Loblaw Companies Ltd

History of Loblaw Companies Ltd

● Founded in 1919 in Toronto● Self serve grocery store concept introduced● Expanded into the US in 1924● 69 stores in Ontario by 1928, by 1930 - 97 stores● By the mid 1980s, Loblaw Companies Limited had become

Canada’s largest supermarket retailer

Company’s review

● Largest food retailer in Canada● Loblaw brands include President's Choice, No Name, Joe

Fresh, T&T, Everyday Living, Exact, Seaquest, Azami, and Teddy's Choice

Liquidity Ratios

● Current ratios: 1.36● Acid test: 0.77

Solvency Ratios

● Debt: 0.61● Times interest earned: 3.87● Cash coverage: 5.51

Efficiency Ratios

● Inventory turnover: 7.6● Days sales in inventory: 48.03● Receivables turnover: 34.26● Days sales in receivables: 10.65● Total asset turnover: 1.32

Profitability Ratios

● Profit: 2,844 million (Q1 2015)● Gross profit margin: 28%● Return on assets: 2%● Return on equity: 5%

CAPM and WACC

● CAPM Re = Rf + Be*(Rm-Rf) = 0.03 + 1.07(0.04-0.03) = 4.07%

Be = 1.07 Rm = 0.04 Rf = 0.03

The cost of equity of Loblaw Companies is expected to be 4.07% in 2015

CAPM and WACC cont’d

WACC = Cost of equity + cost of debt + cost of preferred sharesWACC = Re(E/V) + RD (D/V)(1 – TC) + RP (P/V)

Cost of Equity = 4.07%Cost of Debt = Rd x (1-Tc)Rd = 0.04 Tc = 0.05 Cost of Debt = 3.80%

Cost of prefered shares 5.30%

WACC = 13.44% It's the overall return that Loblaw must earn on its assets in order to maintain the value of the stocks. Return of assets was 2% in 2015, which means that the value of stock tends to drop.

Options for financing the project

● Option 1: Advances and Private Investments● Option 2: Value Financing● Option 3: Business Bonds● Option 4: Blessed messenger investors

Where to get funds

● Based on the calculations you have made and the options available to the company make a recommendation as to where the company should acquire the funds for the expansion (your recommendation may include more than one source).

Conclusion