Financial Analysis of Sobeys Inc.
This report is based on the consolidated financial statements of Sobeys Inc. for the years 2011 and 2012 with some reference and calculations from 2010 as well. The audit was performed by Grant Thorton chartered accountants. Office location is Suite 1100, 2000 Barrington Street, Halifax, NS. Calculations are based on GAPP numbers provided in these statements. IFRS standards have been adjusted at the end of the financial statements if reference is needed for those standards. Short term Liquidity
Sobeys Inc. current ratio drops from an acceptable 1.59 in 2011 to .963 in 2012. Being in the grocery industry this is not uncommon as inventories are higher because of the high inventory turnover rate which is higher than the accounts payable becoming due. With the exception of high inventories in this calculation the firm appears to be efficient in paying its obligations. The main contributor to the decrease in the ratio value is 2012 long term debt due within one year increase by approximately 200 mill. Note 13 states “ at end of year the $200 mill non revolving term credit was drawn down to due within one year”, this caused a substantial increase in current liabilities which in turn effects this ratio value. Working capital decreased in 2012 from 2011’s healthy positive value of $266.6 mill to a negative value of -$72.6 which is also a cause of long term debt due within one year increasing prominently. Again using the quick ratio it is lower than the desirable 1:1 value, however the company owns many assets and should not have a problem covering liabilities current or immediate future.
Operating cash flow shows increases from 2010 to 2011 and increased again from 2011 to 2012 including the change in non-working capital. However, looking at the net cash flow trend from 2011 to 2012 with working capital changes removed, the value of 2012 is slightly lower than 2011. The changes in non-cash working capital have been adjusted at an amount that shows Sobeys Inc. is not wasting current assets that may be put to better use and they are still able to meet day to day cash requirements. The largest value changes from 2011 to 2012 are 10 mill less in finance costs, 16 mill less for impairment on non-financial assets, 4 mill less in long term lease obligations and 14 mill less in long term provisions.
Collections of accounts receivable are between 7 & 8 days for both 2011 and 2012. This is a quick turnover and shows good debt collection as it happens soon after sales. As part of the grocery store industry most sales on account or credit are collected so quickly because credit would often be approved during the purchase with the transaction being completed in full by Sobeys Inc. and the financial institution the credit stems from for the purchaser of goods. Related to this is the inventory turnover rate and days to sell the inventory. At 24 days on average over 2011 and 2012 this is again typical of a grocery store retailer. A large percentage of the inventory is perishable within a certain time frame and must be sold to consumers so that spoilage is not happening frequently. Inventory would be ordered regularly from suppliers and the warehouse based on individual stores supply and demand making it easier to sell the inventory each store location would have. The longer turnover items would be non-perishables and housewares items that grocery chains are now carrying. In comparison to another grocery store chain like Loblaw’s who may have more of these household furniture and kitchen appliance items, Sobeys Inc. inventory turnover rate would be higher as the inventory is more based on the original grocery store concept.
The firm’s operating cycle is 22 to 23 days for 2011 and 2012. The realization of inventories in cash, purchasing and production of the goods, selling and recovering the cash is a shorter more frequent cycle which means that the company’s cash isn’t tied up and is realized very...
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