Dollar Tree 2018-2021: A Financial Analysis 1

Dollar Tree 2018-2021: A Financial Analysis

Seton Hill University
Devin Brown
Dollar Tree 2018-2021: A Financial Analysis 2

Dollar Tree History

The idea of the dollar tree stores is a descent from the five and dime variety stores of the
19th century. These stores were made for people to have access to inexpensive quality products.
Dollar Tree emerged in 1953 when K.R. Perry decided to open a franchise of the Ben Franklin
variety store located in Wards Corner, Norfolk, Virginia. Ben Franklin was a chain of discount
arts and craft stores that took its name from Ben Franklin’s aphorism, “A penny saved is a penny
earned (Warner, 2020).” Later on, K.R. Perry split off from the Ben Franklin chain and renamed
it K&K 5&10.
In 1970 he opened K&K Toys with his son, Doug Perry and Macon Braddock. They had begun
opening new stores expanding into malls across the American South. Doug Perry then began
opening his own store with the five and dime model. In the early 90s KB Toys bought out K&K
Toys from Perry and used that money to expand the name to Only $1.00(Warner, 2020). This
one-dollar retailing was unique to their franchise, and it quickly became popular. In 1933 this
store was finally dubbed the name Dollar Tree. Since this point they have worked at acquiring
multiple smaller dollar stores to expand their infrastructure and dominate the dollar store niche.
Dollar Tree joined the NASDAQ stock exchange in 1995 at $15 a share. At this point
their market cap was calculated at $225 Million (Warner, 2020). Their $1.00 cost basis allowed
them to continue to expand even through the great recession of 2008 when many other big chain
stores had to close locations. As a result of this Dollar Tree entered the Fortune 500 at 499 in
2009 for the first time in its existence, and since then they continue to steadily rise (Warner,
2020). In 2019 they ranked in at 135. Over the years Dollar Tree has worked to acquire many
small chain dollar stores. Dollar Tree recently acquired Family Dollar in 2015 after battling for it
with Dollar General. Ultimately Dollar Tree won the battle due to contract trust issues with
Family Dollar and Dollar General. Dollar Tree spent $8.5 billion for the acquisition but also
gained 13,000 locations (Warner, 2020).
Dollar Tree has made the decision in 2021 to raise their prices for the first time in more
than three decades. The decision is unrelated to inflation rates, but in order to serve their
customers and employees better. The new price increase will change the current price of all items
from $1.00 to $1.25(Dellatto, 2021). This price is due to take effect in all stores by the end of the
fiscal quarter in December,2022. The increase in these prices is to allow Dollar Tree to
Dollar Tree 2018-2021: A Financial Analysis 3

reintroduce some of the better products for their customers and to increase employee wages
(Dellatto, 2021). Dollar Tree does not expect the price increase to affect their customer base
significantly.
Financial Analysis
Financial ratios are a helpful tool in which businesses utilize to determine their necessary
course of action for the future. These financial tools help to determine the factors that can help to
increase profitability as well as determine the issues that a company may be incurring which is
causing their profits to fall. The basic financial ratios utilized for these determinations are
separated into four categories. The four categories of these ratios are: profitability ratios, asset
utilization ratios, liquidity ratios, and debt utilization ratios. These ratios are utilized by the
company themselves as well as people outside the company such as banks, corporations,
investment organizations, and universities (Block, 2018). After computing these ratios, it is
necessary for the company to compare these ratios to similar firms and their own performance
record (Block, 2018).
Profitability Ratios
This is the first segment of ratios in the categories of ratios. These ratios are used to
measure a firm's ability to earn an adequate return on sales, total assets, and invested capital
(Block, 2018). The firm can utilize these ratios to help determine if there is a problem related to
profitability and if they are effectively utilizing their resources.
Figure 1: Profitability Ratios for Dollar Tree (2018-2021)

For The Year Ended

Financial Ratios February 3, February 2, February 1, January 30,

2018 2019 2020 2021

Profit Margin (%) 7.7 -7.0 3.5 5.3

Return on Assets (%) 10.5 -9.7 4.2 6.5

Return on Equity (%) 23.9 -28.2 13.2 18.4

Dollar Tree 2018-2021: A Financial Analysis 4

Profit Margin:

Profit margin for Dollar Tree from 2018 to 2019 decreased greatly from 2018 to 2019 it
is suspected that the rapid decrease in profit margin is due to higher freight and distribution
costs, higher sales of lower margin consumable merchandise primarily in the Family Dollar
segment, and shrink (Exhibit,2019). After this rapid decrease in profit margin Dollar Tree was
able to recover the following year in 2020 with an overall 10+ percent increase. The following
year Dollar Tree was able to continue their positive trend and end their fiscal year with a positive
5.3 percent profit margin. It can also be derived from the current figures seen in 2020 and 2021
that Dollar Tree maintained good cost control and efficient use of assets.

Return on Assets:

The return on assets ratio also reflects the struggles that Dollar Tree incurred during their
2019 fiscal year. The lower return on asset ratio compared to the profit margin shows that Dollar
Tree was earning less sales on each dollar as well as not being able to turn over its assets quickly
either (Block, 2018). In the following two fiscal years Dollar Tree was able to recover from their
previous loss and generate a higher return on assets. The return on assets grew from 4.2% in
2020 to 6.5% in 2021 which shows that they were able to turn over their assets rapidly during
these consecutive years.

Return on Equity

This financial ratio shows the percent of debt a company has compared to its assets. For
the year of 2018 Dollar Tree had a ratio of 23.9 which is very good. Then the following year this
ratio dropped to -28.2 which reflects the other issues that they had during that year. In the
following years the return on equity ratios reflected a positive 13.2 for 2020 and 18.4 for 2021.
This shows a steady and positive increase in Dollar Tree's ability to decrease their debt and
overall risk as well as maximizing their utilization of assets.

Asset Utilization Ratios

This set of financial ratios is useful in explaining why one firm can turn over its assets more
rapidly than another (Block, 2018). These ratios relate directly to the balance sheet where we
Dollar Tree 2018-2021: A Financial Analysis 5

find the assets and liabilities. These ratios also relate to the income statement for the sales values
(Block, 2018).

Figure 2: Asset Utilization Ratios for Dollar Tree (2018-2019)

For the Year Ended

Financial Ratios February 3, February 2, February 1, January 30,

2018 2019 2020 2021

Receivables 246.08 226.20 208.39 -

Turnover (times)

Average Collection 1.48 1.61 1.75 -

Period (days)

Inventory Turnover 4.80 4.49 4.70 5.171

(times)

Fixed Asset 4.86 5.32 5.53 5.05

Turnover (times)

Total Asset Turnover 1.36 1.69 1.21 1.23

(times)

Receivables Turnover

Dollar Tree’s asset turnover rate for 2018 was 246.08 times. This is mostly due to the fact
that Dollar Tree makes many sales on credit. Their ratio for 2019 was 226.20 which is slightly
lower, but still a good rate. For 2020 their rate dropped to 208.39 which shows a downward
trend. The data for 2021 was not yet available. If Dollar Tree wants to begin an upward trend,
they would need to collect their receivables more quickly.

Average Collection Period

Dollar Tree 2018-2021: A Financial Analysis 6

The average collection period for Dollar General in 2018 was 1.48 and then continued to
increase through 2019 to arrive at 1.75 in 2020. The data for the year of 2021 was not yet
available. This upward trend shows that Dollar Tree is decreasing the amount of time that the
customers' accounts stay on their books (Block, 2018).

Inventory Turnover

The inventory turnover for Dollar Tree in 2018 was 4.80. This means that Dollar Tree
turned over their inventory 4.8 times that year. Their inventory turnover rate was slightly lower
in 2019 but then they were able to pick it up in the next two years.

Fixed Asset Turnover

This financial ratio shows how much sales a firm has compared to the fixed assets. For
the year of 2018 Dollar Trees fixed asset turnover was 4.86 and grew to 5.32 in 2019 and then
5.53 in 2020 which shows a growth in property as Dollar Tree is acquiring more businesses. The
fixed asset turnover dropped slightly in 2021 to 5.05 but is still good for the company.

Total Asset Turnover

Dollar Tree’s total asset turnover in 2018 was 1.36 and grew to 1.69 in 2019 which
reflects a steady growth in assets over those years. Their total asset turnover dropped to 1.21 in
20201 and then back up a little to 1.23 in 2021. This drop could be due to the pandemic during
2020 which then continued to 2021. It can be expected that this rate should increase over the next
few years.

Liquidity Ratios

This set of financial ratios reflects the firm's ability to pay off short-term obligations as
they become due (Block, 2018). Analysts often use industry standards to compare a company’s
results. Liquidity ratios are often determined after the profitability and asset utilization (Block,
2018).
Dollar Tree 2018-2021: A Financial Analysis 7

Figure 3: Liquidity Ratios for Dollar Tree (2018-2021)

For the Year Ended

Financial Ratios February 3, February 2, February 1, January 30,

2018 2019 2020 2021

Current Ratio 1.60 2.05 1.20 1.35

Quick Ratio .49 .36 .21 .44

Current Ratio

The current ratio of Dollar Tree was 1.60 in 2018 which is within range of the industry
standard between 1.0 and 3.0(Exhibit, 2019). Dollar Tree’s current ratio rose to 2.05 in 2019
which is a substantial increase that reflects their ability to quickly pay off debts. Their current
ratio dropped to 1.20 in 2020 and then rose to 1.35 in 2021, both of these are within the industry
standard which is a good sign for Dollar Tree.

Quick Ratio

The quick ratio closest to 1 is what is best according to the industry standard
(Exhibit,2019). Dollar Tree’s quick ratio was .49 in 2018 and fell to.36 in 2019 and again in
2020 to .21. This drop in liquidity could be attributed to the pandemic. Dollar Tree was able to
recover in 2021 and pull their quick ratio up to .44 which is almost what it was before 2019.

Debt Utilization Ratios

This final set of financial ratios helps an analyst measure the debt management policies of
the firm (Block, 2018). These ratios show how well a company manages their debt as well as
assets. Debt to total assets reflects how much is owed to competitors compared to the assets that
are owned. The times interest earned ratio reflects the amount of times income before interest
and taxes can pay the interest expense (Block, 2018).
Dollar Tree 2018-2021: A Financial Analysis 8

Figure 4: Debt Utilization Ratios for Dollar Tree (2018-2019)

For the Year Ended

Financial Ratios February 3, February 2, February 1, January 30,

2018 2019 2020 2021

Debt to Total Assets 56.03 58.20 68.04 64.80

(%)

Times Interest Earned 6.62 -2.54 7.79 12.81

(times)

Debt to Total Assets

Dollar Tree’s debt to asset ratio for 2018 was 56.03 and then steadily rose in 2019 and
2020 stopping at 68.04. This debt to asset ratio means that the company has more debt than they
do assets. The ratio dropped to 64.80 in 2021 which is a good start to a hopeful downward trend.
This increase in debt could be attributed to the challenges faced during the pandemic.
Times Interest Earned
A higher times interest earned ratio is favorable because it means that the company
presents less of a risk to investors and creditors in terms of the company to meet long-term debts
and financial obligations (Horton, 2022). Dollar Tree’s times interest earned ratio was 6.62 in
2018 then decreased to -2.54 in 2019. These values show that the company faced some issues
between these years and may have had issues being able to pay off long term debt and other
financial obligations. Dollar Tree was able to recover relatively quickly during 2020 which is
reflected by their times interest earned ratio of 7.79. Their ratio then increased again to 12.81 in
2021.

Analysis of Financial Ratios

According to the financial ratios Dollar Tree did relatively well from the beginning of 2017 to
2018 as shown by the values for the year ended February 3, 2018. These values put Dollar Tree
in a good position for the year. Although the company sustained some major drops in their
Dollar Tree 2018-2021: A Financial Analysis 9

financial ratios for the year of 2018 to 2019, they were able to recover relatively quickly the
following two years. A possible explanation for some of the issues could be the pandemic during
2020 or Dollar Tree’s acquisition of Family Dollar. Luckily, they have been able to pull through
and make a significant recovery that should last for years to come.
Investments
The investing activities for Dollar Tree in 2018 included capital expenditures of $188.8
million which was an increase from the 2017 expenditures. This increase in capital expenditures
is due to the opening of a new distribution center during the second quarter of 2018. Dollar Tree
also expanded the Dollar Tree support center which caused additional expenditures as well
(Philbin, 2019). Other investing activities for dollar tree in 2018 and 2019 include cash and cash
equivalents at $170.0 million and $674.1 million of investments which are primarily in money
market securities. The net cash used in investing activities increased $203.5 million in 2019
compared to that in 2018 primarily due to an increase in capital expenditures which is related to
the Family Dollar segment store optimization program, including renovations and re-banners,
partially offset by grant money received from state and local governments (Philbin, 2020). The
Net cash used in investing activities decreased $130.5 million in 2020 compared with 2019
primarily due to 2019 including higher capital expenditures related to the Family Dollar segment
store optimization program. Renovations were slowed in the current year due to the COVID-19
pandemic. The decrease was partially offset by increased capital expenditures related to
distribution center projects in the current year and grant funds received from state and local
governments for our Summit Pointe development in the prior year (Witynski, 2021).

. Retirement
Dollar Tree offers its employees a retirement savings plan. This plan includes a defined
contribution profit sharing and 401(k) plan which is made available to all full-time, United States
Based employees over 21 years of age (Witynski, 2021). These eligible employees are given the
option to make elective salary deferrals to contribute to their plans. Dollar Tree reserves the
right to make contributions to these plans at their own discretion to eligible employees who have
completed at least one year of service in which they have worked a minimum of 1,000 hours
(Witynski, 2021). All employees are immediately vested in and company match contributions
under the 401(k) portion of the plan (Witynski, 2021).
Dollar Tree 2018-2021: A Financial Analysis 10

Figure 5: Allocation of Contributions

Year Ended

(in millions) February 3, February 2, 2019 February 1, 2020 January 30,

2018 2021

Cost of Sales 7.8 8.7 8.1 7.4

Selling and Admin. 45.1 32.7 17.0 19.0

Expenses

Total 52.9 41.4 25.1 26.4

Figure 6: Profit Sharing Contribution

Improvements and Recommendations

Overall, Dollar Tree is growing as a whole, and the acquisition of Family Dollar has
greatly helped push them forward. There is still much room for improvement. The shortcoming
Dollar Tree had during the year of 2018 to 2019 greatly impacted some of their finances and they
have yet to fully recover from those. The area that can use the most improvement would be their
Dollar Tree 2018-2021: A Financial Analysis 11

debt to asset ratio seeing that it was over 50 percent for all four years. I think it would be a very
good business decision for them to utilize their increase in sales due to the new acquisition and
work on getting these figures down. I think that the acquisition of Family Dollar was a smart
move for Dollar Tree, but the result of the acquisition is going to be to convert these locations for
the best use of the company. This acquisition also will allow Dollar Tree to grow their locations
and hopefully see a significant increase in sales over the next few years. It is good that Dollar
Tree is seen as an essential business so that the impact of the pandemic or another lockdown may
have a relatively small effect on the company. Dollar Tree’s decision to increase the base price
of a majority of their items to $1.25 will also have a significant impact on their revenue which
will in turn positively affect their financial ratios. Overall, I think that Dollar Tree is going to
continue to grow and improve their Net Income over the next few years and will be able to
continue to climb the stock ranks.
Dollar Tree 2018-2021: A Financial Analysis 12

References:

Block, S. (2018). Foundations of Financial Management (17th Edition). McGraw-Hill Higher

Education (US). https://reader.yuzu.com/books/9781260464900

Dellatto, M. (2021, November 23). Dollar Tree raises prices to $1.25 -but not because of
inflation. Forbes. Retrieved April 10, 2022, from
https://www.forbes.com/sites/marisadellatto/2021/11/23/dollar-tree-raises-prices-to-125--
but-not-because-of-inflation/?sh=725d6595221a

Exhibit. (2019). Retrieved April 11, 2022, from

https://www.sec.gov/Archives/edgar/data/935703/000093570319000053/ex991q3-
19earningspres.htm

Horton, M. (2022, February 7). What does a high-times interest earned ratio signify for a
company's future? Investopedia. Retrieved April 12, 2022, from
https://www.investopedia.com/ask/answers/030615/what-does-high-times-interest-
earned-ratio-signify-regard-companys-future.asp

Philbin, G. (2019, March 27). 2018 Annual Report - dollar tree. Retrieved April 13, 2022, from
https://www.dollartreeinfo.com/static-files/15dfb809-ec5a-4106-8a78-60c5647cbdd9

Philbin, G. (2020, March 20). 2020 vision - dollar tree. Retrieved April 13, 2022, from
https://www.dollartreeinfo.com/static-files/a85ce139-7dde-449f-88ff-c0cf1f2e6716

Warner, A. (2020, July 10). The untold truth of dollar tree. Mashed.com. Retrieved April 10,
2022, from https://www.mashed.com/199834/the-untold-truth-of-dollar-tree/

Witynski, M. A. (2021, March 16). Dollar Tree. Introships. Retrieved April 11, 2022, from
https://www.introships.com/dollar-tree

Appendix
Figure 1: Profitability Ratios for Dollar Tree (2018-2021)

For The Year Ended

Financial Ratios February 3, February 2, February 1, January 30,

Dollar Tree 2018-2021: A Financial Analysis 13

2018 2019 2020 2021

Profit Margin (%) 7.7 -7.0 3.5 5.3

Return on Assets (%) 10.5 -9.7 4.2 6.5

Return on Equity (%) 23.9 -28.2 13.2 18.4

Figure 2: Asset Utilization Ratios for Dollar Tree (2018-2019)

For the Year Ended

Financial Ratios February 3, February 2, February 1, January 30,

2018 2019 2020 2021

Receivables 246.08 226.20 208.39 -

Turnover (times)

Average Collection 1.48 1.61 1.75 -

Period (days)

Inventory Turnover 4.80 4.49 4.70 5.171

(times)

Fixed Asset 4.86 5.32 5.53 5.05

Turnover (times)

Total Asset Turnover 1.36 1.69 1.21 1.23

(times)

Figure 3: Liquidity Ratios for Dollar Tree (2018-2021)

For the Year Ended

Financial Ratios February 3, February 2, February 1, January 30,

2018 2019 2020 2021
Dollar Tree 2018-2021: A Financial Analysis 14

Current Ratio 1.60 2.05 1.20 1.35

Quick Ratio .49 .36 .21 .44

Figure 4: Debt Utilization Ratios for Dollar Tree (2018-2019)

For the Year Ended

Financial Ratios February 3, February 2, February 1, January 30,

2018 2019 2020 2021

Debt to Total Assets 56.03 58.20 68.04 64.80

(%)

Times Interest Earned 6.62 -2.54 7.79 12.81

(times)

Figure 5: Allocation of Contributions

Year Ended

(in millions) February 3, February 2, 2019 February 1, 2020 January 30,

2018 2021

Cost of Sales 7.8 8.7 8.1 7.4

Selling and Admin. 45.1 32.7 17.0 19.0

Expenses

Total 52.9 41.4 25.1 26.4

Figure 6: Profit Sharing Contribution

Dollar Tree 2018-2021: A Financial Analysis 15