Loblaw Companies Ltd was founded in Toronto in 1919 and introduced the self-serve grocery store concept. It expanded to the US in 1924 and became Canada's largest supermarket retailer by the mid-1980s with over 90 stores in Ontario. Today it is Canada's largest food retailer operating stores under brands like President's Choice, No Name, Joe Fresh, T&T, and others. Based on its financial ratios, Loblaw has adequate liquidity and solvency but low profitability, with a 2% return on assets below its calculated WACC of 13.44%, suggesting its stock value may decline.
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Which VCs Are Actually Investing in Europe? Paul Fifield
- Comparing Q1 2019 to Q1 2020, there's been a 42% fall in deal volume from 1517 to 880
- Venture is not the only source of money, you should also consider family offices, HNWs, Angel syndicates and venture debt, along with government support
- VCs who are likely open for business will be those who have recently closed their own new fund, have made recent investments, and their portfolio is not within high risk sectors
- When considering family offices and HNWs, first generation ie. the creators of wealth are more likely to invest than second and third generation who are typically more institutional in their approach
- Valuations follow the public market which is 30-40% down, multiples of 3x-8x have become 2x-5x
2. 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
3. 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
6. 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
7. Profitability Ratios
● Profit: 2,844 million (Q1 2015)
● Gross profit margin: 28%
● Return on assets: 2%
● Return on equity: 5%
8. 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
9. CAPM and WACC cont’d
WACC = Cost of equity + cost of debt + cost of preferred shares
WACC = 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.
10. Options for financing the project
● Option 1: Advances and Private Investments
● Option 2: Value Financing
● Option 3: Business Bonds
● Option 4: Blessed messenger investors
11. 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).
