This report is based on the consolidated financial statements of Sobers Inc. For the years 2011 and 2012 with some reference and calculations from 2010 as well. The audit was performed by Grant Thornton chartered accountants. Office location is Suite 1100, 2000 Barrington Street, Halifax, INS. Calculations are based on GAP numbers provided in these statements. FIRS standards have been adjusted at the end of the financial statements if reference is needed for those standards. Short term Liquidity Sobers Inc. Current ratio drops from an acceptable 1. 9 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 sass’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 Sobers 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 Sobers 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 housewives items that grocery chains are now carrying.
In comparison to another grocery store chain like Labials who may have more of these household furniture and kitchen appliance items, Sobers 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 quickly giving the firm cash to operate with on a regular basis.
This allows for easier day to day operations and ensures that the company won’t have a very high (if even significant) unconvertible cash loss. Long-Term Credit Risk Sobers Inc. Debt Ratio in 2012 was 54. 2%, meaning that 54. 2% of assets have been financed by debt and has a slightly higher degree of leverage than what is considered comfortable. It could prove slightly harder if a recession happened than a company who is only leveraged at 30% to 40%, However, this ratio does not provide any indication of the asset quality being taken into consideration. The ratio did drop from the 2011 value of 55. % The firm shows positive health for the Shareholders Equity with an equity ratio of 44. 2% in 2011 and increasing to 45. 2% in 2012. Calculating the percent of total assets hat shareholders would receive in the event of company liquidation looks positive and very healthy for any investors or shareholders of this firm. The interest coverage ratio is also at a value that is significantly positive 14. 0% in 2011 and 12. 8% in 2012. Although 2021 shows a decrease, the company is still very capable of generating sufficient revenues to cover their interest payments on any debt they have incurred.
Measures of profitability Profit Margin (Return on sales) is a steady 24% for both 2011 and 2012. This value is above the average, typical or normal ratio for the grocery industry of 20%. This average value comes from a study by Paul Waylaid, communications strategist (Waylaid, 2009, PDF file). Competition keeps prices at a certain level across the board and most firms in this industry would have similar numbers because of supply and demand and also being in an almost perfect competition market.
There are many buyers and sellers in the grocery industry with similar products that are Simi lard in nature and as a result have many substitutes. Prices on goods sols are determined by the market and therefore it is hard to get any leverage to have a higher return on sales. Positives are that it is not decreasing over time for Sobers Inc. , for a $0. 24 profit return on every $1. 00 of sales. The ROTA (return on total assets) dropped in 2012 due to higher average assets compared to average assets form 2011. 012 earnings with interest and taxes added back were lower than 2011. Evaluation of Common and Preferred Stock In May 2012 Empire Ltd, the parent company of Sobers and also a huge shareholder. Previous to the acquisition of Sobers of almost 100%, their interest was at 72. 1% (Empire company,2012). Sobers Inc. Has been a long time family owned and operated business and has kept shares and stock mostly private except for ownership with other companies such as Crumbier Reid and Empire Ltd. Share price is available from Empire Ltd as public information and purchasing.
A report released by Michelle Russell in June of 2012 shows value of 2012 fiscal reports of “$4. 99 per share compared to $5. 87 per share” in 2011 (Russell, 2012). Also included in this report are dividend shares for Empire’s quarterly reports. Paul Sober is quoted “we are pleased to announce an increase in Empire’s quarterly dividend per share, from 22. Cents per share to 24. 0 cents per share per quarter, a 6. 7 percent increase” (Russell, 2012). This marked the seventeenth consecutive year of Empire dividend increase (Sober, Russell, 2012).
While these numbers can be used to evaluate the firm to an extent and shows positive growth for both Sobers Inc and the parent company Empire, it needs to be known that some of the entities which are a part of the share and dividend calculations are not as recession proof as the grocery store industry, but some have higher profit margins currently than the grocery industry. These values o not give a specific or comparative value to use against other grocery store chains in the industry.
