canadian tire financial analysis

Executive Summary

Canadian Tire Corporation, Limited is a Canadian corporation that offers goods and services that meet life’s everyday needs. The corporation has an interrelated network business engaged in retailing goods, apparel, petroleum, and the financial and automotive services. The company was founded in 1922 by J. William Billes and Alfred J. Billes in Toronto, Ontario. Today, Canadian Tire Corporation has grown to a diverse network of business with more than 1,200 general merchandise and apparel retail stores and gas bars, as well as a major financial services provider. With more than 58,000 employees, the red triangle becomes one of the nation’s most trusted brands.

According to the financial analysis, Canadian Tire had a successful business year during 2010. The gross operating revenue had growth of $294. million with a rate of 3. 4%. The net income was increased from $335. 0 million to $453. 6 million, with a significant rate of 35. 4%. Though the corporation’s total assets had a slight decrease of 1. 2%, the total liabilities had decreased by 9. 4%. As a result, there was a 10. 3% increase in the shareholders’ equity compared to 2009. This growth in the shareholders’ equity is expected by the investors and it will make them more confident to invest in the business and will attract more potential investors.

Overview

Canadian Tire Corporation, Limited is one of the 60 largest publicly traded companies in Canada. The corporation has an interrelated network business targeting in retailing goods, apparel, petroleum, and the financial and automotive services. Canadian Tire has more than 58,000 employees across Canada working in offering goods and services that can meet Canadians’ every day needs under one the nation’s most trusted brands—the red triangle. The usiness includes Canadian Tire Retail as Canada’s most-shopped the general merchandise retailer, Canadian Tire Petroleum being one of the country’s largest and most productive independent retailers of gasoline, PartSource as an automotive parts specialty chain, Mark’s Work Wearhouse being one of the country’s leading work apparel retailers, and finally, Canadian Tire Financial Services which manages Canadian Tire MasterCard accounts, markets related financial products, and services for retail and petroleum customers. The corporation’s head office is located in Toronto, Ontario.

The first Canadian Tire store was opened by two brothers, J. William Billes and Alfred J. Billes in Toronto on September 15, 1922. They bought the Hamilton Tire and Garage Ltd. located at the corner of Gerrard and Hamilton Streets with a saving of $1,800. In 1928, J. W. and A. J. Billes produced their first catalogue. Six years later, in 1934, the first associate store was opened in Hamilton, Ontario, serving as a catalyst for the successful development of the business. Then, in 1937, Canadian Tire’s main store and head office was moved to Yonge Street and Davenport Street which remains as a chain store.

Today, the corporation has grown to having more than 1,200 general merchandise and apparel retail stores and gas bars and being a publicly traded company on the Toronto Stock Exchange. Canadian Tire Retail, the main engine of the growth of the corporation, has become one of Canada’s largest and newest store networks with a near-universal awareness of the brand. Canadians shop at least once a year in the corporation’s shops and 90 per cent of Canadian live within 25 kilometres of a Canadian Tire store now.

Financial Analysis

Horizontal Analysis

The above figure is the comparative balance sheet of Canadian Tire Corporation, Limited. or the year 2009 to 2010. In the assets section, though current assets decreased by 3. 7%, the total assets decreased only by 1. 2% because the net capital assets increased by 2. 3%. The similar trend appeared in the liabilities section, too. The current liabilities decreased by 20. 2% while the long-term liabilities increased by 1. 9%. As a result, the total liabilities decreased by 9. 4%. In the shareholders’ equity section, there was a 0. 1% decrease in the common shares but 12. 6% increase for the retained earnings which made the total shareholders’ equity increase by 10. 3%.

Even though the trends in general were decreasing, there was a higher decrease in the liabilities than in the assets, making an increase in the shareholder’s equity as the company retained more income. Data retrieved from the consolidated statement of earnings. This is the comparative income statement of Canadian Tire Corporation, Limited for the year 2009 and 2010 is shown in figure 2. During the year 2010, the gross operating revenue increased by 3. %. The cost of merchandise sold also increased by 2. 7% and the gross profit increased by 9. 1% under the effect of the increased revenue. The operating expenses have decreased by 8. 5%. The income taxes expense had a smaller decrease of 0. 6%. The resultant net income was significantly increased by 35. 4%. The data indicates that the company had a successful fiscal year.

The begging retained earnings increased by 9. 5% than the year before. The net income increased 35. 4% which is consistent with the amount shown in the income statement. For the dividends, there was an increase of 7. 4% during 2010. The ending retained earnings were increased by 12. 6%. The data here suggested that the company had retained a significant amount of income during 2010. The gross operating revenue of Canadian Tire Corporation, Limited over the past ten years.

According to the graph, the general trend is increasing from year to year. The gross operating revenue kept increasing from 2001 to 2008. In 2008, the company retained its highest amount of operating revenue within the past ten years. The only decrease happened between the year 2008 and 2009 and the revenue in 2009 was still higher than the revenue in 2007. Then, in the following year, 2010, the revenue was increased again. The trend here suggests that the business is growing healthily over years. Figure 5 the net earnings over ten years.

This graph shows the net earnings of Canadian Tire Corporation, Limited over the past ten years. Similar to the graph for the gross operating revenue, there is also an increasing trend from year to year with the exceptions from 2007 to 2009. The net earnings decreased from 2007 to 2009. However, in the year 2010, the net earnings increased significantly to the highest point within the past ten years. The graph suggests that business is keeping doing well and keep retaining more profit. Figure 6 the dividends declared over ten years.

The graph above shows the dividends declared from 2001 to 2010 for Canadian Tire Corporation, Limited. The trend here suggests that the dividends were increasing in a steady pace from year to year.

Vertical Analysis

The condensed balance sheet for Canadian Tire Corporation, Limited for the year 2009 and 2010. In the assets section, the current assets decreased from 58. 6% to 57. 1% while the capital assets increased from 41. 4% to 42. 9%. The current liabilities decreased from 29. 8% to 24. 1% while the long-term liabilities increased from 28. 6% to 29. 5%. As a result, the total liabilities decreased from 58. 4% to 53. 6%. The change in the common share was slightly 0. 1%. However, there was a 3. 7% increase for the retained earnings and making the shareholders’ equity increase from 41. 6% to 46. 4%.

These results suggest reinforce the earlier observations that the company retained more earnings while reducing the liabilities. The comparative income statement of Canadian Tire Corporation, Limited for the year 2009 and 2010. According to the income statement, the cost of merchandise sold decreased by 0. 6%. The gross profit increased from 10. 3% to 10. 9%. The total operating expenses decreased by 0. 5% and the income taxes expense decreased by 0. %. By increasing the gross profit and decreasing the expenses, the company was able to increase the net income from 3. 9% to 5. 1%. The Canadian Tire Corporation, Limited appears to be a profitable enterprise as it is becoming more and more successful in retaining earnings.

The condensed interim balance sheets of Canadian Tire Corporation, Limited and Sears Canada Inc. t October for the year 2010. This figure includes the interim balance sheet from Canadian Tire Corporation, Limited and also one of its main competitors, Sears Canada Inc. at October for the year 2010. Sears Canada Inc. had 70. 5% of current assets which was larger compared to Canadian Tire Corporation, Limited’s 58. 7%. However, Canadian Tire had a larger percentage of capital assets. For the liabilities section, the total liabilities for Canadian Tire were less than it for Sears. In terms of the shareholders’ equity, Canadian Tire also had a larger percentage than Sears.

These amounts indicate that Canadian Tire Corporation, Limited has a stronger financial position in the industry.

Ratio Analysis

  • All the following money figures are expressed in millions of dollars Liquidity Ratios
  • Current Ratio: measures short-term debt-paying ability.
  • The current ratio has increased during the current year.

SWOT Analysis

Strengths

Canadian Tire Corporation, Ltd. is one of the major Canadian businesses operating with great success, employing 58,000 workers and owning 1200 franchises. It has a loyal group of clientele since its innovative introduction of Canadian Tire ‘Money’®, a money is gained by purchasing in Canadian Tire and it can only be used in Canadian Tire. Many of goods are offered by Canadian Tire that meet life’s everyday needs, including clothing, petroleum, and general merchandise, to name a few. Canadian Tire now offers an online shopping line, allowing its customers having a more convenient shopping experience.

Customers would like to go shop in Canadian Tire because of the kaleidoscope of goods that Canadian Tire is able to provide. Canadian Tire is dispersed in a way that it is able to reach many citizens, its distribution allows it to reach more than 11 million homes. Its location is designed to serve more than 90% of the population. Weekly flyers are given out to each neighbourhood to advertise sales, thus attracting numerous customers

Weakness

Even though Canadian Tire is a successful Canadian company, it is having a very hard time expanding on a global scale.

It is more focused on American lifestyle instead of global scale, as it has lost nearly 300 million dollars on a geographic expansion. If Canadian Tire is able to do proper market research, then it will have a better chance excelling in expanding worldwide. Canadian Tire needs to do more market research in terms of within Canada too, as Canadian demographic is changing at a rapid speed, with the exponential growth of immigrants, bringing different cultures and lifestyles. Canadian Tire needs to provide more variety of goods to meet the different cultures, be on par with the ever so different society.

Ever since the economic collapse in 2008, the market has not been fully recovered yet. The recession decreased the growth in sales for Canadian Tire, as seen comparing the figures from 2008 to 2009. Furthermore, inflation is not decreasing, and prices for goods are increasing while the income of many families are decreasing. This decreases the number of customers that can afford the goods.

Opportunities

Canadian Tire has the unique chance to play on the patriotic side of the market, since many stores are owned by Americans, Canadian Tire could further ignite patriotism in its citizens, emphasizing that it is owned by Canadians.

When shopping is associated with national pride, then Canadian Tire can be preferred by citizens Canadian Tire is special since it provides the automotive services while selling automotive parts, it is closely located beside the petroleum stores. Canadian Tire can buy more petroleum agencies to expand the business. Similar to many other competitors, Canadian Tire could also diversify its market by selling groceries as merchandises. SuperCentres are popular now, where people can buy goods and groceries, increasing convenience, and therefore increase sales.

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