Ability to Pay Current Liabilities
The first criteria considered within our investment analysis are Loblaw’s ability to pay current liabilities. Loblaw’s current ratio is stable with slight improvement over the last four years and has an overall improvement in the Acid test ratio over the four years. Also, in comparison to industry averages Loblaw continue to outperform them, especially in Acid test ration, where they have improved vastly by 54.2% in the last two years{see appendix X}.
Appendix X
Acid Test Ratio Loblaw
|2008-2009 |2010-2011 |Percent Change (0.91/0.59) |
|0.59 |0.91 |54.2% |
Taking a closer look at the profitability of Loblaw, we notice a constantly rising trends, over the four years, although when compared to Metro FS or the industry average it is considerably lower and in some cases not even 50% return is seen. Return on sales of Loblaw is constantly on the rise through the fours but still nowhere close to the industry average, in fact it is 70% under the industrial average (Appendix 1). Likiwise the return on Assets and Equity of Loblaw is rising throughout the four years which is still not enough to come close to the industry average. Although the return on Equity of Loblaw is slightly better than Metro FS from 2008-2009, but soon Loblaw loses that too, and the return of equity for Metro rises drastically in 2010-2011. When looking at the financial leverage percentage, again Loblaw has a rising trend showing us that they are getting better debt financing. Although the profitability of Loblaw is way under the industrial average, it is getting better yearly, making it a safer rather than high return investment.
. Loblaw’s ability to sell inventory and collect receivables, is getting worse through the years. Loblaw has maintained the ability to quickly sell inventory, with slight improvement over the
Appendix X
Acid Test Ratio Loblaw
|2008-2009 |2010-2011 |Percent Change (0.91/0.59) |
|0.59 |0.91 |54.2% |
Taking a closer look at the profitability of Loblaw, we notice a constantly rising trends, over the four years, although when compared to Metro FS or the industry average it is considerably lower and in some cases not even 50% return is seen. Return on sales of Loblaw is constantly on the rise through the fours but still nowhere close to the industry average, in fact it is 70% under the industrial average (Appendix 1). Likiwise the return on Assets and Equity of Loblaw is rising throughout the four years which is still not enough to come close to the industry average. Although the return on Equity of Loblaw is slightly better than Metro FS from 2008-2009, but soon Loblaw loses that too, and the return of equity for Metro rises drastically in 2010-2011. When looking at the financial leverage percentage, again Loblaw has a rising trend showing us that they are getting better debt financing. Although the profitability of Loblaw is way under the industrial average, it is getting better yearly, making it a safer rather than high return investment.
. Loblaw’s ability to sell inventory and collect receivables, is getting worse through the years. Loblaw has maintained the ability to quickly sell inventory, with slight improvement over the