Executive Summary
Canadian Tire Corporation, Limited, a Canadian corporation, offers goods and services to meet everyday needs. The corporation has an interconnected network of businesses involved in retailing goods, apparel, petroleum, financial services, and automotive services. J. William Billes and Alfred J. Billes founded the company in 1922 in Toronto, Ontario. Today, Canadian Tire Corporation has expanded into a diverse network with over 1,200 general merchandise and apparel retail stores and gas bars, along with being a significant provider of financial services. With a workforce of over 58,000 employees, the red triangle logo of Canadian Tire has become one of the most trusted brands in the country.
Based on the financial analysis, Canadian Tire had a successful business year in 2010. The gross operating revenue grew by $294 million or 3.4%. Additionally, the net income increased significantly from $335 million to $453.6 million, reflecting a growth rate of 35.4%. Although total assets slightly decreased by 1.2%, there was a notable decline of 9.4% in total liabilities. As a result, shareholders’ equity grew by 10.3% compared to the previous year’s figures. This increase in shareholders’ equity is anticipated by investors and is likely to inspire more confidence in the business, attracting potential investors.
Overview
Canadian Tire Corporation, Limited is a major Canadian company that is publicly traded and ranked among the top 60 in Canada. The corporation operates various businesses in retail, apparel, petroleum, and financial and automotive services. With a workforce of over 58,000 employees across the country, Canadian Tire offers a wide range of goods and services to fulfill the everyday needs of Canadians through their trusted red triangle brand. Their business portfolio encompasses several entities including Canadian Tire Retail – the nation’s most popular general merchandise retailer; Canadian Tire Petroleum – one of Canada’s largest and most successful independent gasoline retailers; PartSource – a specialty chain for automotive parts; Mark’s Work Wearhouse – a leading work apparel retailer; and Canadian Tire Financial Services – responsible for managing Canadian Tire MasterCard accounts as well as providing financial products and services to retail and petroleum customers. The company has its headquarters located in Toronto, Ontario.
The first Canadian Tire store was established in Toronto on September 15, 1922 by J. William Billes and Alfred J. Billes. They bought the Hamilton Tire and Garage Ltd., located at Gerrard and Hamilton Streets, using their savings of $1,800. By 1928, the Billes brothers created their initial catalog. Only six years later, in 1934, they opened the first associate store in Hamilton, Ontario which played a crucial role in driving the company’s growth. In 1937, Canadian Tire moved its main store and headquarters to Yonge Street and Davenport Street where it currently operates as a chain store.
Canadian Tire Retail, a corporation listed on the Toronto Stock Exchange, has experienced significant expansion. It now operates over 1,200 general merchandise and apparel retail stores as well as gas bars. The growth of Canadian Tire Retail has been instrumental in establishing a vast store network with strong brand recognition throughout Canada. A large proportion of the Canadian population shops at Canadian Tire stores annually, with around 90 percent residing within a 25-kilometer distance from a store.
Financial Analysis
Horizontal Analysis
The comparative balance sheet for Canadian Tire Corporation, Limited in 2009 to 2010 reveals that there was a decrease of 3.7% in current assets, but the overall decrease in total assets was only 1.2% due to a 2.3% increase in net capital assets. On the liabilities side, current liabilities experienced a significant decrease of 20.2%, while long-term liabilities saw an increase of 1.9%. As a result, total liabilities decreased by 9.4%. Although there was a slight decrease of 0.1% in common shares within shareholders’ equity, there was also a noteworthy increase of 12.6% in retained earnings, leading to an overall increase of 10.3% in total shareholders’ equity.
Despite a general decrease in trends, there was a higher decrease in liabilities compared to assets. As a result, shareholder’s equity increased as the company retained more income. This information is from the consolidated statement of earnings. Figure 2 shows the comparative income statement of Canadian Tire Corporation, Limited for 2009 and 2010.
In 2010, gross operating revenue increased by 3%. The cost of merchandise sold also rose by 2.7%, resulting in a 9.1% increase in gross profit due to higher revenue. On the other hand, operating expenses decreased by 8.5%. Income tax expense had a smaller decrease of 0.6%. However, net income significantly increased by 35.4%. These figures indicate a successful fiscal year for the company.
The beginning retained earnings increased by 9.5% compared to the previous year, while the net income also rose by 35.4%, aligning with the amount stated in the income statement. Dividends experienced a growth of 7.4% in 2010, and the ending retained earnings saw an increase of 12.6%. These figures suggest that the company held onto a significant portion of its income throughout the year and indicate the gross operating revenue of Canadian Tire Corporation, Limited over the past decade.
The graph shows a consistent increase in gross operating revenue over the years, reaching its peak in 2008. However, there was a decline between 2008 and 2009, although the revenue in 2009 still surpassed that of 2007. In 2010, there was another rise in revenue, indicating steady growth for the business. Figure 5 represents the net earnings for a ten-year period.
This graph depicts the net earnings of Canadian Tire Corporation, Limited over the course of a decade. Like the graph for gross operating revenue, there is a consistent upward trend with a few exceptions from 2007 to 2009 where net earnings declined. However, in 2010, there was a notable increase in net earnings, reaching the highest point in the past ten years. The graph indicates that the business is thriving and continuing to generate greater profits. Figure 6 showcases the dividends declared over the same ten-year period.
The graph above displays the dividends declared by Canadian Tire Corporation, Limited from 2001 to 2010. The data suggests that the dividends exhibited a consistent growth pattern during this time period.
Vertical Analysis
The condensed balance sheet for Canadian Tire Corporation, Limited shows changes in assets and liabilities between 2009 and 2010. Current assets decreased from 58.6% to 57.1% while capital assets increased from 41.4% to 42.9%. Similarly, current liabilities decreased from 29.8% to 24.1%, and long-term liabilities increased from 28.6% to 29.5%. As a result, total liabilities decreased from 58.4% to 53.6%. The change in common share was minimal with only a marginal increase of 0.1%, but retained earnings saw a significant boost of 3.7%, leading to an increase in shareholders’ equity from 41.6% to 46.4%.
The company’s previous observations were confirmed as it saw an increase in earnings and a decrease in liabilities. The comparative income statement for Canadian Tire Corporation, Limited in 2009 and 2010 revealed several positive changes: a decrease of 0.6% in the cost of merchandise sold, an increase in gross profit from 10.3% to 10.9%, a decline of 0.5% in total operating expenses, and a decline of 0.% in income taxes expense. Consequently, net income grew from 3.9% to 5.1%. These results demonstrate that Canadian Tire Corporation, Limited effectively maintains its profitability.
The 2010 interim balance sheets of Canadian Tire Corporation, Limited and Sears Canada Inc. were compared. The comparison included both companies’ current and capital assets, liabilities, and shareholders’ equity. In October 2010, the percentage of current assets for Sears Canada Inc. was higher (70.5%) than that of Canadian Tire Corporation, Limited (58.7%). However, Canadian Tire Corporation, Limited had a higher percentage of capital assets. When it came to liabilities, Canadian Tire Corporation, Limited had a lower total than Sears Canada Inc. In terms of shareholders’ equity as well, Canadian Tire Corporation, Limited also had a higher percentage.
These figures demonstrate that Canadian Tire Corporation, Limited holds a more robust financial stance 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 a highly successful Canadian business with a workforce of 58,000 employees and ownership of 1200 franchises. The company has built a loyal customer base through the introduction of its innovative Canadian Tire ‘Money’® program, which rewards customers for their purchases and can only be used within Canadian Tire stores. In addition to a wide range of everyday essentials such as clothing, petroleum, and general merchandise, Canadian Tire now provides online shopping options to enhance the convenience of its customers’ shopping experience.
Canadian Tire’s diverse range of products attracts customers who are looking to shop. With its widespread distribution, Canadian Tire is able to reach over 11 million homes, serving more than 90% of the population. To inform the local communities about sales, weekly flyers are distributed to each neighborhood, effectively attracting a large number of customers.
Weakness
Despite being a prosperous Canadian company, Canadian Tire is facing significant challenges in terms of international expansion.
Canadian Tire’s emphasis on the American lifestyle, rather than a global approach, has led to a significant loss of approximately $300 million during their geographical expansion. To ensure successful worldwide expansion, it is crucial for Canadian Tire to engage in thorough market research. Furthermore, Canada is currently undergoing a dynamic demographic shift caused by an inflow of immigrants with diverse cultures and lifestyles. In order to adapt to this growing diversity within society, Canadian Tire should offer a broader range of products that cater specifically to different cultures.
The market has not fully rebounded following the economic collapse in 2008, causing a decrease in sales growth for Canadian Tire. The recession of 2008-2009 and inflation, which led to higher prices for goods, have also contributed to reduced incomes for families, making it harder for them to afford the company’s products.
Opportunities
Canadian Tire has the opportunity to tap into the patriotic side of the market by highlighting its Canadian ownership, especially as many stores are owned by Americans. This could further fuel patriotism among its citizens.
When it comes to national pride in shopping, Canadian Tire is the preferred choice for citizens. Canadian Tire sets itself apart by offering automotive services and selling automotive parts, conveniently located alongside petroleum stores. To expand its business, Canadian Tire has the opportunity to acquire more petroleum agencies. Like its competitors, Canadian Tire could also venture into the grocery market by selling groceries as merchandise. The popularity of SuperCentres has grown, providing individuals with the convenience of purchasing both goods and groceries, ultimately leading to increased sales.
