HUMBER INSTITUTE OF TECHNOLOGY

AND ADVANCED LEARNING

(HUMBER COLLEGE)

BUSINESS INSIGHTS AND ANALYTICS

MANAGERIAL ACCOUNTING AND FINANCE – ACCT-5507-RLS

GROUP ASSIGNMENT – Metro and Dollarama

TEAM 6

Submitted by: Grade/Comments

Last Name First Name Student

Number
Jacob Edwin N01579447
Pimenta Daegan N01536800
Bhoker Karan N01516779
Ahmed Shoeib N01579005
Gadkari Taniya N01579357
Kuriakose Divya N01579609

Submitted to:

Professor Pramela Nair Panthallor

Submission Date: Monday, June 19, 2023

 TABLE OF CONTENTS

Introduction…………………………………………………………………………………………………………….… Page 3

Short-term Solvency/Liquidity……………………………………………….……………………………….. Page 4

Long-term Solvency/Liquidity………………………………………………………….………………………… Page 5

Asset Utilization…………………………………………………………………………………………………………. Page 6

Profitability………………………………………………………………………………………………………………. Page 7

Market Value………………………………..…………………………………………………………………………… Page 8

Conclusion……………………………………………….……………………………………………………………….. Page 9

Reference List…………………………………………………………………………………………………………..... Page 10

Introduction
Metro and Dollarama are two prominent companies listed on the Toronto Stock Exchange (TSX)
that operate in the retail industry. While they both cater to different segments of the market,
they share a common goal of providing consumer goods and services to customers across
Canada.
Metro, founded in 1947, is a leading food and pharmaceutical retailer with a diversified
portfolio of grocery stores, pharmacies, and discount stores. The company operates under
several banners, including Metro, Super C, and Jean Coutu, and has established a strong
presence in both urban and suburban areas. Metro's focus on quality products, customer
service, and convenience has contributed to its success in the highly competitive retail industry.
On the other hand, Dollarama, founded in 1992, is a well-known discount retailer that offers a
wide range of everyday products at affordable prices. With over 1,300 stores across Canada,
Dollarama has become a popular destination for budget-conscious consumers seeking value for
their money. The company's business model relies on maintaining low operating costs and
sourcing products at competitive prices, allowing it to offer a variety of goods at a fixed price
point.
Despite their differences, both Metro and Dollarama have capitalized on the Canadian market's
demand for affordable and convenient shopping options. Through their respective strategies,
these companies have managed to attract and retain customers while generating substantial
revenue and profitability.
In this assignment, we will delve deeper into the financial aspects of both companies by
analyzing their annual financial statements. By calculating and evaluating key ratios in various
categories, such as short-term solvency, long-term solvency, asset utilization, profitability, and
market value, we aim to gain insights into the financial viability of Metro and Dollarama. Based
on this analysis, we will make an investment decision and provide a rationale for our choice.
Please note that the specific ratio calculations, analysis, and overall conclusion will be presented
in subsequent sections of the assignment.
1. Short term Solvency / Liquidity

Dollarama has a slightly lower current ratio (0.995) compared to Metro (1.118), indicating that
Dollarama may have slightly less short-term liquidity to cover its current liabilities. However,
both companies have ratios above 1, suggesting that they have sufficient current assets to meet
their short-term obligations. In terms of quick ratio and cash ratio, Dollarama again exhibits
lower values (0.172 and 0.087) compared to Metro (0.436 and 0.007), indicating that Dollarama
has a relatively lower ability to cover its short-term obligations with its quick assets and cash.
Metro appears to have better liquidity ratios in this regard.
2. Long term Solvency / Leverage

Dollarama has a higher total debt ratio (0.994) compared to Metro (0.506), suggesting that
Dollarama relies more heavily on debt financing to support its operations. Additionally,
Dollarama has a significantly higher debt-to-equity ratio (169.646) compared to Metro (2.025),
indicating that Dollarama has a higher level of financial leverage and is more dependent on
borrowed funds. This higher leverage may pose higher financial risks for Dollarama compared to
Metro, which has a more conservative debt structure.
3. Asset Utilisation

In terms of inventory turnover, Metro (11.348) demonstrates a significantly higher rate

compared to Dollarama (2.982). This indicates that Metro is more efficient in managing its
inventory and has a faster turnover of goods. Both companies have relatively similar fixed asset
turnover ratios, indicating efficient utilization of fixed assets in generating sales. However, in
terms of total asset turnover, Metro (1.409) outperforms Dollarama (1.048), indicating that
Metro generates more revenue per dollar of total assets. Overall, Metro exhibits better asset
management efficiency compared to Dollarama.
4. Profitability

Dollarama has a higher profit margin (15.87%) compared to Metro (4.50%), indicating that
Dollarama generates a higher percentage of profit from its sales. However, when considering
return on assets (ROA) and return on equity (ROE), Metro outperforms Dollarama. Metro has a
higher ROA (6.34%) and ROE (12.84%) compared to Dollarama's ROA (16.64%) and ROE
(2822.47%). These differences suggest that Metro is more effective in generating returns on its
assets and shareholders' equity compared to Dollarama.
5. Market Value

In terms of market performance, Dollarama has a higher price-to-earnings (P/E) ratio (26.639) compared
to Metro (14.581), indicating that Dollarama's stock is relatively more expensive based on its earnings
per share. Both companies have relatively low PEG ratios (around 1), indicating that their stock prices are
reasonably aligned with their expected earnings growth rates. However, when considering the
EV/EBITDA multiple, Dollarama has a higher ratio (17.673) compared to Metro (10.387). This suggests
that investors are willing to pay a higher price for Dollarama's earnings before interest, taxes,
depreciation, and amortization, indicating higher market expectations for Dollarama's profitability
compared to Metro.
Conclusion
Based on the revised analysis of the ratios and financial performance of Dollarama and Metro,
the decision on which company to invest in is based on multiple factors.

Dollarama demonstrates stronger liquidity ratios and a higher profit margin, indicating its ability
to cover short-term obligations and generate a higher percentage of profit from its sales.
However, Dollarama has higher total debt and debt-to-equity ratios, indicating a higher level of
financial leverage and reliance on borrowed funds.

On the other hand, Metro exhibits better asset management ratios, including significantly
higher inventory turnover and total asset turnover. It also outperforms Dollarama in terms of
return on assets and return on equity. Additionally, when considering the revised market
performance ratio of EV/EBITDA, Dollarama has a higher multiple compared to Metro,
suggesting higher market expectations for Dollarama's profitability.

Taking these factors into account, investing in Metro appears to be a more attractive
opportunity. Metro's efficient asset management and stronger returns on assets and equity
indicate better utilization of resources and higher profitability. Moreover, Metro's more
conservative debt structure reduces financial risks compared to Dollarama's higher reliance on
debt.
Reference List
1. Dollarama Inc. Consolidated Financial Statements
2. Metro Annual Report 2022.