Financial Analysis Assignment

By: Rosani Varatharajan

Ms LangBAT 4U1Tuesday, January 19,2008

Industry Description

Operates in Retail Industry Department Speciality

Ready made goods in stores for purchase

Success depends on strategy they use Compete on price and location

Executive Summary

Le Chateau is a specialty retailer offering apparel, accessories and footwear for men and women. The company primarily operates in Canada and the US.

It is headquartered in Quebec, Canada and employs 3,000 employees.

The company recorded revenues of C$336.1 million during the fiscal year (FY) ended January 2008, an increase of 10.6% over 2007. The operating profit of the company was $51.4 million (approximately $48.7 million) during FY2008, an increase of 36.2% over 2007. The net profit was $33.6 million (approximately $31.8 million) in FY2008, an increase of 35.8% over 2007.

SWOT ANALYSIS

Strengths

Distinctive edge in fashion Innovative store design Merchandizing Financial position Team of employees

Weaknesses

New coming competition Low business in USA

Opportunities

Remain centered on improving all aspects of its business through: ongoing brand-building efforts, better inventory management, tighter cost controls, continued investments in research, design and development, renovations, and new technologies. The Company will also continue to study and draw

on opportunities for revenue generation through foreign licensing of its offering and brand.

Threats

Competitive and Economic Environment

Changes in customer spending General economic conditions and

normal business uncertainty Leases Foreign Exchange

Visual Analysis

Sales

2008 2007 2006280000

300000

320000

340000

360000

Sales in '000

Shareholders’ Equity

2008 2007 20060

20000

40000

60000

80000

100000

120000

140000

160000

Sharholders' Equity (in 000's)

Net Earnings

2008 2007 20060

5000

10000

15000

20000

25000

30000

35000

40000

Net Earnings (in '000)

Cash Flow From Operations

2008 2007 20060

5000

10000

15000

20000

25000

30000

35000

40000

Cash Flow From Operations (in '000)

Ratio and Percentage Analysis for Le Chateau(in thousands of Canadian Dollars)

Current Ratio Determines the liquidity to pay short

term debt. Total Current Assets/Total Current

Liabilities =127 789 /42 168 =3.030 =3.03 they are doing very well in terms of

being able to pay their short term liabilities

Le Chateau is higher then Industry avg. Of 1.2:1

Quick Ratio

Shows if Company can pay off short term debt without selling inventory

Current Assets- (Inventory+ prepaid Expense)/ Current Liabilities

= 127 788 – (54 012+778)/ 42 168 =127 788- 54 790/42 168 =72 998/42 168 =1.75 Le Chateau has a very good Quick Ratio

Working Capital

The ability to pay short term debts in a normal time

Total current assets- total current liabilities –(prepaid exp + inventory)

=127 788-42 168- (778+54 012) = 85 620-54 790 = 30 830 Le Chateau is in healthy financial position

where it can pay off short term debt easily.

Debt Ratio

Percentage of assets that are paid for with borrowed money

Total liabilities/total assets =74 017/216 431 =0.34 =0.34:1 Le chateau is not much of a risk factor for

investors. A ratio under 1 indicates that the

company has more assets then debt

Shareholder Equity Ratio

The percentage of assets are financed with shareholder money

Total equity/total assets = 142 414/216 431 =0.66:1 Shareholder’s will be pretty happy with

this ratio since they will receive 66cents for every dollar of assets in the case of liquidation.

Gross Profit Margin

Percentage of each sales the company gets to keep as profit

(net income/net sales) x 100 = (38 621/345 614) x 100 = 0.11x 100 = 11% Le Chateau shows that they are

capable of having relatively well priced good and not high of costs.

Return on Shareholders’ Equity

Income for every dollar invested by shareholders

(net income/owner’s average equity) x 100 = 38 621 / 142 414 = 0.27 =27% Le Chateau’s value of 27% is much higher

than the industry average of almost 13% They are making effective use of the trading

on the equity

Collection Period

Ability to collect from credit customers Accounts receivable/ (sales/365) =4 791/ (345 614/365) =4 791/ 946.9 = 5.1 Le Chateau has a excellent collection

period .

Earnings Per Share

Amount of net income per common share Net income/number of common shares

outstanding Basic

2008- 1.3 2009- 1.6

Diluted 2008- 1.3 2009- 1.6

In both cases the company’s EPS has increased at a good growth rate

Price Earnings Ratio

Market price of a common share to the company’s earnings

Market price per share/earnings per share

= 9.45/1.56=6.05 Le Chateau is under a average P/E

Ratio but is definitely a good bargain.

Le Chateau’s Future

Retail industry gaining profits Potential to even further success Unique path that no one can compete

with

Le Chateau Conclusion

Well positioned in specialty retail Continues to expand costumer base Elevating service standards and product

innovation On going brand building, better inventory

management, cost controls, investments in research, design and development, renovations, and new technology

Also looking for opportunities for revenue generation through foreign licensing of brand.

Thank You Le Chateau Inc