0.1625)/2808.55= 0.2107270656 x 100 = 21.07%

Net Income – Preferred Dividends/ Outstanding Shares = Earnings Per Share (Earning per share is a portion of a company’s profit that is allocated to each outstanding share of its common stock (It also measure company profitability)) 2016 – (572 - 0.14)/ 237 = 2.4135021097046 = $2.41 2017 – (592 – 0.1625)/ 229 = 2.585152838 = $2.59

Current Stock Price (2017)/ Earnings Per Share =Price Earnings Ratio (it measures a company’s current share price relative to its per share earning) 2017 – 49.08 /25851152.8 = 0.000018985  0.000019 :1

For 2017 the return on assets is bit lower than the returns during 2016 meaning the company in 2017 had a lower percentage of profit the company earns relative to its total net assets. In 2016 the company is more effective in using its assets to generate earnings before contractual obligations must be paid. Return on Common Shareholders Equity is more efficient in 2016 than 2017 because Metro Inc in 2016 generated more profits from its shareholders investments. In 2017 the earning per shares is higher meaning that they had a higher profitability from shares in 2017 than 2016. I would invest in this company after researching their possible debtors because in each category there is a change in years. Even if Metro Inc in 2016 was more efficient in some categories, 2017 is better because over the years the company’s profitability is higher than their previous years especially in their earnings per share. If I were to invest in this company, I am happy to say that there are no risks, just more benefits.

Possible Long-Term Creditors Debt (Liabilities) / Total Asset =Debt to total assets (This ratio is an indicator of financial leverage that measures the percentage of total assets that were financed by creditors, liabilities and debts) 2016- 2,912.9/5,606.1 = 0.52: 1 2017 –3,126.8/6,050.7 = 0.52: 1

Earning before Interest and Taxes / Interest Expense =Interest Coverage Ratio (it measures a company's ability

to honor its debt payments) 2016 – 744 /61 = 12.2: 1 2017 – 768 /61= 12.6 :1

In 2016 the debt to total assets is higher meaning they had more of a financial leverage on their financial position than 2017, and 2017 has a higher interest coverage ratio which indicates that the company has a higher debt burden then the previous year and they have a greater possibility of bankruptcy or default. Prior to this section I wouldn’t invest in the company because with each year their possibility for bankruptcy is greater nut overall due to the previous two section, I would invest in them due to their increase in sales, profitability and they have been able to expand their network and horizon over the last couple of years.

Work Cited INC., METRO. “METRO INC. to Acquire The Jean Coutu Group (PJC) Inc. for $4.5 Billion Français.” Canada Lifts Visa Requirements on Romania and Bulgaria, PRNewswire, 2 Oct. 2017, www.newswire.ca/news-releases/metro-inc-toacquire-the-jean-coutu-group-pjc-inc-for-45-billion-649023573.html. INC., METRO. “METRO INC. to Acquire The Jean Coutu Group (PJC) Inc. for $4.5 Billion Français.” Canada Lifts Visa Requirements on Romania and Bulgaria, PRNewswire, 2 Oct. 2017, www.newswire.ca/news-

releases/metro-inc-to-acquire-the-jean-coutu-group-pjc-inc-for-45-billion649023573.html. The Wall Street Journal, Dow Jones & Company, quotes.wsj.com/CA/XTSE/MRU/financials.

Dividend History, dividendhistory.org/payout/tsx/MRU/. “Welcome to the SEDAR Web Site / Bienvenue Au Site Web SEDAR.” Download SEDAR Filings - Code Verification and Accept Terms of Use, www.sedar.com/....