Empire Company Limited is a Canadian community of companies focused on food retail and corporate investment. They own a large supermarket chain Sobeys. Loblaw Companies Limited is essentially a competitor to the company as mentioned above, as it also operates in the retail sector; however, Loblaw also includes banks, clothing stores, and pharmacies in its conglomerate. The retail industry is characterized by a high rate of turnover of goods, a relatively high degree of dependence on suppliers, manufacturers, and their prices, and therefore achievements in such indicators of operating activities as the gross profit are very important for understanding the company’s liquidity. In addition, it is often retail companies that work with deferred payments, and therefore the assessment of receivables, as well as the ability to repay them on time, determine the investment attractiveness of the company and the prospects for its growth.
Companies report their top financial performance through annual reports. Whereas in the case of Empire Company Limited, this report is more descriptive, and the financial statements are selectively woven into this description, then Loblaw provides more financial indicators for analysis. A more detailed description of Loblaw’s financial indicators is due to the high degree of diversification of the company – the annual report examines the operating activities of each division of the conglomerate in order to identify the most promising areas for development. Empire demonstrates income from operating activities, in other words, from actual sales through retail, and also demonstrates the dynamics of changes in its investments. Loblaw also differentiates turnover from operating activities and provides more underlying financial relationships that demonstrate the dynamics of a company’s liquidity and relevance. Cash and cash equivalents in both companies include short-term liabilities with temporarily unused cash, while in the case of Loblaw, the cash flow indicators are higher, although the dynamics are negative. Companies have no limited funds. Empire’s long-term debt is falling by 2017, while Loblaw’s is growing slightly, but the latter’s current ratio has the best indicators, especially against the backdrop of a steadily growing gross profit.
Gross profit shows positive dynamics for Loblaw, which means that the company can correctly dispose of its own resources, constantly optimizing production with growing sales. Empire’s performance is worse, given that both sales and total assets are falling. Deferred payments form accounts receivable; in this case, both companies represent food retail, then the debt is usually short-term. Moreover, it is almost undoubtedly doubtful since it is not secured by collateral. As a result, such debt has a constant dynamic with a high amplitude, and these two types are similar for both companies. Considering that Loblaw’s debt is growing, we can conclude the company’s development since Empire’s assets and sales are falling proportionally to the debt. Debt is displayed through long-term and short-term obligations, the ability to cope with which reflects the company’s stability.
Companies are continuously exposed to inflationary credit risk, which is systematic; however, Empire also faces operational efficiency risk due to adverse financial performance and liquidity risk due to lower operating income. Loblaw’s depreciation and amortization remain low in proportion to rising incomes. Empire did not provide information on the reserve for doubtful debts, while Loblaw uses Choice Properties: a set of measures for assessing the creditworthiness of specific tenants, the reserve for which is determined individually based on a combination of factors. In addition, Loblaw in this approach uses security deposits, diversification of the tenant mix, and risk limitation in any direction except Loblaw. Bad debts were not presented in the reports of both companies.
The company’s liquidity is best assessed in terms of the ratio of current assets to liabilities. Loblaw is a much larger company than Empire since Loblaw’s current assets exceed Empire’s total assets. Both companies maintain their current ratio above one; however, Loblaw has seen an increase in all the indicators involved, while Empire has declined proportionally, leaving the ratio at the same level. The turnover in retail is fast enough compared to other areas of business. In this regard, profits are often sent to long-term investments so that the company can thus maintain stability and stable growth against the backdrop of inflation.
The Loblaw annual report allows calculating the receivable turnover ratio since net credit sales are indicated there, and it is possible to get average accounts receivable, which gives a ratio of 1.28. For retail, this figure is considered quite normal but not even close to the best in its field. Empire has a lower figure due to lower revenue concerning accounts receivable – the figure is approximately 0.76, which is already considered a relatively low figure for retail. Loblaw also turned out to be better in this indicator, demonstrating almost complete superiority over competitors in financial activity. Loblaw is likely achieving these successes through broader business diversification, while Empire is more focused on its specific brands, which do not provide such a wide range of services and products to consumers.