Dollar General | Retail | Cost Of Capital

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Valuation and Analysis of Dollar General
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Table of Contents
Executive Summary……………………………………………………1 Overview of Dollar General…………………………………………6 Five Forces Model..............................................………..9 Rivalry among Existing Firms................................9 Industry Growth………………………………………….10 Concentration………………………………………….….10 Differentiation and Switching costs……………………13 Scale Economies and Fixed/Variable Costs…………..13 Excess Capacity and Exit Barriers………………………14 Threat of New Entrants……………………………………..15 Economies of Scale……………………………………….15 Channels of Distribution and Relationships…………..16 Legal Barriers………………………………………………17 Threat of Substitute products…………………………….17 Buyer’s willingness to switch…………………………………17 Bargaining Power……………………………………………..18 Bargaining Power of the Customer...............................18 Switching Cost…………………………………………….18 Product Cost and Quality………………………………..19 Number of Buyers………………………………………..19 Volume per Buyer………………………………………..19 Bargaining Power of the Suppliers……………………...20 Switching Cost...............................................20 Product Cost and Quality………………………………..20
3 Number of Suppliers…………………………………....20

Value Chain Analysis………………………………………………...21 Efficient Production………………………………………22 Simpler Product Design……………………………….…22 Lower Input Costs……………………………………....22 Low-cost Distribution…………………………………...22 Minimal Brand Image Cost……………………………..23 Tight Cost Control………………………………………..23 Firm Competitive Advantage Analysis…………………….…...23

Efficient Production………………………………….….24 Simpler Product Design………………………………….24 Lower Input Costs…………………………………..…..24 Low-cost Distribution……………………………………25 Minimal Brand Image Cost…………….……………….25 Tight Cost Control………………………………………..25 Conclusion………………………………………………...26

Accounting Analysis…………………………………………….......27 Key Accounting Policies…………………………………….…28 Degrees of accounting flexibility…………………………..30
Accounting Strategy……………………………………….…..32 Quality of Disclosure……………………………………….….34 Identify Potential “Red Flags”…………………………..….44 Undo Accounting Distortions………………………….……45

Financial Analysis……………………………………………….……48 Trend and Cross Sectional Analysis……………………………48 Financial Ratio Analysis…………………………………………….49
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Liquidity Ratios………………………………………………………..49
Current Ratio………...............................................50 Acid Test…………………………………………………………..50 Quick Asset Ratio……………………………………………….52 Inventory Turnover…………………………………………...53

Profitability Ratios…………………………………………………...57
Gross Profit Margin………………………………….………...57 Operating Profit Margin……………………………….……..58 Net Profit Margin………………………………………….…...59 Asset Turnover…………………………………………….……60 Return on Assets………………………………………….……61 Return on Equity…………………………………….…………62 Debt to Equity……………………………………….………….64 Times Interest Earned…………………………….…………65 Debt Service Margin……………………………….…………66

Capital Structure Ratios…………………………………………..63

IGR/SGR Ratios………………………………………………………67 Forecasting Financial Statements…………………….……….70
Income Statement……………………………………..……..70 Balance Sheet……………………………………….…………72 Statement of Cash Flows………………………..…………75

Cost of Capital Estimation…………………………….…………76 WACC estimation….………………………………………….………..78

Valuation analysis………………………………………………….79

Method of comparables………………………………………………80 Intrinsic Value Models…………………………………………………….85 Discounted Dividends Model……………………………………….85 Free Cash Flow………………………………………………………….87 5 Residual Income…………………………………………….………….88 Long Run Residual Income…………………………….…………..90 Abnormal Earnings Growth…………………………….…………..91

APPENDIX……………………………………………….92
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Executive Summary
Investment Recommendation: Overvalued, Sell 6-1-07 DG----NYSE (6/1/07) $21.63 EPS Forecast 52 Week Range $12.10-$21.85 2008 2009 2010 2011 2012 Revenue (2/2/07) $9,169,822 .44 .46 .48 .50 .55 Market Capitalization $6.86 Bill Shares Outstanding 314.88 Mill Ratio comp. DG DLTR FDO 3-Month Avg. Daily Trading Volume: Trailing P/E 9.53 22.19 22.75 Institutional Ownership 66% Forward P/E 7.62 17.78 18.98 Book Value per Share $5.706 PEG .065 1.27 1.61 ROE: 20% P/B 11.8 3.87 3.95 ROA: 12% Cost of Capital Est. R2 Beta Ke Valuation Estimates: 3-Month .19 1.19 Actual Price (6/1/07): $21.63 6-Month .19 1.19 Trailing P/E $9.57 2-Year .19 1.19 Forward P/E $7.80 5-Year .19 1.19 PEG $2.92 10-Year .18 1.18 P/B $54.00 P/EBITDA $28.24 Ke 12.09% P/FCF $123.39 Kd 5.19% EV/EBITDA $3.54 WACC 10.99% Altman Z-Score Intrinsic Valuations Actual 2003 2004 2005 2006 2007 Discounted Dividend $18.40 7.48 7.88 7.74 6.43 7.33 Free Cash $29.71 Residual Income $3.22 Revised Z-Score 2007: 2.847 LR ROE $7.21 AEG $8.79

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Recommendation: Sell-Overvalued
Industry Analysis
Dollar General was founded in Scottsville, Kentucky in 1939 and was originally called J.L. Turner and Son Wholesale, then Turner’s Department Store, and then in 1955 it was converted to Dollar General and did not sell any item over $1. Dollar General was the originator of the dollar store concept and in 1968 it became a publicly traded company. “Dollar General is a Fortune 500®

then using the estimated Beta. as well as the actual accounting strategy used by the firm. Fred’s Inc. and finally any distortions found are corrected to show the company more accurately. These ratios alert us of any “red flags” in their accounting. In our analysis of the past five years.dollargeneral. After computing all of the revenue and expense manipulation ratios we did not find any “red flags” so the only distortion to undo was the reporting of the leases.000 stores and $9. After our analysis. the companies estimated cost of equity can be determined through regression analysis. Valuations . Its direct competitors are Family Dollar Stores. and capital structure ratios. Forecast Financials. which is allowed by GAAP. the only area in which Dollar General uses flexibility is in the reporting of leases. maintaining low costs are crucial to generating profits. The information needed to do this can be found in the company’s annual 10-K report. & Cost of Capital Estimation Ratio analysis is done to evaluate a company and to find out how it ranks with its competitors. a Beta for the company can be estimated..2 billion in fiscal 2006 sales” (www. since the merchandise is already being sold at a discount and there is such high competition between companies. profitability ratios. Dollar General is in the discount retail store industry and focuses on cost leadership. The quality of disclosure is how transparent the company’s reports are and how believable their numbers are and is determined though screening ratios. While the footnotes were very clear in disclosing information. 9 Ratio Analysis. First the key accounting policies are analyzed to ensure that they correspond with the key success factors as defined by the five forces model. if not identical and pose no switching costs to customers.company and the leader in the dollar store segment. Once these ratios have been calculated they can be used to forecast the company’s future performance. By using the CAPM model. liquidity ratios. Finally the estimated cost of equity can be computed by using the WACC formula. 8 Accounting Analysis A major part of analyzing and valuing a firm is analyzing its methods of accounting. the consolidation of the financial statements makes it difficult to actually see what they are disclosing. but greatly alters their financial statements. Dollar General has performed about average with the industry and in a few cases has out-performed the industry. There are three sets of ratios used in this part of the analysis. with more than 8. In this industry. The competition is high due to the threat of substitute products: the products being sold are extremely similar. All the information needed to compute these can be found in a company’s financial statements.com). and Dollar Tree. Then the degree of flexibility allowed by GAAP is determined.

residual income. DPS.000 $3.404 $6. we believe this valuation is doubtful based on the uncertainty of our forecasted cash flow.edgarscan.822 Dollar Tree Stores. Dollar General started out as J. in which some are more accurate than others. which uses the current financials of Dollar General and also the financials of industry competitors. 10 These models use different factors in deriving the estimated share price. The company coined the dollar store concept in 1955 opening retail stores which boosted the company’s sales. We began with the method of comparables.357.900 $3. To derive such prices. PEG ratio. free cash flows. the growth rate. our overall decision is that Dollar General is highly overvalued and investors should sell. the corporate office is located in Goodlettsville.169.660.927 $8. (www.The main focus for valuation models are to show whether the companies estimated value is worth what the market implies.871.393. The free cash flow model shows that Dollar General is undervalued. and trailing/forecasted P/E ratio. Inc.126.com) Sales volume and growth are very important factors for success in the discount retail industry. basic food items. There are five different valuation models – the discounted dividends.836 $2.799. Turner & Son.992 $7. Ky. and the WACC and use them to determine how well the company’s stock is priced. Sales Volume *All numbers in thousands.237 $9. and the abnormal growth earnings. and seasonal products.com) * 2002 2003 2004 2005 2006 Dollar General $6. For our valuation models. After using all five models. in 1939 as a wholesale business in Scottsville. we based our valuations using our ten year forecasted financials.582. such as cleaning supplies.dollargeneral. long-run residual income. health and beauty aids.872 $3. The target market of this corporation is people who generally have lower. some clothing. sales for the industry has been rising each year for the past five years with Dollar General leading the way. We believe this is a good benchmark to where firms should stand when compared to the industry. you must estimate the firm’s cost of capital and equity.400 Family Dollar . The models indicated that Dollar General is highly overvalued compared to our intrinsic valuations. $2. Today.L. In 1968 the company went public and changed its name to Dollar General. middle and fixed incomes.100. As shown below.969. This method includes using the P/B ratio. TN. 11 Overview of Dollar General Dollar General is in the discount retail store industry selling common household necessities. (www.

Inc. Inc.380.457 $1. Inc.com In comparison to its competitors. $27.155 $137.583 $180.355 $51.245 $1.683 $1.452 $55. Inc.441.244. $1.103.Stores.002 $344.808.491 $32.239 12 While Dollar General’s sales have exceeded their competition by far.42 which is the lowest it has been in two years.943 Dollar Tree Stores. their net income decreased this past year while the competitions’ rose.msn.000 outstanding shares giving it a market capitalization of $6. In the past year Dollar General’s price per share has remained relatively constant while its competitions’ prices have been rising. (www. they are selling at a lower price. $1.com). While it has far more outstanding shares than its competitors.418 $1. Inc.389 $54.952 $26.219 $177. $57. Dollar General’s Stock is currently selling for $21. http://moneycentral.264 Fred’s. * 2002 2003 2004 2005 2006 Dollar General $262.746 13 Average Stock Prices 2003-2007 05 10 15 20 25 30 35 2003 2004 2005 2006 2007 Year Price FRED FDO DLTR DG Within the past year.190 $350.302.342 $1.440.952 $27. Dollar General’s stock is outperforming . stock prices have been on the rise after hitting the low of 13.000 Family Dollar Stores.108.351 $299.795 $27.637 $1.300 $173.650 $1.63 and there are 314. This is mainly due to the fact that Dollar General’s general expenses rose and interest income decreased.600. Industry Net Income *All numbers in thousands.864.478 $64. $145.511.124 Fred’s.589.767.788.nyse.900 $192.781 $1.

Since the discount retail industry is a highly concentrated industry they strive to provide merchandise at low prices. We will use the five forces model to evaluate the industry as a whole. These forces assess the degree of competition and the marketing power of buyers and suppliers. 14 THE FIVE FORCES MODEL The five forces model is an excellent tool used to analyze the industry in which the firm is competing in.its competitors this year after prices fell in the third quarter last year. they have experienced a rapid expansion and in turn have increased . The five forces model includes: Rivalry among existing firms. instock consistency and customer service. After briefly explaining each segment of the five forces model. Threats of new entrants. It helps us see the type of industry the firm is competing in. 15 Industry Growth A company striving to make it in this industry has to come up with innovative ways to grow. which is highly competitive with respect to price. Cost Leadership Industry Rivalry among Existing firms Threats of new Entrants Threats of substitute products Bargaining power of buyers Bargaining power of suppliers Very High Low High Moderate Moderate Rivalry among Existing Firms Dollar General is in the discount retail merchandise industry. store location. threat of substitute products and bargaining power of buyers and suppliers. thus it is necessary to keep prices as close to marginal cost as possible. merchandise quality. After the value chain analysis we will use the complete information to compare Dollar General with the rest of the industry. and also identify what types of things the firm can do to stay a head of the competition. Most of the firms competing in this industry have found a niche in small towns because of the low and low-middle class population. the model will be put to use by developing a value chain analysis. In doing so. what characteristics are associated with the type of industry.

Concentration Concentration plays a very big role in price setting. Dollar General’s main competitors include: Family Dollar. by inserting circulars in the newspapers and reaching out to different customers who don’t necessarily shop at a dollar store. Other firms in this industry have invested in advertising. As a result of the low prices they are able to cut costs and expand in different areas. Another element encouraging growth is the low every day prices characterized by the industry. Fred’s and 99 Cents Only. Dollar Tree. 16 Market Percentage 2002 40% 17% 31% 7% 5% Dollar General Dollar Tree Family Dollar Fred's 99 cents 2003 47% 1% 37% 9% 6% Dollar General Dollar Tree Family Dollar Fred's 99 cents 17 2004 40% 16% 31% 8% 5% Dollar General Dollar Tree Family Dollar Fred's 99 cents 2005 42% 17% 32% 8% 1% Dollar General Dollar Tree Family Dollar Fred's . like offering a new line of products or even increasing number of stores.their number of stores. The industry is characterized by providing the every day low prices and still making a profit by having a low cost structure and relatively low assortment of products. The more competitors in an industry the lower concentrated the industry is which creates price wars.

Family Dollar has 350 stores opened in 2006. Majority of the leases are low-cost and short-term ranging from three to five years.99 cents 18 2006 40% 16% 31% 8% 5% Dollar General Dollar Tree Family Dollar Fred's 99 cents Differentiation and switching costs The discount retail industry has no differentiation cost because it is a cost leadership competitive Industry. Dollar General has introduced control in fixed cost which is supported by the 300 stores they plan to open this year. because this slows down growth. The 99 cents only store has only 19 store opening this year. Excess Capacity and Exit Barriers Excess capacity exists if the customer demand exceeds supply. Additionally. Individual Dollar General Store leases vary in their terms. It would take very little to get rid of the merchandise without losing money and switching to another industry. Same-store sales measure the increase or decrease in sales for the stores that have been open for more than one year. The 99 cents only store own 37 stores and lease 105 store which again shows they have high fixed costs. rental provisions. Same-store sales are one way to monitor just how much sales a firm is getting. firms must generate large inventory turnover for the fixed cost to cover variable costs. Family Dollar leases 5719 of their stores and only owns 489. supply is always greater than demand because of the amount of competition and ease of access. In conclusion. The level of fixed cost plays a role in the growth of a company in this industry. In such an industry. plus remodeling 300 other stores. this indicates that they have high fixed costs. This helps a firm know just how well they are doing in comparison to the industry. Dollar General emphasizes aggressive management of its overhead cost structure. if a firm wants to be successful in this industry they have to make sure that they do not have too many fixed costs. Scale economies and fixed/variable costs The price of the merchandise depends on how a company handles operational costs. If the fixed costs are too high then expansion is going to be slow. and expiration 19 dates. If they have a lot of fixed costs then they need to make sure that they generate large inventory turnover to cover the variable costs. Switching cost would be low because our merchandise is easily liquidated. In the discount retail industry. they seek to locate stores in neighborhoods where rental and operating costs are relatively low. There are high exit barriers in the discount retail industry mainly .

000. economies of scale play a major role. New entrants do not have the capital and resources to compete on such a level.000 2. 21 Total Assets 0 500. THREAT OF NEW ENTRANTS The potential for earning high profits in an industry will attract new entrants to an industry. Also. Same-store sales are an important measure for firms 20 to use so they can see just how much they are selling and how much inventory they have left. New entrants must rise above large economies of scale that exist within established firms. New entrants will initially suffer from a cost disadvantage in competing with well established firms. For these reasons.500.000 3.because it would be costly and time consuming to liquidate merchandise or break lease agreements. Thus new entrants would have to acquire the minimum capital needed to enter the industry. new firms will face some legal discretion just like in any industry. The diagram below shows the level of assets possessed by the existing firms in the industry.000 2. There is the possibility for entrance of new firms but there are barriers to be faced.500. There are few legal barriers to be faced.000 1.000 3. the industry requires lower cost and increases rivalry among existing firms. Dollar General and Family Dollar Stores are the two largest firms in this industry and have the upper-hand on suppliers and distribution access to their stores. There are many barriers for new entrants in the discount retail industry.000 2005 2006 2007 Dollar General Dollar Tree Family Dollar Fred's Inc 99 Cents Only . suppliers will be difficult to find in the discount retail business mainly because of profitability sought by suppliers. The discount retail industry is characterized by high exit barriers mainly due to cost of liquidation. Easily accessible industries force existing firms to compete not only with the new entrant but also amongst other firms. thus avoid tying up their resources in idol inventory.500.000 1. Economies of Scale When entering into a specific industry.000.000. This advantage poses high economies of scale allowing most of the firms in the industry to offer low prices for their customers.

Threat of substitute products is low in the discount retail industry because the products offered are generally the same across the board. THREAT OF SUBSTITUTE PRODUCTS The discount retail industry is a highly competitive industry with five direct competitors and certain other relative competitors like Wal-mart and Target. import laws. In order for Family Dollar to manage this. but they do not have enough trucks to distribute their merchandise. 23 Bargaining Power In the Following sections. With most of their products supplied by companies abroad. . Legal barriers exist when importing goods from other countries therefore making it costly in terms of trained personnel in international trade policies. highly competitive market. The 99 Cents Only lease trucks and also transport by rail. since the products in the industry are the same. Family Dollar has nine distributing centers. customers are drawn to picking the firm with the lowest price. product cost and quality. currency exchange. it would be costly and difficult for a new entrant to compete to get the same supplier or even try to lobby for the same prices. therefore most the players in the industry compete in those terms. The industry will be examined as a lowcost. Customers are therefore very price sensitive. number of buyers. New entrants have a tough hurdle to overcome when it comes to legal barriers. Dollar General has nine distribution centers (also used as warehouse space) of which they lease three but own the other six and has their own trucking system to deliver goods to their stores. they have a good relationship with their carriers that lead to discounts. and volume per buyer. 86% of their merchandise was distributed by external carriers in 2006. Topics that will be discussed include switching cost. and foreign business operations.Channels of Distribution and Relationships It is imperative for a firm to have a proficient channel of distribution and keep good relations with the supplier in order to be cost efficient. 22 Legal Barriers There are no direct legal barriers in the discount retail industry. Buyers’ willingness to switch The discount retail industry is very price conscious. The five factor model guidelines will be used in assessing the industry. Companies need to be aware of certain items such as. The discount retail industry is cost driven therefore making it essential for the company to be efficient. Also. therefore the customers switching cost is very high. In the discount retail industry most of the firms have the same suppliers therefore the products are the same. bargaining power will be discussed relative to the buyers and suppliers of the market. It is difficult for new entrants to distribute their goods from suppliers without the right system. Dollar General directly imports 14% of their goods and Dollar Tree imports 35%-40% of their goods.

In essence. it is highly 24 important where a store is located. Most companies will situate a store in or very near low-income neighborhoods. The switching cost is merely the price of gas to drive or time to walk from one store to the next. The industry has to focus on the cost rather then quality because the customers demand the cheapest product possible. The companies in this industry will carry substitute products that are lower quality rather then name brand items in more expensive stores.Information will be given on how a company should compete in order to be effective in a highly competitive industry. each customer matters. Once again. Bargaining power of the Customer In such a highly competitive market. The customers of the discount retail industry have a some what higher volume per purchase because the stores are catered to be a one stop shop for the lower/ lower middle class customer. The discount retail industry is affected by every customer. firms in this particular retail market have incentive to keep prices as low as possible because of the bargaining power of the customer. Product Cost and Quality The particular industry does not focus as much on the product quality as it does on the price of the product. we concluded that the bargaining power of the customers for the discount retail industry is relatively high. and the customers will look for the best prices among each. . It is easy for customers to switch from store to store depending on the relative prices of each. Volume per Buyer The volume of products bought by a customer in the discount retail industry can vary from a few items to several. The number of customers and amount bought determines the profitability of the company. A customer can easily switch from one low price store to another depending on how cheap the stores products are. the customer has more bargaining power because the stores survival depends on the number of customers. Switching Cost Switching cost of the customer is a large reason why the customer has bargaining power. The price sensitivity of the buyer is relatively high because they have limited financial means. Most of the customers of this industry use the stores as a one stop shop. For this reason. Number of Buyers The number of buyers in the industry is the lower middle and lower income consumers in the industry area. Each of the companies in the industry carry the same line of products. After evaluating each segment of bargaining power of the buyer. The guidelines and information will help value the companies in the industry. It is very important for companies to keep prices low to remain attractive. The next two sections will give an idea of what the industry requires of buyers and sellers. the customers have a rather large bargaining power over the companies in the industry. For the reasons above.

Their bargaining power is very low because the stores dictate who they will choose and it will always be the lowest cost supplier. In conclusion. the five forces model is a tool used to value an industry and see how attractive it is. number of companies.25 Bargaining Power of the Suppliers In contrast to the bargaining power of the customer. The number of suppliers available and the ease of switching from one to the other affect how much bargaining power each supplier is able to have. 26 Volume per Supplier The volume of purchases by the companies is moderate. The model is divided into two categories. The large number of suppliers that are available makes it easy for companies to switch to suppliers that have the lower costs. Number of Suppliers The number of suppliers in the discount retail industry is very large. The volume at which the companies will purchase at is more incentive for suppliers to keep cost low. The companies in the discount retail industry are very price sensitive because it caters to the low-income customer. which talks about how the firms in the industry compete with each other and the strategies used in the industry in order to stay competitive. Suppliers have to compete with one another to supply to the companies in the industry. Lastly. The suppliers need to keep cost low in order for companies to consider them as a supplier. Product quality is not at the forefront t because companies are not shopping for quality products. The low switching costs. Each supplier has no choice. If the supplier can’t supply the products at the right price set by the companies the company will look for other producers. The suppliers of products have to sell at the right price because companies are trying to keep the lowest cost possible. The suppliers have no choice but to focus on cutting costs. The large number of supplier decreases the bargaining power of the supplier because of the number of alternatives for the customers. The second part is the bargaining power in the input and output . the suppliers in the industry need to maintain low costs because of the bargaining power in the hands of the company. Switching Cost The switching cost is relatively low among suppliers. the bargaining power of suppliers is low. the bargaining power of the suppliers is relatively low. but to compete with each other and whoever is able to achieve the lowest price gets the deal. but they are looking for low cost products. It is important for a company in this industry to minimize cost as much as possible. the degree of actual and potential competition. Product Cost and Quality Suppliers have to focus on minimizing costs. therefore. and the number of substitute suppliers are factors that give very low bargaining power to the suppliers.

27 Dollar General resides in a highly competitive discount retail industry. Efficient production In order for a company to be a cost leader in the discount retail industry. This factor alone makes it very 28 difficult for new entrants to survive in the industry. Efficient companies are able to get semi-decent quality products at a very low price. The following analysis will present information on how a discount retail company should compete in a highly competitive industry. they incur unnecessary costs. Low-cost distribution Lower cost distribution is also very imperative in cutting costs. Companies can reduce the amount of input costs by managing leases. which talks about the bargaining power of suppliers and buyers. The companies need to use low cost products many of which rely on the supplier they choose. Minimal Brand Image cost Companies in the discount retail industry need to have very little expenses in brand images. Value Chain Analysis The value chain analysis discusses important strategies that a company needs to utilize in order to be a cost leader in the industry. A company that spent money to keep its image up would be . Each company competes to provide basic commodities and service at a low price.markets. warehouse space and labor that go along with it. the company has to be efficient and strive to have low operational costs. By implementing this strategy successfully. buildings. quality is not as an important factor therefore a company can sacrifice on using high quality raw materials and go for the generic products that cost much less. Improving Technology helps to cut cost and increase efficiency with systems like inventory management tools and supply chain systems (Dollar General 10k). The company needs to minimize these cost by using efficient. companies will be able to earn profits and gain greater market share. Another way to be efficient is by maximizing trailer loads in order to cut down on the number of trips to be made and increase efficiency (family Dollar 10k) Simpler Product Design Since this is a discount retail industry. After the value chain analysis is complete we will use the information to evaluate Dollar Generals performance in the discount retail industry. Lower Input costs A company in the discount retail industry needs to keep input cost at a minimum. and warehouse in an efficient manner. The following paragraphs will go through each strategy and analyze effective ways a company can pursue in order to keep costs low. low-price means of distribution. If a company has to hire a transporting company. In order to be successful. It focuses on the things they do in order to stay ahead of the competition. each competitor has adopted the business strategy of cost leadership.

Each section of the value chain presented above will be presented relative to our company. Simpler product design As a leader in the industry. Firm Competitive Advantage Analysis In this section. and the maintaining from different suppliers. 29 Efficient production Dollar General has done a decent job to utilize the cost leadership strategies. We will discuss how the company has performed historically. is a good way of cutting cost because it enables a company to have a steady supply of merchandise at a discount. Tight cost control The discount retail industry mainly deals with the same types of products therefore making it important for a company to strive to be a price leader. The competitive advantage analysis is important because it shows how well Dollar General is utilizing cost leadership in a very competitive industry. Dollar General is trying to improve the efficiency of its stores. It has focused on efficient low cost production and distribution. As a result. In order for a company to be a cost leader. Currently. Having long relationships with suppliers. products that are offered do not carry a brand image and has no research and development costs. currently.000 or less populated to cater to their target market. Since the industry deals in discounted products you can only lower the price so much. They are closing a few stores in less productive areas and spending money to remodel. They have their own warehouse and trucks to supply stores to minimize transportation costs. it must minimize its unnecessary expenses. advertise and develop a more efficient means of distribution. This is a key to be competitive in the industry and Dollar General will continue to provide simple product designs throughout the year to accommodate the demand for low cost merchandise Lower Input Costs . They have diversified their supplier chain to minimize costs which is due to 14% coming from Proctor & Gamble. and how they are projected to perform in the future. thus the company has to focus of having lower operational cost in order to be able to have the everyday low prices.using unnecessary cost. Each Section below will discuss important information that will help value the company relative to other companies in the industry. Dollar General provides basic commodities at a low price. Dollar General will only use suppliers that can maintain a low cost on products and delivery. This not only makes it hard for new entrants. we will discuss how Dollar General has performed using the value chain analysis in the previous section. A sacrifice in the quality must be made to achieve these low prices. They hope to improve the quality of existing stores to maintain there slightly higher position in the industry. They have located every store in cities that are 20. 16% from imports. but it also cuts costs.

They have had a system that has focused on minimizing input-costs. efficiency. Tight Cost Control As a leader in the discount retail industry. An additional upgrade of software applications was added to monitor inventory in each store. we have concluded that Dollar General is doing a decent job in utilizing cost leadership strategies. they have the upper-hand against the competitors in the industry. We believe that these expenses will have a negative effect on the company’s value currently. Brand image is not a high cost for Dollar General. cut costs of transportation to Dollar General stores.Dollar general historically has minimized input cost spending very little on capital improvement costs. The distribution centers. but could improve the company’s value in the future. and have their own trucking service. Dollar General hopes that these improvements will increase sales and lower costs in the future. Conclusion In our analysis. These investments made will help Dollar General operate their stores more efficiently and will in turn reduce their operating costs. They are striving to be the cost leader in their industry. Dollar general has spent more money trying to remodel worn down buildings and increase sales space. and production that could help lower overall costs in the future. Dollar General has to continually focus on improving their tight cost controls. They have also invested a lot of money into improving their distribution system to increase efficiency. Recent improvements in the point of sale system allow the store to accept gift cards which will bring in a new source of revenue. They have taken on many projects to improve quality. they invest when needed in their image to protect their identity in the industry. They have tried to minimize the cost of owning buildings by leasing out most of their buildings.S. Low-cost Distribution Dollar General owns six of there nine distribution centers across the U. being located in central hub areas. 30 Currently. They have also incurred costs to shut down non-producing stores. We believe because they are cutting distribution costs. . Dollar General owns most of there distribution centers and trucks minimizing contracting fees. This will help sustain low prices that drive the success of the stores. Minimal Brand Image Cost Dollar General owns several trademarks pertaining to their company and subsidiaries. 99 Cents Only lease to trucking companies which adds to cost. This allows management to efficiently manage 31 their in store stocks and improve turnover. This helps minimize the cost of contracting to other trucking companies. The company has also spent only what it needs on brand imaging keeping costs low.

The figures need further investigation to determine its validity. Next. Dollar general is utilizing effective cost leadership strategies. however the only balance sheets they give are consolidated so you cannot actually see the individual events being recorded. 32 Accounting analysis Within a company’s financial reports lies crucial information to determine the valuation of its performance. Dollar General records store opening costs as expenses as they occur (Dollar General 10-K p56) rather than capitalizing them. the analyst has to assess the degree of potential accounting flexibility. This reduces their overall costs and allocates the extra cash to the correct account. An accounting analysis is used to assess the financial disclosures and conclude if its accounting practices support the structure of the industry in which the company resides in. An evaluation of the actual accounting strategy is performed next to decide how conservatively or aggressively the flexibility is used to manipulate financial reports. Dollar General uses slightly aggressive accounting policies and is only partially clear in stating how they record transactions in their footnotes. The first step is to identify the key accounting policies of the company. Other then the recent costs to improve current stores. Another way Dollar General maintains their cost leadership is through the reporting of building leases. which can be used to inflate a company’s value since it is an intangible asset. This examination is important because the financial reports released have managerial estimates and judgments that affect the outcome. This is the appropriate and honest way to account for these costs. In terms of the types of leases Dollar General has. From the evaluation. there could be some “red flags” that signal discrepancies in the reported information. Dollar General does not have any Goodwill recorded. however. The following is the assessment of Dollar General’s accounting practices. . 33 Key Accounting Policies Dollar General’s main Key Success Factors focuses on cost leadership. Dollar General record vendors rebates as a reduction of merchandise purchases costs and are recognized in the statement of operations at the time the goods are sold (Dollar General 10-K). or how able the company is to manipulate numbers and still follow the rules outlined by GAAP. The next step is to review the quality of information disclosed in the statements.We believe that Dollar General recent costs to improve their stores and improve production may decrease the value of the firm in the short-run compared to competitors. The last step in the analysis involves undoing the accounting distortions. the improvements to the stores quality and efficiency could improve the company overall in the future.

half are operating on a contingent rent based on sales. These leases include multiple renewing options for the managers to decide on a basis of performance and sales.400. The benefit of operating leases is that it allows Dollar General to report its lease expenses as an operating expense leaving it off the balance sheet. This conditional rent expense is recognized when sales goals are met or probable. Inc.000 $1.000.000 $400. the amounts that are reported under capital leases are recognized immediately on the balance sheet. Dollar General accounts for its leases under both capital and operating. Inc. Dollar General leases the majority of its stores on a short term of 3-5 years. This set of regulations is the framework for which all companies must use in the preparation of financial statements.000.000 2002 2003 2004 2005 2006 Dollar General Family Dollar. 35 Degrees of accounting flexibility Managers at Dollar General may have latitude with their reporting methods within their financial statements. rent expense is recognized on a straight line basis over the term of the lease. Also.000.000. For the remaining stores. Dollar General uses this flexibility in reporting their key accounting policies of leases and vendor rebates. Among all the stores that Dollar General leases. but they must comply with industry standards of GAAP.000. rent expense is recognized on a straight line basis while the increased amount will be recorded as deferred rent. This in turn can be amortized to reduce rent expense over the term of the lease. Conversely. Another accounting strategy that Dollar General uses to its benefit is to record tenant allowances as deferred incentive rent.600.000. If a store is performing well. Fred's. Dollar Tree.they have both operating and capital leases.200. As previously stated. there are store that are built-to-suit where the leases range from 7-10 years. Inc. Industry Inventory 2002-2006 $0 $200.000 $800. the 34 likelihood of it renewing its lease is high. The accounting flexibility in balancing between these two methods allows them to determine how much is disclosed on their financial statements from operations. In addition. This in turns reduces the liability of the company. The following table shows how the leases are currently .000.000 $1.000.000 $1.000 $1. if it is stated in the lease that rent will increase annually at a fixed rate. Accounting manipulation within the guidelines of GAAP may produce or conceal important information that would work in favor the company.000 $600.000.

but supporting data was hard to interpret.reported for Dollar General. The large amount of operating leases is crucial to the stores success in the discount retail industry. Dollar General has both operating and capital leases.263 Total minimum payments 23.082 206. They are discounted at an effective interest rate of 6. therefore.414 1.581 Discount rate 6. Vendor rebates received are accounted for as a reduction in the purchase cost of the merchandise. Another method of accounting flexibility shown by Dollar General is the way vendor rebates are handled on the financial statements. The majority of . The flexibility in the terms of the lease allows managers to assess the profits earned for a store and to determine if they can afford to remain in business. This reduces the amount of debt reported on the balance sheet working in favor of the company. it is unclear just how much this affects their financials. Depending on the amount of rebates Dollar General realizes. selling and administrative (GS&A) expenses related to the sale of the merchandise.7% (Dollar General 2006 10-K) It is evident that the majority of Dollar General’s leasing costs are operating rather than capital leases. Accounting Strategy Dollar General uses slightly aggressive methods when reporting their financials. We feel that their slightly aggressive accounting policies made it difficult to go through their financial statements. The ability of Dollar General to spend a large amount of money on operating leases allows them to keep that same amount off the balance sheet as a liability. However. Cash considerations from the vendor may in turn offset some general. A stores ability to bring in revenues and earn profits is the key to remain in business. this is an incentive for Dollar General to claim as many vendor rebates as they can.440 254.7%. Consequently.454 2011 599 139. 36 Future Minimum Payments of leases *In thousands Capital Leases * Operating Leases * 2007 7.489.369 2010 599 169.567 2008 5. while the footnotes are very clear on how they do this the actual numbers are not given on the balance sheet.841 Thereafter 7. Dollar General disclosed quiet a bit of information in their footnotes. This is recognized in the statement of operations at time the 37 commodities are sold.087 2009 2. it reduces operating expenses showing greater income.036 415.658 304. This rebate is limited and will only offset the costs associated with the GS&A expenses incurred of the merchandise.

as shown below in the graph.00% 10. highly consumable.00% 2006 2005 2004 Highly consumable . Operating leases are treated as rent expense rather than being liabilities therefore it does not give a true picture of total liabilities on the balance sheet. decreasing the expenses related to these assets and further helping the bottom line.00% 50. This indicates that they do not inflate their numbers for investors.00% 20. benefit.00% 40.capital leases have terms between 3 to 5 years with renewable options. they strive to provide merchandise at everyday low prices thus it is necessary to keep prices as close to marginal cost as possible.00% 30. Since Dollar General is in a low concentrated industry. plant. “Improvements of leased properties are 38 amortized over the shorter of the life of the applicable lease term or the estimated useful life of the asset” (Dollar General 10k) Dollar Tree and 99 Cents Only also have similar accounting strategies. Dollar General depreciates property. seasonal. A benefit to using the straight-line method is at the end of the life term of the asset the company pays the salvage value of the asset opposed to the fair value. Employee benefit plans are expensed on a year to year basis rather than being liabilities to the firm.00% 60. Dollar General does not have any goodwill on the books which we consider a very conservative accounting strategy. This has made it easy for management to track where most sales come from and improve where they need to. and goodwill are a few of the minor things Dollar General has done to stay a head of the competition in a cost leadership industry. concluding that this could be an industry trend. Dollar General has achieved this by categorizing their products into four distinct areas. There are built-to-suit arrangements with landlords that have terms of 7 to 10 year and multiple renewal options on some of the leases. and basic clothing.00% 70. and equipment using the straight-line method. The recording of depreciation. 39 Product Sales 0. home products.

However not many company’s do a good job in disclosing a lot of important information in their 10K.Home products Seasonal Basic Clothing Quality of Disclosure Qualitative The quality of disclosure is very important to investors and analysts. we thought that would be critical information for investors to know. the ratios are calculated over time and compared to those of the competitors in the same industry. This manager’s overview helps an investor know exactly how the firm is doing without doing too much research. Dollar General does a good job in disclosing a lot of important information in their 10K. The data we collect from this section will indicate how well Dollar General has reported their financial information and potentially identify any red flags. For example The gross 40 profit rate declined in 2006 from 28.7% to 25. net accounts receivable. unearned revenues. The 10K is usually the best source of information when looking at a company’s well being. the results of operations.2 million as of February 2007. warranty liabilities. We found these by dividing a company’s net sales by the following denominators: cash from sales. We will use the data from the ratios in our valuation of the firm. Dollar General’s 10K is loaded with good information. They go into detail talking about the company performance measures. They farther go on to explain the reason for the decline which resulted due to significant increase in markdowns activity as a percentage of sales. They not only focus on showing only the elements in which they excel in but also areas that they are not doing too well in. and store closing initiatives. For example it states how the capital leases and operating leases are handled and what percentage they cover. otherwise they may think that gross profit will continue to fall. The only downfall is that they do not disclose how they will go about correcting the problem. Quantitative 41 The measure of the quantitative quality of disclosure involves two sets of ratios. This gives a true picture of the fixed assets that Dollar General has. The footnotes on the financial statements are informative and explain what on the financial statements. In February 2006 the gross amount of property and equipment recorded was 85. The ratios .1million and 150. Sales Manipulation Diagnostics We calculated five core sales manipulation or revenue diagnostics. When analyzing a company. and inventory.8%. revenue diagnostics and expense diagnostics.

indicate how well the company is reporting their revenues. 42 Net Sales/Cash from Sales
0 0.2 0.4 0.6 0.8 1 1.2 Dollar General 1 1 1 1 1 Dollar Tree 1 1 1 1 1 Family Dollar 1 1 1 1 1 Fred's Inc. 1 1 1 1 1 2002 2003 2004 2005 2006

Net sales/Cash from sales

The discount retail industry is cash to sales basis industry. A cash to sale industry is one in which every sale is accompanied by payment, therefore deferred payments do not exist. Thus, the ratio of net sales/ cash from sales is 1 all across the board.

Net sales/Net accounts receivable

Since the discount retail industry is cash to sale industry they do not have any account receivables, thus the ratio does not affect the industry. 43

Net sales/Unearned revenues

Unearned revenue is when a company offers a service or product and does not receive immediate payment until later. The discount retail industry does not have credit sales because everything is on a cash to sale basis, therefore this ratio does not apply to the industry.

Net sales/Warranty liabilities

Warranty is when a company guarantees their products of by offering to replace or repair the product if something goes wrong within a specified amount of time. So a company that has warranty liabilities would have high sales but low revenues. The discount retail industry does not offer warranties on their products so again this ratio does not apply to the industry. Net Sales/Inventory
0 2 4 6 8 Dollar General 5.43 5.94 5.57 5.82 6.4 Dollar Tree 5.37 5.33 5.08 5.89 6.56 Family Dollar 5.43 5.56 5.39 4.42 6.16 Fred's Inc. 5.7 5.43 5.24 5.23 5.79 2002 2003 2004 2005 2006

44

Net Sales/Inventory

The net sales/ inventory ratio is important because it tells us the amount

of inventory we have in relation to our sales. It asks the question; do reported sales and inventory match each other in a believable way? If this number starts increasing rapidly and/or unexplained it raises a red flag because it would imply that while sales are growing, inventory is decreasing. If it is increasing like this, the company must be recording things wrong, or perhaps channel stuffing. We have found the industry as a whole to be pretty consistent the past five years and have not found any potential red flags for Dollar General.

Core Expense Manipulation Diagnostics
There are six core expense manipulation diagnostics. These ratios are found in a variety of ways, but they all relate to a company’s expenses and are also used to identify potential red flags. 45 Asset Turnover (sales/assets)
0 1 2 3 4 Dollar General 2.61 2.62 2.7 2.88 3.02 Dollar Tree 1.81 1.86 1.74 1.89 2.12 Family Dollar 2.37 2.39 2.37 2.42 2.53 Fred's Inc. 3.19 3.14 3.1 3.19 3.43 2002 2003 2004 2005 2006

Asset Turnover – Net Sales/Total Assets

The asset turnover tells us how much sales our assets can generate. If this number begins declining, it implies that sales are decreasing while assets are increasing, we must wonder if the company has the appropriate amount of assets to generate the desired sales. Through off-balance sheet accounting, reporting operating leases, as opposed to capital leases, a company can show fewer assets on the balance sheet and in turn have a higher asset turnover ratio. Overall the industry is quite consistent and Dollar General has remained consistent with the industry standards and show no potential red flags. 46 CFFO/OI
-1.00 0.00 1.00 2.00 3.00 Dollar General 0.93 1.01 0.70 0.98 1.63 Dollar Tree 2.77 0.83 0.94 1.28 1.33 Family Dollar 0.23 -0.33 -0.11 0.44 0.52 Fred's Inc. 1.02 0.72 0.54 1.21 0.86 2002 2003 2004 2005 2006

Changes in CFFO/OI

This ratio is found by dividing the cash flow from operations by the operating income and tells us whether or not the income is being supported by the cash flows. If this number is dropping without explanation it raises a red flag because cash flows cannot be increasing while income decreases. In this

situation, expenses may not be recorded or revenues may be overstated. With the exception of Dollar Tree in 2002, the industry has remained quite consistent. Seeing that Dollar General has remained consistent with the trends and has not fluctuated too much over the past five years there are no potential red flags to investigate. 47 CFFO/NOA
-1 -0.5 0 0.5 1 Dollar General 0.42 0.54 0.36 0.47 0.33 Dollar Tree -0.5 0.38 0.4 0.54 0.58 Family Dollar 0.59 0.36 0.41 0.29 0.42 Fred's Inc. 0.34 0.49 0.28 0.15 0.35 2002 2003 2004 2005 2006

Changes in CFFO/NOA

This ratio is found by dividing the changes in a company’s cash flow from operations from the previous year by its net operating assets. If this ratio is dropping without explanation it raises a red flag because in order for this to happen the assets are most likely being overstated to increase a company’s value. Overall the industry has remained steady with the exception of Fred’s Inc., who had a negative cash flow in 2002, but has since recovered. The only concern we have is that Dollar General’s ratio slightly dropped in 2004 and 2006. However, this drop can be explained by an increase in net operating assets due to recent renovations and added equipment, such as freezers. Overall, there are no potential red flags in this area. 48

Accruals/ Changes in Sales-

This ratio is found by taking the total accruals for the year and dividing them by the difference in the sales of the current year and the previous year. Total accruals are found by subtracting the net cash flow from operations from the net income. This measure is a way to measure the returns the company is getting form operating assets.

Pension Expense/ SG&A

Dollar General has a defined contribution plan in place. The defined contribution plan leaves the liability on the hands of the employee and the obligation of the employer is merely a small percent of the plan. They do not need to recognize any Pension Expense through out the year only when it is incurred. No ratios needed to be calculated.

Other Employment Expenses/ SG&A

Other employment expense includes medical insurance and other certain benefit programs. Due to the nature of the discount retail Industry Company’s offer little to no benefit packages. Most employees are privately insured. No

50 Undoing Accounting Distortions Accounting distortions occur when a company unknowingly or knowingly reports numbers that are misleading. In the next table we have converted the current operating lease payments into capital leases to show the differences of approximately $1. the ratio is on average except for 2005 when the ratio dropped for Dollar General. 51 Dollar General has used accounting flexibility to record a large portion of their leases as operating leases. This information was disclosed on the Dollar General 10-K allowing us to match the increase in assets. The simplistic nature of the discount retail industry enables Dollar General to report their financials rather straight forward without accounting alterations to show better value. In comparison to its competitors. In this section. Identifying potential distortions in the accounting is important because a clearer view of the company can be presented once the distortions are fixed. 49 Identifying Potential “Red Flags” The quantitative characteristics of a firms accounting disclosure can be analyzed to signal distortions in the accounting. we will analyze the discount retail industry and compare Dollar General with the rest of the industry. Dollar General’s expense diagnostics raise a red flag with their accounting reporting. Dollar General has been acquiring new assets to expand their departments to meet the demand of the discount retail industry. This industry is driven by high volume sales of low cost items. The increase in the net operating assets is a result from the growth of the company in the past years. we did find a potential red flag from the CFFO/NOA ratio. The cash flow from operations to net operating asset ratio shows us the proportion of the operation cash flows from the property. Revenues and profitability determine if store operating leases will be renewed to cut loses. fiscal year ends in August while every other company year ends in March or May was taken into consideration in the comparability in our analysis. . plant. The main purpose of this section is to find potential deviations from the norm that could potentially distort the companies accounting records. We will be assessing several ratios and evaluating the amount of disclosure Dollar General has presented. and equipment owned. This allows the managers to influence the outcome of the financial statements to show better performance. After analyzing Dollar General’s financial statements and determining the level of sales and expense manipulation. The following ratios will help compare and signal any deviations Dollar General may have compared with the rest of the company.2 billion in avoided liabilities.Ratios need to be calculated. * The fact that Fred’s Inc.

823 $169.36 2008 $5.38 2015 $1.945 162.00 0.435.55 2014 $1.00 4 $169.052.573 2007 1.489. **The affects of the capitalization of these leases on the balance sheet can be seen in the .369.346 162.114.260 162.658.857 2009 885.440.414.675 77.00 0.00 2 $254.774 162. the reporting of operating leases leads to understated expenses.678 $56.052.454.407. This next table shows the interest expense and depreciation expense being avoided over the next ten years.64 2013 $1.595 $49.407.675 59.00 1 $304.749 $115.723 $101.675 45.20 8 $83.675 37.846 96.675 65.26 2012 $1.7% rate found in Dollar General’s 10-K.073.331. using the 6.14 2009 $2.067 Term 10 Payment Interest Principle Straight Line Depreciation 1.052.19 2016 $1.215 152.926 90.00 3 $206.675 71.20 6 $83.436 110.857 2014 295.460 162.788 142.00* Total Operating Leases $1.857 2011 672.238 $115.675 52.675 10.00 0.522 162.841.567.857 2008 982.20 9 $83.158.878 $223.Operating Lease Conversion Capital Leases Operating leases PV Factor PV 2007 $7.581.00 0.00 0.635 $52.20 7 $83.442.505 $115.857 2015 152.69 2011 $599.179.60 0.624 $115.60 0.857 *All Numbers in thousands.050 117.857 2012 554.572.087.914 $115.407.857 2016 0 162.316 $115.675 19.829 $115.20 10 $83.00 5 $139.390 162.766 162. 52 Discount Rate 0.63* *In Thousands Along with the avoided liabilities.937 $285.082.772 $130.169 125.407.760 133.857 2013 429.883.281.358 103.857 2010 782.050 $115.735.407.00* Total Capital Lease $1.523 $43.60 0.675 28.886 $115.50 2010 $599.747.558 $46.421.60 0.629 162.60 0.624 85.052.052.158.460 $115.92 Reported Capital Leases $23.

The liquidity ratio will be broken down into two different types of ratios. From the accounting analysis. 53 Financial Analysis At this part of the valuation. Finally. 54 Financial Ratio Analysis Several ratios can be performed to evaluate the financial position of a firm. These ratios will be used to asses Dollar Generals position in the discount retail industry. it is important to tie together all the previous analysis. First we identified the business strategy and the five success factors. Liquidity Ratios Liquidity ratios apply to the amount of cash equivalent assets on hand for a firm and the ability to convert these into funds for future liabilities. The first two . profitability. From these ratios. Know these things when analyzing a firm is important in order to evaluate the firm and its performance. we will be able to determine from past financial statements how the company will fund future growth. and capital structure ratios. This tells us how the company plans to thrive in the discount retail industry.appendix. The liquidity ratios tell us how much of the firm’s assets is cash or cash-equivalents and in turn tell how timely they will be able to meet their current obligations. The profitability ratios tell how profitable a firm is based on its efficiency and rate of return. Each ratio will be computed to reflect a 5 year trend of each company. Liquidity ratios refer to the amount of cash or equivalence on hand for operations. Trend & Cross Sectional Analysis The analyses of a firm’s financial statements tell about its liquidity. Each ratio illustrates a different aspect of the company’s well being for example how quick assets can be converted in to cash to cover liabilities. To properly forecast the future of Dollar General and assess their development. These ratios will help determine how well the company is performing from a business strategy perspective to its competitors. Three main areas that will be focused on in the following section are liquidity ratios. profitability. it is essential to calculate the liquidity. the capital structure ratios tell how the firm is financed and how much of their income is being used to pay interest versus how much is being used to pay the principal. Profitability ratios determine the amount of profits based on operations. Each ratio will dissect the financial statements of Dollar General and their competitors. profitability ratios. This gives a true sense of how the company is operating in the industry and where it is heading in the future. Capital structure ratios determine the cost of debt it takes to operate the business. and capital structure ratios. The ratios can also tell how efficient the company is in the industry. and capital structure. the value of the past performance can be determined as well as trends that can help in forecasting the future trends of the company.

Dollar General’s ratio being lower than the industry’s is nothing to be alarmed about. Current assets are almost all assets besides land. especially since they have constantly had more than one dollar of assets to every one dollar of liabilities. The operating efficiency ratios are based on the cause and effect using financial data from both the income statement and the balance sheet. Fred’s and Dollar Tree have ratios that remained higher than the industry in the past five years. but more recently has been just below the industry standard.72 1. and intangibles.29 3. and in turn has brought the industry average up.99 2.27 2.99 1. Dollar General’s current ratio over the past five years has remained just below the industry average.5 . Dollar General started out with the lowest current ratio.22 2.88 2. receivable turnover.37 1.51 1. buildings.19 2. and therefore less able to pay them off.44 Dollar Tree 2. The current ratio is found by dividing a firm’s current assets by its current liabilities. and working capital turnover. However if this number is too high above the industry standard the firm is most likely not using all their assets efficiently.55 2. The lower this number is the more debt the firm has in comparison to its assets. Although. or the greater ability it has to pay off its upcoming obligations.5 Fred’s 3.89 Family Dollar 1. This could mean they are inefficiently using their assets. While Family Dollar started out with a higher ratio than Dollar General. Overall Dollar General has the best ratio because it is closest to the industry standard without 2002 2003 2004 2005 2006 Dollar General 1.76 2. This number tells us 55 how many dollars of assets we have for every one dollar of liability.94 1. The higher the number this ratio is.55 2. Current Ratio over the past five years Below is the cross sectional analysis showing the trends of Dollar General over the past five years in comparison with the trends of its direct competitors and the industry as a whole. the more liquid a firm is.1 1. The first sets of ratios we have analyzed are the liquidity ratios and of these the first to discuss is the current ratio. equipment.73 3. and current liabilities are any liabilities that will be due in the next year. when looking at the chart you can see that Dollar Tree has had a much higher ratio than the other firms. The next three ratios are operating efficiency ratios which consist of inventory turnover.line items are current and acid test coverage ratios which display a company’s ability to cover debt with current assets.58 56 being too high. Current Ratio 0 0. The trend with each competitor in the industry appears to be heading towards convergence within the next couple of years. their ratio has been declining and they currently have the lowest ratio in the industry.

the industry has remained within the range of a dollar over the past five years ($0.5 3 3. Quick Asset Ratio 0 0. but has still followed the industry’s trends. This is similar to the current ratio in that too high a number can equate to inefficient use of assets.046 . Dollar Tree.16 0.08 1. Acid Test for the past five years 2002 2003 2004 2005 2006 Dollar General 0. and Fred’s have all followed the industry trend the past five years. Fred’s most likely has far too many assets in comparison to the industry.8 1 1.33 0.26 0.21 0.64 1.09 0.16-$1.6 0.15). Quick assets are cash and any assets that can be easily converted to cash if need be. therefore there is no need to be alarmed over Dollar General being slightly lower than the industry.5 2 2. which shows signs of inefficiency.5 2002 2003 2004 2005 2006 Dollar General Family Dollar Dollar Tree Freds Industry.8 Fred’s 0.15 0. Since Fred’s has such a higher ratio it has brought the industry ratio up. Recently Dollar General has remained below the industry average.35 0. Dollar General.22 Dollar Tree 1. while Family Dollar has done just the opposite.54 0.4 0. With the exception of Fred’s. Average The second liquidity ratio is the quick asset ratio or acid test.4 2002 2003 2004 2005 2006 Dollar General Family Dollar Dollar Tree Freds Industry Average . This shows how much cash or cash-equivalents there are for every dollar of liability and is found by dividing the quick assets by the current liabilities.1 1.04 0.18 0.13 0.41 0. Dollar General’s quick asset ratio has been pretty low for the past five years with the exception of 2004 where it peaked.023 57 Below is the cross sectional analysis of Dollar General’s quick ratio as well as its direct competitors and the industry’s as a whole.22 Family Dollar 0.2 1.23 0.2 0.

27 3.9 4.92 4. has consistently had one of the highest inventory turnovers in the industry.59 0. showing that they are not selling efficiently enough to keep up with the industry.are classified as liquidity ratios.077 3. This ratio measures how frequently the inventory in a company’s warehouse is used and replenished.32 Fred’s 4. Dollar General’s ratio was rising until 2004 with a decline in 2005 and now is almost back on track. Dollar Tree experienced a tremendous amount of growth from 2002-2003 and has since been able to remain above the industry average.5 3 3.37 3. bringing the average down.15 Family Dollar 0.5 1 1.01 2. Dollar Tree would probably be just below the industry average up until the past year or so.06 0.5 4 4. Inventory Turnover for the past 5 years 2002 2003 2004 2005 2006 Dollar General 3.76 3.Although the next two ratios -inventory turnover and working capital turnover. Operating efficiency has been consistent with inventory turnover averaging four times a year.76 Industry Avg.5 5 2002 2003 2004 2005 2006 Dollar General Family Dollar Dollar Tree . however if Family Dollar wasn’t so low. being the industry leader.26 3.85 4. they tell more about a firm’s operating efficiency than its actual liquidity. This shows that their inventory is fairly liquid with three month intervals out of the year.89 3. This number is found by dividing the cost of goods sold 58 by the inventory and it tells us how many times per year the inventory is replenished.6 0.078 The cross sectional analysis below shows the industry and its trends over the past five years.04 4. The first of these to analyze is the Inventory Turnover.64 0. Family Dollar is well below the industry standard.5 2 2. Fred’s has one of the higher turnovers of the industry showing very efficient sales.98 2. 59 Inventory Turnover 0 0. Dollar General has followed the industry trend more than any of other firms and has remained above the industry every year.19 3. Dollar General.9 3. The higher the number is the better because it indicates higher sales. with a slight decline just recently.13 3.4 3. 2.08 Dollar Tree 0.

As a result.97 7. Working Capital Turnover Below is the cross sectional analysis of Dollar General’s working capital turnover as well as its direct competitors and the industry as a whole. because it indicates higher sales. This is the .Freds Industry average The other liquidity ratio that measures operating efficiency is the Working Capital Turnover.08 Dollar Tree 0. (Dollar General 10-K) Therefore the accounts receivable turnover ratio will not be calculated for Dollar General. the average customer purchase was $9. This would be a valuable tool for determining the corporations cash to cash cycle.58 7. working capital being the company’s current assets less its current liabilities.24 0.32 6. Working capital measures how many sales dollars every one dollar of working capital can generate. with the exception of 2004.43 60 see Dollar General leads the industry and has had the highest turnover every year for the past five years.46 10.35 Family Dollar 0.25 7.87 7. where they were just barley behind Fred’s.25 0. while Fred’s and Dollar Tree are just a little behind Dollar General. it would be performed by taking total sales and dividing it by accounts receivable. This number is found by dividing a company’s sales by its working capital. The higher this number is the better. Since 2003 Dollar General has been setting the trends for the industry.08 7.6 9. If the receivables turnover ratio were to be calculated.36 in 2006.89 Fred’s 6. Family Dollar has a very low turnover relative to the other companies.56 8. Working Capital Turnover 0 2 4 6 8 10 12 14 2002 2003 2004 2005 2006 Dollar General Family Dollar Dollar Tree Freds Industry average The nature of the discount retail industry does not entail the need for accounts receivables. Since 2004.12 4. Dollar General has had a steadily rising turnover.27 0.3 0.24 6.63 5. As you can 2002 2003 2004 2005 2006 Dollar General 12. Dollar General has set the industry standard for working capital turnover and has had the highest turnover every year for the past five years with the exception of 2004. The industry is dependent on the volume of purchases because basic commodities are sold at low prices.

measure of how long it would take to free up cash from accounts receivables and inventory. asset productivity. operating profit. The smaller the ratio is the better it is for the firm. In essence. This is favorable because it shows that inventory is generating revenue instead of sitting in storage. rate of return on assets. This is calculated by the ratio of return on assets. This operating efficiency is measured by the gross profit. They have been leading the industry with Fred’s and have remained below the industry average. The overall goal of any company is to make sales at the lowest cost feasible to achieve profits. This is first half of the cash to cash cycle. Day Supply of Inventory 0 1000 2000 3000 4000 5000 6000 7000 2002 2003 2004 2005 2006 Dollar General Family Dollar Dollar Tree Freds Industry Average Liquidity overview Over the past five years Dollar General has followed the industry liquidity trends quite consistently and has set the trends in inventory and working capital turnover.05 . Dollar General is quite liquid in comparison to the industry which means they are able to quickly convert their cash to assets if necessary to meet current and upcoming obligations. and net profit margin. This is calculated by taking the number of days in the year and dividing it by the inventory turnover ratio. Four main factors determining profits are operating efficiency. Gross Profit Margin 0 0. 62 Profitability Ratios The basis of profitability ratios is to determine the rate at which a company can turn a profit off of operations. Lastly. the rate of return on equity measures the effectiveness a company can produce earnings growth from investments. Asset productivity is the efficiency rates a company can turnover investments of assets into revenue. the cash to cash cycle for the 61 industry is just the day supply of inventory. and rate of return on equity. It states how many days inventory stays in storage instead of being sold on the floor. The faster the cycle is the more amounts of cash is available for operations and reducing debt. Dollar General has shown great ability to generate sales over the past five years and is the leader in its industry. Below is a chart showing the day supply of inventory for Dollar General and the industry. The only part of this cycle that Dollar General can monitor is the day supply of inventory.

3 0. We have concluded from the above data that Dollar General is only doing average to the rest of the market. but it includes selling and administrating expenses. Once again.06 -0.08 0. Dollar Tree has maintained greater efficiency of the past five years on average. Compared to Fred’s Inc. but we believe that Dollar General can improve its position in the industry by getting rid .06 0. The trend of the overall industry seems to be converging on Dollar General’s position. As before.15 0. Once again we did not include Family Dollar in our valuation of Dollar General though we did consider that Family Dollar did have a higher operating profit ratio in 2006. Dollar General has done well to keep costs at a minimum. but we should expect this because their gross profit margin was higher. Dollar General can improve on its efficiency whether it is improving inventory costs or finding cheaper suppliers. Fred’s Inc has 63 remained about the same as Dollar General. but Dollar Tree has minimized more cost of good sold and created more profit.35 0.0.04 -0.02 0.12 2002 2003 2004 2005 2006 Dollar General Family Dollar Dollar Tree Freds Industry average Operating profit ratio measures the same thing the gross profit ratio measures. Dollar General has maintained an average percentage of the past five years of around 7 %.4 2002 2003 2004 2005 2006 Dollar General Family Dollar Dollar Tree Freds Industry average The gross profit margin ratio measures the gross profits of the company to the amount of sales. Operating Profit Margin -0.02 0 0.04 0. but as Dollar Tree’s ratios prove. Dollar General has maintained about a 25 to 30% ranges on it gross profit margin for the past five years.25 0.1 0. Dollar Tree has done average on its profit margin. We can determine how well a company has minimized cost of good sold. According to the graph.1 0.2 0.

The slightly higher margin for Dollar General is because of an interest income. We see that Dollar General has flat lined over the past five years. 65 Asset Turnover 0 0. 64 Net Profit Margin -0.5 1 1. They have no trends of growing or shrinking and have maintained about a 4% net profit.5 2 2.06 0. has done the worst in the industry with a ratio of only 2% in the past two years.5 2002 2003 2004 2005 2006 Dollar General Dollar Tree Family Dollar Freds Industry . Dollar General has a good job of maintaining a near average ratio margin. Fred’s Inc.08 -0.of excess cost.02 0.06 -0. Dollar General’s competitors Family Dollar and Dollar Tree have done a slightly better job over the past five years except for 2006 where Family Dollar has incurred more costs.04 0.08 2002 2003 2004 2005 2006 Dollar General Dollar Tree Family Dollar Freds Industry average The net profit margin considers the overall effect of expenses compared to sales and other income.02 0 0.04 -0.5 3 3. but competitors are doing better which means Dollar General is not as efficient as they could be.

Family Dollar has maintained a 2.02 0. Dollar Tree has maintained a 10 % ROA in the past three years while Family Dollar and Fred’s Inc are down to 5% ROA.08 0. Dollar General over the past five years has increased its ROA except for the last year.average The asset turnover ratios were used earlier as an expense diagnostic. The asset turnover ratios show that for every dollar of assets the company has a certain number of sales will be made.16 2002 2003 2004 2005 2006 Dollar General Dollar Tree Family Dollar Freds Industry average The return on asset is the overall measure of profitability. Compared to the competitors only Fred’s Inc has done a better job of asset turnover then Dollar General. They have far less inventory and are a much smaller company then the other three companies. By dividing net income by assets we can determine the return on the assets.12 0. Dollar General has improved their revenue profitability.2-3. Dollar Tree has been lagging behind at 2. but the company has improved its ROA from 2002 where it was at a 9% ROA. We can conclude from this information that Dollar General is doing overall better on its profitability from .14 0. We have now used average assets instead of total assets. As the graph displays. Dollar General has done relatively well against its competitors. We hope to see a greater percentage from year to year. In 2002. It is now at a 12 % ROA down from 13% the year before. They have steadily increased this number over the past five years and in 2006 they are up to about 3.2 asset turnovers which have been slightly better then past years. 66 Return on Assets -0. We can conclude from this information that Dollar General is doing a good job of using assets to support sales volume.5 asset turnover which is only slightly up from past years. Fred’s inc.02 0 0. they were getting two dollars worth of sales for every asset. In the past five years.3 dollars per asset. high asset turnover can be explained by size.06 0.1 0.04 0. It uses the net income and the average total assets which include parts of other ratios mainly net profit margin and asset turnover ratio.

However. There is obvious room for improvement here. Dollar General may have a slight advantage because of their leverage as long as they can maintain there debt covenants. Seeing that the operating profit and net profit have remained constant over the past five years while gross profit has risen it shows us that general selling and administrative costs might need to be cut in order to start increasing profit. The ROE measures the amount of the owner’s interest in total assets (class notes). since sales have been rising. Dollar general has maintained about the same mount of return for the past 5 years. The more profit a company gets each year we should see an increase in ROE. We do not to expect to see much change in ROE in the next few years because of the competitive nature of the industry.25 2002 2003 2004 2005 2006 Dollar General Dollar Tree Family Dollar Freds Industry average The Return on equity is the net income of the company divided by the past years owners equity. The others companies have lower ROE this could be due to the fact that they finance there companies operations with less debt. in ROA may be signaling a downward trend which could bring it further down to the industry average.15 0. However net profits has remained almost constant over the past five years. The past five years there has not been a significant increase in ROE. Dollar General finances its operation with great debt then the other companies. As you can see from the chart.asset productivity and operating efficiency compared to the other companies in the industry. 67 Return on Equity -0. the recent decline. Overall.05 0. it has still followed it. which is slightly unfavorable. Dollar General has a lower gross profit margin and a slightly lower net profit margin recently. They have set the industry trends for asset .2 0. We expect to this ratio much larger then the ROA because equity is only a part of assets and would only equal ROA if the company had no debt. 68 Profitability overview In conclusion Dollar General has by and large has followed the industry trends in profitability. While the gross profit has remained lower than the industry.1 0.05 0 0.

will present how much each firm in the industry invests in debt. and Debt Service margin.5 1 1. 69 Debt to equity 0 0. Time Interest Earned. with some slight room for improvement. They have managed to lower their debt to equity to just below 1. Overall Dollar General is the industry leader and has maintained its ability to generate profit. The competitors have had significantly lower debt to equity ratios. If a company falls into debt. Most companies have financed most of their assets with owner’s equity.5 2 2. We will use these ratios to evaluate Dollar General to the rest of the industry and draw conclusions about the ability of the company to manage its capital structure.turnover and their return on equity and have lead the industry in return on assets. Debt to Equity ratio. 70 Times Interest Earned -50 0 . The nature of the discount retail industry gives very little leeway. Dollar General in 2002 was financing its company with over 2 dollars debt to 1 dollar owner’s equity. it is much harder to gain the resources to pay off debt obligations because of the highly competitive nature of the industry. Capital Structure Ratios The capital Structure Ratios are designed to identify how much of the firms assets are financed through debt and owners equity. In the next few years. they took several steps to reduce liabilities and maintain proper debt leverage. Family Dollar is the only company that has increased to 1 dollar of liabilities to 1 dollar of owner’s equity. We believe it is important for Dollar General to maintain low levels of debt obligation.5 2002 2003 2004 2005 2006 Dollar General Dollar Tree Family Dollar Freds Industry average The debt to equity ratio takes the total liabilities and divides them by the total owner’s equity. The next three ratios. This ratio gives us an idea of the weight of liabilities compared to owner’s equity. Knowing these ratios gives us an idea of what the company’s credit risk can be and how it compares to other companies. They will also consider how well the company can meet its debt obligation requirements.

It is important to note that Fred’s Inc. it should not be a benchmark because their ratios are higher than the industry average year to year.5 2002 2003 2004 2005 2006 Dollar General Dollar Tree Family Dollar Freds Industry average . 71 Though they are a competitor of Dollar General. As interest expenses increases for a company it reduces the profits towards adverse conditions. This is crucial because income from operations should be adequate enough to cover expenses otherwise it could lead a decrease in profits.5 1 1. Debt Service Margin -0. The ratio is calculated by taking the operating income before interest and taxes and dividing it by interest expense. This is important because a company would want to have high earnings with low interest expense. The stable increase in this ratio for Dollar General shows favorable growth in operating income to interest expense. If this ratio were to deviate from the industry norm. this would be a red flag to alert managers that something could be awry.5 0 0. This shows that Dollar General is about par with the industry regarding interest costs. ratios are considerably higher than the industry because of their high operating income in relation to interest expense. Dollar General’s ratios have been on a steady increase for the past five years merging to the market trend in 2006.5 2 2.50 100 150 200 250 2002 2003 2004 2005 2006 Dollar General Dollar Tree Family Dollar Freds Industry average The times interest earned ratio tells us is how long it takes a company to operate to cover the cost of interest expense.

we felt that it was sufficient enough in comparison to Dollar Tree. There was not enough data available to calculate the ratio for the rest of the competitors. In comparison to Dollar General’s competitor Dollar Tree. In 2002. Dollar General’s ratio was at low of . These ratios will help determine how much of the projected growth will be funded by operations instead of borrowing. It would be favorable for a company to have a ratio greater than 1 because it shows that enough revenue is being generated to cover long term debt. a company must grow but not a large expense of debt. Capital Structure overview Capital structure ratios show how a firm is financed. While Dollar General has a lot of debt in comparison to the industry.5 respectively within the past 3 years. This is calculated by dividing cash from operations by installment payments of long term debt. 73 IGR 0 2 4 6 8 10 12 14 2002 2003 2004 2005 2006 2007 Freds dollar tree family dollar Dollar general . This is a valuable tool to an analyst because it tells if a company is able to pay off its long term debt. it is important to know what the internal growth rate (IGR) and the sustainable growth rate (SGR) is. It would be concerning if the ratio was consistently under 1 year after year showing more debt than incoming cash. as well as steady increase in their ability to pay their long term debt (with the exception of 2005). 72 Though this does not show a complete trend in the industry. Also they have had a consistent increase in their ability to pay they interest on this debt. they have greatly reduced it over the past five years and are continuing to do so. IGR/SGR Ratios When forecasting a company’s future outlook.78 but increased to above 2 in 2006.5 in 2006. This is a favorable ratio for the two companies after both dropping . their ratios are above 1. the IGR is the peak at which a company may grow without external financial assistance. On the other hand. Overall this shows Dollar General has been improving their capital structure over the past five years and will most likely continue to do so in the future. The SGR is the maximum amount of growth a company can maintain without increasing its debt. The greater the ratio the better off a company is financially.The debt service margin reveals the capability of a company to pay annual installments of long term liabilities. In order to be competitive in the discount retail industry. These growth rates are a key to determine how successful future developments will be.

more will be allocated towards net income and will be available for future expansion. Dollar General is able to sustain their growth well above their competitors. Forecasting financial statements Forecasting a firm’s financial statements will help us to understand where the company stands and where the company will be in the future. This is explained by keeping the debt to equity ratio as low as possible. Analyzing the IGR and SGR for Dollar General reveals that they are able to experience growth in the future with minimal debt. This is favorable because it allows room for growth in the industry without the expense of debt. As more revenue is generated from assets. 74 SGR 0 5 10 15 20 25 2002 2003 2004 2005 2006 2007 freds dollar tree family dollar dollar general industry Sustainable growth rate is affected by the internal growth rate and the debt to equity ratio. the IGR for Dollar General is leveling off after peaking in 2004. they must 75 grow by increasing sales and improving their market presence. It is calculated by multiplying the IGR by one minus the debt to equity ratio.industry As shown above. we took the past 5 years of the company’s financials and forecasted those 10 years out to the future. The internal growth rate for the industry appears to be decreasing across the board. these growth rates are an encouraging sign for the future of this company. This indicates they are able to grow with less financial debt. If Dollar General were to increase the amount of debt used to finance their operations it would cost more reducing profits. It is beneficial to have a higher IGR to sustain the company’s growth. Return on assets is a large factor in determining how much a firm may grow. Dollar General’s rates are well above its competitors. Internal growth rate is calculated by multiplying the return on assets by one minus dividends divided by net income. Maintaining a good ratio of return on assets and a low debt to equity makes this possible. As shown in the above chart. In order for Dollar General to remain profitable in the discount retail industry. To forecast Dollar General’s financials. which increases net income in the long run. It is beneficial for a company to maintain a fair amount of debt and equity for operations. Although rates are decreasing. We forecasted the income statement using assumptions from the past 5 years of sales and looking at the . Generally speaking.

This was determined from our common sized income statement shown below. To start off. but is trying to increase sales by adding a wider variety of merchandise.industry trend. To forecast the balance sheet. We felt that this was an efficient growth rate because between the years of 2003 and 2006 the average growth rate was 11%. The first financial statement to forecast is the income statement. We forecasted the statement of cash flows by taking into account the cash flow from operations divided by net income (CFFO/NI). Using the same methodology with the common size income statement. Common size Income Statement The common size income statement is a reflection of the income statement but every line item as a percentage of sales. and asset turnover ratio. Income Statement Forecasting our financial statements was required to perform a prospective analysis of Dollar General. and cash flow from operations divided by operating income (CFFO/OI) ratios. Net income was forecasted using a growth rate of 9%. Since this has the fewest assumptions of the forecasted statements. general and administrative (SG&A) expenses.95% of our base years of 2002-2006. This is the easier statement to forecast out of the three statements and require fewer assumptions on our behalf. current ratio. We assumed a more reserved growth rate of 10% to forecast our variable sales from new store openings and upcoming product lines. The percentage was a result from the average growth for the past five Dollar General Actual Financial Statement Forecast Financial Statement 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Net sales 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Cost of goods sold 72% 71% 70% 71% 73% 73% 73% 73% 73% 73% 73% 73% 73% 73% 73% Gross profit 28% 29% 30% 29% 27% 27% 27% 27% 27% 27% 27% 27% 27% 27% 27% SG&A Expenses 21% 22% 22% 22% 21% 21% 23% 23% 23% 23% 23% 23% 23% 23% 23% Operating profit 7% 7% 7% 7% 6% 6% 4% 4% 4% 4% 4% 4% 4% 4% 4% Interest expense 1% 0% 0% 0% 0% 0% 1% 1% 1% 1% 1% 1% 1% 1% 1% Income before income taxes 7% 7% 7% 6% 6% 6% 2% 2% 2% 2% 2% 2% 2% 2% 2% Total current income taxes 1% 2% 2% 2% 2% Income taxes 2% 3% 2% 2% 2% .06%. This growth rate was derived from the average of the past five years of sales reported on the income statement. These projected statements form the foundation to determine the corporation’s future potential. and selling. we assumed a growth of sales 76 to be 10%. this is considered to be the most accurate. From this we determined our cost of goods sold to be 72. we forecasted interest expense. Dollar General has already released its first 10-Q of the year on May 4. operating income. Long term forecasts of 10 years were implemented which implied that assumptions were made on our behalf. The estimate of our cost of goods sold is approximately 73% of net sales each year. Dollar General is below the industry average of 13. we took into factor Dollar General’s inventory turnover ratio. This means that there is already accurate data for the first quarter to base our forecast on for the remaining year. cash flow from operations divided by sales (CFFO/SALES). 2007. Sales starts out as 100% and every item on the income statement are divided by sales.

This is repeated for the remainder of the forecast of retained earnings.557 55.710.310.336 6.872 925.452 . The next 78 major item in our balance sheet to forecast is total current liabilities.708 601.693. stating that inventory is replenished four times a year. For Dollar General the ratio is four.670 2. The flow of cash is shown in the table below.164.485 714.808.155 551.230 4. Dollar General Actual Income Statement Forecasted Income Statement *In millions 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Net sales 6100 6871 7660 8582 9526 10478 11526 12679 13947 15342 16876 18564 20420 22462 24708 Cost of goods sold 4376 4853 5397 6117 6912 7644 8408 9249 10174 11192 12311 13542 14896 16386 18025 Gross profit 1724 2018 2263 2464 2613 2834 3117 3429 3773 4150 4565 5021 5524 6076 6684 SG&A 1296 1496 1706 1902 2000 2200 2674 2941 3236 3559 3915 4307 4737 5211 5732 Operating profit 457 511 556 561 613 633 443 488 537 591 650 715 786 865 951 Interest expense 42 31 28 26 23 21 168 185 204 224 247 272 299 329 361 Income before income taxes 414 479 534 544 589 612 275 302 333 366 403 443 487 536 590 Total current income taxes 66 158 164 186 200 Income taxes 149 178 190 194 197 Net income 264 301 344 350 391 427 465 507 553 603 657 716 781 851 928 Balance Sheet The next financial statement in line to forecast is the balance sheet. The current ratio is a result of taking current assets and dividing it by current liabilities. Statement of Retained Earnings Forecasted Financial Statement *In thousands 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Beg RE 1. the groundwork of our forecast is completed with the income statement.479 778. we used the inventory turnover liquidity ratio.517 56.306 55.271 Dividends 52.020 464. From this we rearranged the equation and forecasted total assets as a third of sales each year. This will be a little less accurate because this forecast will be based off our forecasted data from the income statement instead of past balance sheet numbers. The basis of this ratio is to take costs of goods sold and divide it by inventory.434.1.363 506.172 54.308 3. To forecast the balance sheet out ten years into the future. The first line item to forecast is inventories.551 55.537 1. Dollar General’s asset turnover ratio in 2006 is 3.218. we used the current ratio to project the estimated data.486. With a few reasonable assumptions made on our behalf of past information. We took the industry average of 2.Net income 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 77 years. The next item in line is total assets. At this point of the forecast. we manipulated the formula to determine that inventory is approximately a quarter of costs of goods sold projected annually.064 54. it is important to make sure the financial statements flow together. To maintain consistency. Since we already have the costs of goods sold forecasted from our income statement.105 5.970.1 for this ratio and used it as a tool to predict our current liabilities.783 55. We need to make sure our statements reflect the flow of cash from net income into our retained earnings on the balance sheet.669.385 2.932 3.078 55.932 4. we enlisted the aid from a few liquidity ratios covered earlier.084 56. Our forecasted retained earnings is a result of our previous year’s retained earnings plus next year’s net income and subtracting next year’s dividends. As previously discussed.362 655.651 Net Income 426. we used the asset turnover ratio which is sales divided by total assets.782 848. For this account. For this.

932 4.310.336 6.End RE 1.79 -0.434..385 2.99 Shareholders' equity before undernoted 1290 1581 1687 ..230 4.970.537 1.. our net income growth rate of 9% makes it seem reasonable to have depreciation growth in the area of our net income growth.164.651 7. we took our forecasted net income and stated it in the cash flow..669.. fixtures & equipment 940 1039 1196 1437 1617 Construction in progress 1 19 74 46 16 Gross property & equipment 1577 1709 1940 2221 2430 Less accumulated depreciation & amort.Other shareholders equity . property.42 8 29 Merchandise inventories 1123 1157 1376 1474 1432 1860 2069 2301 2559 2847 3167 3522 3918 4358 4847 Deferred income taxes 33 30 24 11 24 Prepaid expenses & other current assets 45 66 53 67 57 Total current assets 1323 1652 1730 1762 1742 1948 2167 2410 2681 2982 3317 3689 4104 4565 5077 Land & land improvements 145 145 145 147 147 Buildings 333 333 333 381 437 Leasehold improvements 157 170 191 209 212 Furniture. incl current portion 346 282 271 278 270 Less: Current portion 16 16 12 8 8 Long-term obligations 330 265 258 269 261 Deferred income taxes 50 66 72 67 41 Other liabilities .105 5.670 2...158 Total liabilities 1751 1653 1708 1832 1838 3288 3283 3284 3290 3303 3324 3352 3393 3448 3520 SHAREHOLDERS EQUITY Common stock 166 168 164 157 156 Additional paid-in capital 313 376 421 462 486 Retained earnings 812 1037 1102 1106 1434 375 785 1236 1731 2277 2877 3537 4260 5053 5923 Accumulated other comprehensive income -1 -1 -0.710.470 79 Dollar General Actual Balalnce Sheet Forecasted Balance Sheet *In Millions 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ASSETS Cash & cash equivalents 121 398 232 200 189 Short-term investments .57 Total shareholders' equity 1288 1576 1684 1720 1745 2075 375 786 1236 1732 2277 2878 3537 4260 5054 Total Liabilities and equity 3039 3229 3392 3552 3583 3290 3659 4070 4527 5036 5601 6230 6930 7708 8574 80 Statement of Cash Flows To begin our forecast of Dollar General. 584 720 859 1029 1193 Net property & equipment 993 989 1080 1192 1236 1283 1427 1587 1765 1964 2184 2430 2702 3006 3344 Other assets. We forecasted the dividends by taking the average cash dividends paid .1 .486.356.808.42 Alternative equity 1291 1583 1684 -4.79 -0.693.218. We forecasted the operating activities which grew in total over the ten years by 150% with a growth rate of 11%.308 3..932 3. and equipment and saw how vital the depreciation was to Dollar General’s cash flow.97 -0. net 15 11 29 37 60 Total Long-term assets 1010 1000 1111 1230 1298 1341 1492 1660 1846 2053 2284 2541 2826 3143 3496 Total assets 2333 2652 2841 2992 3040 3290 3659 4070 4527 5036 5601 6230 6930 7708 8574 LIABILITIES AND OWNER'S EQUITY Current portion of long-term obligations 16 16 12 8 8 Accounts payable 341 383 409 508 555 Accrued compensation & benefits 63 78 72 53 41 Accrued insurance 73 97 118 154 76 Accrued taxes (other than taxes on income) 29 35 39 58 50 Accrued expenses & other current liabilities 239 297 333 372 253 Income taxes payable 67 45 69 43 15 Total current liabilities 664 743 825 933 832 927 1031 1147 1276 1420 1579 1757 1954 2173 2417 Notes 199 199 199 199 199 Tax increment financing . We took into account depreciation of plant.14 14 Capital lease obligations 52 38 28 22 18 Financing obligations 94 44 43 42 37 Long-term obligations.Less com stk purch by employ dfd comp trust 2 2 . Our forecasted growth rate for depreciation is 7%..Less unearned comp rel to outstg restrict stk .-2 -4 0.

Another estimate was needed for the cost of equity for Dollar General. This was achieved by running a sequence of regression analysis to measure the variables involved in calculating the cost of equity. This cost amounts to all the acquisitions that bring or add value to a firm or corporation. Regression output 3 month 6 month Beta . This was achieved by using the most recent balance sheet from the 10-K. Dollar General’s cost of debt was not explicitly stated in our 2006 10-K so an estimate was needed. We have concluded that the statement of cash flows is by far the hardest set of financials to forecast. As a leader in the discount retail industry. This was used to establish which variables would provide the most accurate data to determine the cost of equity. the output was similar. Calculating the cost of capital requires the cost of debt and equity to be determined first. A regression analysis measures the relation of a dependent variable to a specified independent variable. In our case.19%. Our beta appeared fairly stable and consistent across all the regression periods and years. The sum of each line item of liabilities resulted in a cost of debt of 5. The beta would decrease from 72 months all the way to 24 months. we took the beta with the highest explanatory power.from the past five years.5. 2 . Louis Federal Reserve website. * See Appendix 81 Cost of capital estimation A proper valuation of a firm’s projected growth and success requires an estimate of its cost of capital. From the regression. After running the series of regressions. from changes in stock prices and interest rates that will not likely alter between time periods. 6 months. For the market interest rate. we needed the T-Bill rate from the Federal Reserve. We choose this method because we believe it is highly unpredictable when and how much a firm is willing to pay dividends. The could be explained by the stable nature of 82 the discount retail industry where there is constant market risk. From 2 months to 10 years. and 10 years. Dollar General makes a number of strategic moves such as opening new stores and adding new inventory to maintain its position. the results were close across all the time tables. The weighted average cost of debt before taxes was used to establish our cost of debt. This of course costs the corporation capital and should be monitored carefully to supplement the expected growth. the dependent variable is the market risk premium and the independent variable is the returns on the shares. The regression analysis was implemented for five different time periods of 3 months. we used the 3 month non-financial commercial paper rate from the St. We took the current and long term liabilities and figured the value of its weight in terms of total liabilities and multiplied this by the market interest rate. In this estimation process.

we concluded that our cost of equity is 12.28 0 24 0.R square Beta R square 72 1.31 0 10 years Beta R square 72 1. Louis Federal Reserve website. Referring to the textbook.02 0. Once again.02 0. and our stable results of beta we are now almost able to calculate the cost of equity using the capital asset pricing model. Business valuation and analysis.19 0. A slight 83 decrease in the explanatory power from the 10 year to the 5 year regression indicates that a shorter term would provide to some extent.14 48 1.98% from the St. This means that 81% of the ensuing estimated figures are not a result of the inputs.19 0. higher assurance in the results. Louis Federal Reserve website. The 3 month non-financial commercial .31 0 24 0.51 0.5 0.19 72 1.14 60 1. the highest amount we received from the regression was 19%.02 36 0.53 0.” (Palepu 8-3) Adopting this technique and using the capital asset pricing model.14 48 1.53 0.02 24 0.14 36 0.14 48 1.5 0.02 0.14 48 1.51 0.14 48 1.18 0.14 36 0.02 24 0.02 36 0.14 36 0. when analysts use the rate of treasury bonds as the risk free rate.51 0.01 0. With this said.18 60 1. The next item in line to find is the risk free rate.14 60 1. For this rate we used a 1-year treasury constant maturity rate of 4.02 24 0. We observed the stated long term debt and took the weighted average of it.19 72 1.54 0.01 0.54 0.19 60 1.54 0. “the average common stock return (based on returns of the S&P 500 index) have exceeded that rate by 7. Our cost of debt was calculated from determining the weighted average cost of debt from our most recent 10-K. Using this as a guide.19 60 1.29 0 2 years 5 years Beta R square Beta R square 72 1.31 0 The explanatory power yield is a key factor in determining the cost of equity because it interprets the degree of the output as a result of the input.09%. we used an interest rate from the St.19 0.19 0.0 percent. This is not a strong and convincing number to base our results on.

we can price the company relative to the industry and put a value on the company. or fairly valued. we can calculate the weighted average cost of capital. therefore we will use this as the effective tax rate to determine WACC after tax has been implemented. These figures were attained from the date of valuation of June 1. The 85 theoretical model take forecasted information and determines the present value of the company.99% before tax.2 billion. the debt to equity ratio increases from . The capital asset lease account increases by the same amount as debt when this is done. In the next few sections. Dollar General reports a tax rate of 35% in their most recent 84 10-K. We will be taking into account a mixture of financial and accounting methods.7%. and financials. This causes the cost of debt to be approximately twice as less as the cost of equity. The theoretical models are more reliable. we recalculated Dollar General’s WACC to be 11%. This has no effect on the cost of equity. After we have priced the company comparatively. The method of comparables is relatively inaccurate due to the fact that we are taking the average of the industry and the amount of variation is high. WACC estimation Now that we have found the estimated cost of debt and equity. To begin. The ratios we will be using consider the average of the industry and price Dollar General relative to the other firms.45. This in turns causes their cost of debt to increase by 8%. we have analyzed Dollar General’s industry. There are several ways in which we can price Dollar General. After we have collected all the data from the method of comparables and . undervalued.74 to 1. As a result.paper rate was implemented as our rate of interest. From the revision. From the stated values. From this. 2007. The resulting sum of these calculations turned out to be Dollar General’s estimated cost of debt before tax. This is a result of taking lease expenses off the income statement and adding it to liabilities and assets on the balance sheet. Valuation Analysis In the previous sections. Each method we use will give us an idea on determining if the company is overvalued. The after tax WACC is 10. we will use method of comparables. WACC (revised) Capitalizing Dollar General’s operating leases increases their liabilities by 1. With all the data that we have gathered. we will run several different methods of valuing price. The value of equity was determined by taking the total number of outstanding shares and multiplying it by the share price. we multiplied each weighted average debt by this rate and resulted with the value weighted rate. Dollar General’s market value of debt was determined to be the book value of its total liabilities. Adding these two amounts together gives the approximate value of the firm. we will use several theoretical valuation models. accounting. our estimated WACC is 10.

22 Dollar General $21. Price to Earnings Ratio (Forecast) Millions PPS EPS P/E Industry Average $17. Once again.theoretical model valuation.78 P= $7.E.93 $22. In the table above. In our calculation. According to the ratio. the P.89 $ 15.98 Dollar General Estimated Price Dollar Tree $42.55 $0.76 $0. We will not be considering this ratio as much as other on the pure fact that it does not accurately portray the future of the firm.74 Family Dollar $35.44 Valuation= Overvalued The trailing P/E Ratio prices the companies using past data and is very inaccurate since it is valuating the company based on past performance.85 $ 18. We will then determine a price relative to the industry average using algebra.22 Dollar General $21.45 Valuation= Overvalued The forecasted price to earnings ratio uses forecasted earnings to project what the price should be in the future.20 P $9. P/ FCF ratio. We will be pricing Dollar General using the P/E ratio (trailing and forecasted). we determined that the price based on the past performance should be $9.80 Dollar General Estimated Price Dollar Tree $42. The numbers still have the potential of being skewed because the earnings per share of each company have a large amount of variation. We calculated that the price of shares given the forecasted P/E should be $7. Dollar General 86 as of June 1st is selling at a price of $21.11 $1.54 $22. Dollar General is overvalued company if we use the forecasted P/E ratio as an indicator of price. Method of comparables The Method of comparables uses several ratios to value the firm.11 $ 1.33 Family Dollar $35. or fairly valued compared to the industry average. Dollar General is considerably overvalued.76. we will determine whether Dollar General is overvalued.57 Fred's $13.57. After we have calculated each ratio. the P/EBITDA ratio.G. ratio. the P/B ratio. We will be taking the industry average for each ratio excluding Dollar General. undervalued.41 $ 17. The forecasting P/E ratio does a better job of predicting the future price of a company then the trailing P/E. 87 .67 $20. and Enterprise value/ EBITDA. we can then determine weather or company is valued correctly.85 $ 2. The industry average is still being used and therefore is very inaccurate.76 $0. we have calculated the forecasted price using the forecasting P/E.85 $1.80.55 $ 0.80 Fred's $13. Price to Earnings Ratio (Trailing) Millions PPS EPS P/E Industry Average $21. Our overall valuation will consider all the information from previous sections as well as the price that we determine to be most accurate.

85 $3.80 $0.Price to Book Ratio Millions PPS BPS P/B Industry Average $9.75 Family Dollar $35. we were able to back into the price of Dollar General given a 88 5% growth rate of earnings.11 Family Dollar $35.11 $3. we took the average. It is a very inaccurate estimation because of the book value being recorded under historical price. We calculated the value of Dollar General to be .00 Fred's $13.09 P $28. but used our calculations for Dollar General. We then were able to calculate the price of Dollar General given their book price per share of $5. We calculated the average of every other company’s PEG to be 1. P. We did not consider this calculation in are judgment of valuation. Price to EBITDA Millions PPS EBITDA P/EBITTDA Industry Average $0. Millions PPS EPS Earnings Growth per share PEG Industry Average $1. We calculated the price given the book value to be $54.41 14% 1.76 $0.16 $0. We calculated with the P/B ratio that the company is undervalued.28 Dollar General $21.11 $ 1.27 P= $2.30 Family Dollar 35.85 $ 2.24 .61 Dollar General Estimated Price Dollar Tree 42. There is just too much variation in the earnings growth and earnings per share to get an accurate picture of Dollar General’s price relative to the industry. By using algebra. We believe the estimates to be very inaccurate due to the fact that we collected unreliable data from yahoo finance.11 $542.03 cents.85 12% 1.89 15% 1.54.55 $1.45 5% Valuation= Overvalued The PEG ratio uses the P/E ratio and divides it by the estimated growth of earnings.87 $11.85 $488.03 Dollar General 21.54 Valuation= Undervalued The price to book value ratio takes the current price and divides it by the book value per share. Once we computed the P/B of each company.06 Dollar General Estimated Price Dollar Tree $42.95 $8.E.55 $ 0.92 Fred's 13.89 Dollar General Estimated Price Dollar Tree $42.G.30.76 $5.46 $9.07 P= $54. Dollar General is overvalued given this information.

54 Fred's 558 75.11 157645 $0.24.76 $255.001 to give us a price of $123.28 Valuation= Undervalued The price to EBITDA is removes the interest and tax expenses from the valuation.39 Fred's $13.39.53 $7.8 $8.92 P= $3.39 Dollar General 7926 255. We were then able to calculate Dollar Generals price by multiplying the industry average by 255. By multiplying the industry average by the EBITDA of Dollar General we were able to arrive at a price of $28. However. we came to the conclusion that Dollar General is an over valued firm.001 Family Dollar $35. We then divide the number by the number of shares outstanding to reach a price of $3. Once again.28 Valuation= Overvalued The EV/EBITDA ratio can be used to calculate the price of Dollar general as well. Conclusion After calculating the comparable ratios.0023 Dollar General $21.58 Family Dollar 5120 542.393 by the industry average P/FCF of $. The ratios are also void of theory and common sense. and given this we believe that Dollar General’s competitors are doing a better job. We were able then to calculate the price of Dollar General by multiplying the FCF of 123.18 Dollar General $21.54. 90 .0002 Dollar General Estimated Price Dollar Tree $42. The price indicates that Dollar General is an undervalued firm. The ratios are only able to calculate a small portion of information needed to value a firm.11 cents.001.55 5770 $0. Price to Free Cash Flows Millions PPS FCF P/FCF Industry Average $0.Fred's $13.55 $75.16 $9.58.393 Valuation= Undervalued 89 We calculated the average P/FCF to be $. The P/FCF ratio undervalues Dollar Generals current price. Enterprise Value to EBITDA Millions EV EBITDA EV/EBITDA Industry Average $8. the information is inaccurate due to lack of other relevant factors. We arrived at an industry average of $8. the ratios do indicate slightly how well the company is doing relative to competitors. We believe however that the calculation were very inaccurate estimate of Dollar General’s price because of the industry average and the relative inaccurate information. We then subtracted the value of liabilities and cash and financial investments.85 222100 $0.28.53 $0.0002 P $123. We calculated the industry average to be . The price indicates that Dollar General is an over valued Firm.44 Dollar General Estimated Price Dollar Tree 4360 488.76 123.

This price is below the current share price of $21. These models are more effective then the comparable ratios we calculated in the previous section. We found the intrinsic price per share by dividing that number by the total shares outstanding. The residual income incorporates financial and accounting data and uses these numbers to calculate a value for the company. Our cost of equity was calculated by using regressions from 3 month. The theoretical models use the data we calculated in our regression analysis and WACC. This value plus the total dividends paid represents the intrinsic value of equity. . We will also use the perpetuity calculation for the last year and bring it back to present value using the previous year’s present value factor. The models also don’t consider conceptual analysis. We also computed a perpetuity starting in 2018 by dividing the total dividends paid by our cost of equity minus our growth rate. but the models do give us a relative price so that we may value a firm based on quantitative measures. 6 month. Each model will use the Ke we calculated or the WACC we calculated. The implied price per share from this model was $18. 5-year. We started by taking the dividends we 91 forecasted from our statement of cash flows for the next ten years and divided our cost of equity minus our estimated growth rate of 11%. We then can calculate everything we need to develop an intrinsic price. There are two types of models that we will be using. Discounted Dividends Model The discounted dividend model will be the first method we will use in calculating Dollar General’s intrinsic value.Intrinsic Value Models The intrinsic value models are theoretical models that asses the forecasted information of a company and bring them back to present value. We will use the prices we calculate in each model along with the overall analysis to value our company. Every model will calculate a present value factor which will be used to bring all the forecasted years back to the present. The discounted dividend model and the free cash flows model use financial data to compute a forecasted price on a company. by one plus our cost of equity to the time powered. This method suggests that the firm expects to pay dividends to its shareholders for an indefinite life at a certain growth rate. The equity value provided from this model is equal to the present value of expected future dividends. We calculated our present value factor by dividing one.94. There are still a few inaccuracies in these models just from the pure fact that we are using forecasted data.76 which we can conclude is implying this firm is overvalued. We then choose the highest R square and with that Beta computed our cost of equity. and 10-year time periods. 2-year. The models we are using are very important in our analysis because they give us the most accurate price we can calculate for Dollar General. Then we took our forecasted dividends paid and multiplied them by our present value factor which discounted them back to present value.

There are a few cases where the outcome has shown that Dollar General was fairly valued and perpetuity growth rates being at 2% and 4%.83 18.04 0.79 5.1 4. added the perpetuity.01 3.07 4.6 4. To do this we need the free cash flows.15 10.06 0. The factor was then multiplied by each free cash flow which brought it to the present value.72 4. WACC.94 0.50 N/A Free Cash Flows This model is calculated by taking the forecasted cash flows from operations and discounting them back to the present value.The sensitivity analysis helps to better understand if the firm is overvalued or undervalued by using different variables. we forecasted three-months ahead as a value on June 1. Our WACC estimate of 10.34 0.3 3.18 4. From our model we can clearly see that Dollar General is overvalued.02 Overvalued > 23. Sensitivity Analysis Growth WACC Overvalued > 20.74 2. This perpetuity was then multiplied by the present value factor in year ten to get the present value. We then took the present value sum of free cash flows.14 2. we used the change in our growth and a change in our cost of equity to help us value the firm.61 4.56 N/A 93 perpetuity being at 11%.25 3. This method is somewhat consistent on keeping the firm overvalued. Our estimate of WACC shows that the firm is overvalued except for the growth rate of the 0 0. Dollar General has different outcomes when using this model. 92 Sensitivity Analysis Growth Ke Undervalued < 20. and the growth rate of the perpetuity. and subtracted our book value of liabilities to get the value of Dollar General’s equity.02 .13 4.93 3.68 7.59 6.99% was used as the discount rate to find the present value factor.9 0. Because this value was at the end of February.11 0.2 3. The perpetuity was forecasted for 2018 and was divided by WACC less the growth rate.75 5. The market value of equity is then divided by the total number of shares outstanding to give Dollar General’s intrinsic share price. 2007.1209 3.96 N/A 0. In our discounted dividend model.11 3.02 0.13 3.

Then we proceeded to calculate our normal earnings by multiplying the book value from the previous year by the cost of equity.81 17.59 9.1099 7.17 15.97 94 income we subtracted the normal income from net income.09 11.05 -0.53 9. then get paid for it periodically” (yahoo finance). The main aim for this model was to see how much money Dollar General is looking to earn in the future.11 -0.07 7.29 . We then discounted the perpetuity back to the present value using our growth rate of 11%. The discount rate used in the calculation of residual income is the cost of capital (ke).09 24.83 13.67 29.76 9.28 28.88 19. To calculate the present value of annual residual income we multiplied the residual income by 1/(1+ke)^n. Unlike the other valuation methods that use the cost of capital.13 5.08 14.27 7.17 105. therefore the purpose of residual income is to earn more with assets already invested.08 0.50 N/A 0 -0. We then calculated the total present value of annual residual income by multiplying the residual income by the present value of the annual residual income.19 16.04 0.48 0.02 0.Fairly Valued Undervalued < 23.01 0.06 6. The growth rate used to discount the perpetuity is a negative growth rate because we are trying to bring the negative residual income back to zero. which is the present value factor.22 21. Sensitivity Analysis Growth Ke Overvalued > 20.29 17.02 Fairly Valued Undervalued < 23.2 0.15 -0.06 0.2 35. Using the data we calculated.95 0.08 n/a 0.68 19.50 N/A RESIDUAL INCOME “Residual income is what you earn when you create a result just once.27 58. so if we used a positive growth rate then the negative value would just keep getting larger and larger. we determined that by using the residual income model Dollar General is overvalued.88 19.57 12. To get the residual 0 0.52 12.89 15.12 6. we started off by calculating our book value equity per share by adding the book value from the previous year plus the earnings per share minus the dividends per share. The sensitivity analysis table helps to illustrate how quickly the value gets to zero by changing the growth rate.

8 2.18 12.08 0.29 6.78 4.41 14.17 NA 0 1.07 0.03 5.22 95 Long Run Residual Income The long run residual income model uses the ROE.32 6. Then we proceeded to find the normal income or the benchmark by multiplying one plus the cost of equity (1+Ke) by the earning per share from the previous year.05 6.17 0.50 N/A Abnormal earning growth model (AEG) The Abnormal growth model uses the cost of equity.84 12.13 4. Ke.15 0.7 0.46 10.1209 12.54 5.97 11.35 2.15 5.52 3.17 0.75 3.19 0.73 4.1507 1.11 16. it is evident that our firm is greatly overvalued except for the first table in which we are not sure if it was just a calculation error. We used three different sensitivity analysis tables to take in account different variation to growth.67 1.55 0. is first calculated by multiplying the cost of equity by the dividends from the previous year.I.00 4.P.17 0.21 2. According to the table. and growth to predict the intrinsic value.86 5.77 3.15 6.1209 1.0.28 6.29 11. Growth Ke Growth ROE 0.01 8.17 2.31 7.85 6.17 5.23 0.21 6.05 0.56 4.20 3.11 7.19 0.02 Fairly Valued Undervalued < 23.19 3.64 10.41 5.73 4.62 2.R.94 1.15 0.R.2 2.16 0.81 10.60 3.17 NA NA 11. The AEG is the result of . Then the cumulative income is found by subtracting the earning per share of the current year from the D.I.09 0.26 4.14 0.P.21 0.19 3.21 0.14 0.49 6. ROE and Ke. The D.20 3.23 0.11 0.26 2.36 0.07 0.21 2.32 3.19 6.80 0.28 3. We used the formula: P0 = BVE(1+( ROE-Ke / Ke-G ) Using this formula to determine the price we calculated the prices on the tables below.41 96 ROE Ke *Assuming Average Long Run Growth Rate Overvalued > 20.51 5.19 NA NA 0 1.

13 0.085 1.1 1.27 3.64 1.37 1.85 4.85 7.1 10.6 0.35 3.6 2.22 10.37 3.60 0.98 5.2 2.16 98 Appendix Current Ratio 2002 2003 2004 2005 2006 DG 1.89 FDO 1.76 2.31 7.07 -0.76 0.36 0.35 0.81 7.78 NA 0.1209 0.54 0.17 0.55 2.88 2.8 FRED 3.22 FDO 0.11 3.9075 1. The AEG model used the same concept as the residual income model because the growth 0.44 DLTR 2.19 NA NA NA NA 15.34 7.27 9.445 2.72 1.42 AVG 1.59 0.94 1.31 4.99 1.08 DLTR 0.02 Fairly Valued Undervalued < 23. To find the present value of AEG we multiply AEG by its present value factor-the present value factor= 1/(1+Ke)^t-1.11 0.23 7.21 0.21 30.37 10.1209 8.67 0.46 8.51 2.4 3.5 8.1 -0.19 NA 0.16 NA 0.915 Inventory Turnover 2002 2003 2004 2005 2006 DG 3.27 10. then we discounted it back by dividing it by Ke minus the growth.41 8.32 .13 2.26 3.26 18.14 7.64 0.21 5.33 10.54 8.23 0.22 DLTR 1.13 7.41 9.18 0.11 9.17 NA NA NA NA 5.33 0.73 3.94 1.7 97 used has to be negative in order to bring the perpetuity closer to zero instead of the latter.89 7.5 FRED 3.15 0.39 2.60 7.16 0.51 1.55 2.93 7.1507 0.27 2.92 4.37 9.50 N/A -0.9 4.27 7.46 2.08 1.06 0. We used the last year’s Annual AEG as the perpetuity.21 0.3025 2.06 0.09 -0.subtracting the normal income from the cumulative income.32 9.41 0.29 3.58 AVG 2.19 2. Growth Ke Overvalued > 20.15 0.08 -0.22 2.2425 0.19 3.19 0.99 2.1025 Quick Asset Ratio 2002 2003 2004 2005 2006 DG 0.3775 2.06 0.09 0.15 FDO 0.

12 4.24 6.04 FDO 0.89 FRED 6.04 4.58 7.28 0.28 2.01 0.24 0.25 7.09 0.315 0.86 3.33 DLTR 0.07 0.43 AVG 4.89 1.04 0.1875 Gross Profit Margin 2002 2003 2004 2005 2006 DG 0.03 0.935 5.99 2.055 0.1 0.07 0.03 0.07 0.1 0.56 8.53 DLTR 0.28 0.05 0.09 0.33 0.09 5.04 0.6 9.04 0.085 0.0925 0.89 2.18 0.36 0.97 7.76 3.21 3.0775 99 Working Capital Turnover 2002 2003 2004 2005 2006 DG 12.01 0.7625 ROA 2002 2003 2004 2005 2006 DG 0.475 2.05 FRED 0.1 DLTR -0.13 0.5675 2.045 0.0775 3.08 0.28 0.11 0.0635 100 Net Profit Margin 2002 2003 2004 2005 2006 DG 0.27 0.29 0.8975 3.16 .19 0.04 0.05 AVG 0.03 AVG 0.63 5.07 0.19 AVG 1.37 2.19 3.07 0.12 FDO 0.05 0.15 0.0075 2.21 0.06 0.21 FDO 2.11 0.74 1.05 0.03 0.1 0.32 6.12 0.1 FRED 0.28 0.34 FRED 0.9 3.1 3.074 DLTR -0.39 2.3 0.04 0.07 FDO n/a n/a n/a n/a 0.28 0.07 0.08 101 ROE 2002 2003 2004 2005 2006 DG 0.9225 2.46 10.066667 0.28 AVG 0.15 0.016667 0.315 0.06 0.34 0.02 AVG 0.FRED 4.07 0.29 0.08 0.03 0.42 2.4375 2.76 AVG 2.3 0.04 0.095 0.9875 2.08 FRED 0.04 0.07 0.05 DLTR -0.07 0.08 0.57 2.2925 0.12 1.2 0.05 0.27 0.35 FDO 0.29 FDO 0.44 2.2 0.0375 0.34 0.1 0.8975 5.045 0.33 0.05 0.2 FDO 0.11 0.02 0.36 0.2625 6.08 DLTR 0.15 3.035 Asset Turnover 2002 2003 2004 2005 2006 DG 1.09 0.03 DLTR -0.01 0.31 Operating Profit Margin 2002 2003 2004 2005 2006 DG 0.87 7.06 0.05 0.25 0.08 7.3175 0.02 0.06 0.07 0.13 3.13 0.12 FRED 3.35 0.

00827982 0.5925 0.3 16 family dollar 17.16 1.52 0.07 0.4 4.1325 0.6 FRED 0.27 dollar tree 0 0 17.013114936 0.54 0.585 0.72 35.34 21.611163874 1.008280588 Total 71 0.58588069 0.000120756 Residual 70 0.63 industry 12.137340843 0.074097307 10.09 0.2 10.31 29.197711529 0.013114936 0.771851759 0.4 13.02 DLTR 0.53 0.0% Upper 95.716981999 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.17 18.865 0.78 85.784259183 SUMMARY OUTPUT Regression Statistics Multiple R 0.08 AVG 0.386732661 R Square 0.86 0.48 0.98 5.1425 0.16 10.52 15.029674575 X Variable 1 1.1 family dollar 12 11.08 0.1 0.002270781 .090997736 Observations 72 ANOVA df SS MS F Significance F Regression 1 0.09 0.89 10.38 0.437668942 R Square 0.11 0.4 10.442800225 -0.3225 6.32667 57.611163874 1.1 0.9175 14.FRED 0.072576664 0.137340843 16.4 10.42 0.180004876 Standard Error 0.25 20.41 4.53667 26.95 dollar tree 0 0.074097307 0.28 11.62 17.42 FDO n/a n/a n/a n/a 23.23 127.6225 0.000120756 0.97 20.20016313 0.029674575 -0.47 AVG 0.63 1.4 Dollar general 7.45 0.08 7.191554103 Adjusted R Square 0.23 19.579641155 0.2 7 5.005 102 IGR 2002 2003 2004 2005 2006 2007 Freds 0.7475 Times Interest Earned 2002 2003 2004 2005 2006 DG 8.1 40 AVG -1.2 15.294091831 4.84 FRED n/a 210.784259183 0.149562151 Adjusted R Square 0.16 8.12 0.0% Intercept 0.9 dollar general 22.54 0.64 10.91 10.085231014 Observations 60 ANOVA df SS MS F Significance F Regression 1 0.46 0.9 FDO 0.72 16.5 11.03 28.1525 0.85 0.51 20.76 DLTR -11.08 0.46 0.33 industry 6.3 0.1 SGR 2002 2003 2004 2005 2006 2007 freds 9 11 14.12 0.195 0.135 Debt to Equity Ratio 2002 2003 2004 2005 2006 DG 2.5 16.3525 5.2925 16.4725 12.775 16 103 Regressions 3 month SUMMARY OUTPUT Regression Statistics Multiple R 0.13489943 Standard Error 0.18 19.010727215 0.0975 0.91 7.19 49.

00712947 Residual 46 0.974620036 -0.585599986 0.024387067 0.346858036 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.007264326 Total 59 0.340799124 0.552413977 0.016210336 0.381962709 1.017224404 0.023362125 0.006431352 Total 47 0.966134545 0.585599986 SUMMARY OUTPUT Regression Statistics Multiple R 0.00712947 0.932365467 0.751141677 0.747708888 Residual 22 0.066683295 Observations 36 ANOVA df SS MS F Significance F Regression 1 0.325726846 0.004150585 0.155337089 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.011497046 0.003675764 0.000393806 0.001906027 Standard Error 0.040436898 Standard Error 0.031964238 0.593241965 -0.019689044 0.137883804 0.019689044 0.0% Intercept 0.011068089 0.869300885 0.421330889 0.003756989 0.027040572 X Variable 1 0.0% Upper 95.0% Upper 95.0% Intercept 0.507907888 0.Residual 58 0.000664963 0.000664963 0.138548767 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.025174678 X Variable 1 1.031987973 0.005944851 0.430215789 2.004150585 0.383509939 R Square 0.002270781 0.656346491 105 SUMMARY OUTPUT Regression Statistics Multiple R 0.430215789 2.128538131 Standard Error 0.006267446 Total 23 0.051015836 7.656346491 0.816445538 0.028100038 -0.016210336 0.340799124 Residual 34 0.079167201 Observations 24 ANOVA df SS MS F Significance F Regression 1 0.163462104 R Square 0.0% Upper 95.829346055 0.747708888 - .004446662 Total 35 0.93341596 0.0% Intercept 0.53711627 0.535393945 2.039478216 X Variable 1 0.0% Upper 95.004799489 Adjusted R Square 0.588934039 1.027040572 0.588934039 1.026719859 Adjusted R Square 0.533706226 0.0% Intercept 0.381962709 1.193769423 0.147079873 Adjusted R Square 0.012311057 0.2958422 0.028100038 X Variable 1 1.051015836 0.495428196 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.320424548 3.024387067 0.031964238 0.664761541 104 SUMMARY OUTPUT Regression Statistics Multiple R 0.069278346 R Square 0.319713764 0.218120123 0.080195712 Observations 48 ANOVA df SS MS F Significance F Regression 1 0.283154635 0.664761541 0.151186504 0.106097978 0.039478216 0.025174678 0.

001503252 Standard Error 0.0% Intercept 0.658624433 SUMMARY OUTPUT Regression Statistics Multiple R 0.337239999 Residual 34 0.611893788 1.784946922 0.511506702 2.017178783 0.387048161 R Square 0.0% Upper 95.74149115 Residual 22 0.028210513 -0.519665049 2.004444874 Total 35 0.071043761 R Square 0.149806279 Adjusted R Square 0.1.004211363 0.437891034 R Square 0.295666253 0.611893788 1.326999293 0.002250409 Residual 58 0.027060455 -0.180202109 Standard Error 0.024112284 0.191748558 Adjusted R Square 0.000699286 0.337239999 -0.08597432 6 Month SUMMARY OUTPUT Regression Statistics Multiple R 0.421209941 0.051191783 7.090986791 Observations 72 ANOVA df SS MS F Significance F Regression 1 0.019559111 0.155337089 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.007022773 0.218285103 0.010725208 0.004211363 0.3340689 0.080171861 Observations 48 ANOVA df SS MS F Significance F Regression 1 0.027111127 Adjusted R Square -0.01146997 0.548422289 0.508855636 0.000119689 Residual 70 0.051191783 0.147587132 Adjusted R Square 0.822137465 0.151125726 0.006265886 Total 23 0.024101022 0.137849482 0.074218255 0.511506702 2.346858036 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.025323041 -0.012980192 0.029801312 -0.028210513 X Variable 1 1.164654568 R Square 0.868779796 0.039376487 -0.665348278 106 Regression Statistics Multiple R 0.60671217 0.495428196 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.658624433 -0.06666989 Observations 36 ANOVA df SS MS F Significance F Regression 1 0.039376487 X Variable 1 0.0% Upper 95.000605378 0.003750672 0.0% Upper 95.031876742 0.08597432 1.585050136 0.074218255 10.005047216 Adjusted R Square -0.716981999 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.091971324 -1.384170707 R Square 0.085218779 Observations 60 ANOVA df SS MS F Significance F Regression 1 0.435576501 -0.0% Intercept 0.198420355 0.11160203 0.294081258 4.049299284 0.007022773 Residual 46 0.960894229 -0.579501734 0.290232311 0.040177911 Standard Error 0.079157347 Observations 24 ANOVA df SS MS F Significance F Regression 1 0.973378217 0.534649943 2.58550685 -0.00726224 Total 59 0.016076845 0.58432533 1.0% Upper 95.964459871 0.519665049 2.829219103 -0.006427527 Total 47 0.0% Intercept 0.432661135 2.016076845 0.665348278 0.382853765 1.012980192 0.137480264 0.0% Upper 95.784186213 0.000699286 0.58432533 1.784946922 SUMMARY OUTPUT SUMMARY OUTPUT Regression Statistics Multiple R 0.091971324 107 2 Year SUMMARY OUTPUT .024112284 0.019559111 0.029801312 X Variable 1 1.135147767 Standard Error 0.031876742 0.012279655 0.075133393 0.008278596 Total 71 0.947465153 0.537149552 0.137480264 16.432661135 2.000119689 0.55184053 0.74149115 -1.745673146 -0.0% Intercept 0.003749872 0.129056418 Standard Error 0.138548767 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.585050136 SUMMARY OUTPUT Regression Statistics Multiple R 0.21974635 0.0% Intercept 0.006066834 0.00841056 0.196833801 0.002250409 0.025323041 X Variable 1 1.01106234 0.027060455 X Variable 1 0.320348534 3.382853765 1.

004440712 Total 35 0.079127008 Observations 24 ANOVA df SS MS F Significance F Regression 1 0.190132257 Adjusted R Square 0.608342564 1.52537617 0.019455005 0.178562718 Standard Error 0.00359244 0.000128839 .0% Intercept 0.138548767 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.780215195 SUMMARY OUTPUT Regression Statistics Multiple R 0.0063934 0.000123908 0.588088649 108 SUMMARY OUTPUT Regression Statistics Multiple R 0.411337865 -0.42130409 0.074124106 10.129994249 Standard Error 0.006420606 Total 47 0.937366879 -0.051510156 0.110091145 5 Year SUMMARY OUTPUT Regression Statistics Multiple R 0.039380721 Standard Error 0.43386603 0.179431478 Standard Error 0.004352869 0.980218652 0.588088649 0.0% Upper 95.0% Upper 95.437744998 2.000565501 Standard Error 0.136321406 0.209022878 0.167397983 R Square 0.006833677 0.019455005 0.194448519 0.028519233 X Variable 1 1.311040141 0.436041577 R Square 0.742012282 -0.027049703 X Variable 1 0.550146582 0.0% Upper 95.137743834 0.000123908 Residual 70 0.134954456 Standard Error 0.030264276 -0.190988782 Adjusted R Square 0.006261083 Total 23 0.331886479 0.716981999 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.662710448 SUMMARY OUTPUT Regression Statistics Multiple R 0.080128685 Observations 48 ANOVA df SS MS F Significance F Regression 1 0.346858036 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.039235733 -0.0% Intercept 0.006833677 Residual 46 0.012530394 0.027049703 -0.110091145 -1.011053424 0.000966055 0.002266251 0.867483666 0.319859788 3.002266251 Residual 58 0.000804933 0.065141593 0.091077721 Observations 72 ANOVA df SS MS F Significance F Regression 1 0.565227312 -0.723346262 Residual 22 0.381506701 1.06663867 Observations 36 ANOVA df SS MS F Significance F Regression 1 0.022631427 0.573354282 1.039235733 X Variable 1 0.012226892 0.437744998 2.136935518 16.0% Intercept 0.051510156 8.008866941 0.0% Upper 95.194278879 0.662044552 SUMMARY OUTPUT Regression Statistics Multiple R 0.023645402 0.003797349 0.008286378 Total 71 0.032050853 0.004352869 0.012530394 0.534141882 2.155337089 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.021775626 0.136321406 16.15098422 0.085228303 Observations 60 ANOVA df SS MS F Significance F Regression 1 0.025577511 -0.723346262 -1.578408994 0.091029546 Observations 72 ANOVA df SS MS F Significance F Regression 1 0.573354282 1.0% Upper 95.544678083 0.028022085 Adjusted R Square -0.025577511 X Variable 1 1.608342564 1.Regression Statistics Multiple R 0.011441711 0.032050853 0.385363478 R Square 0.023645402 0.074124106 0.495428196 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.136935518 0.58004648 0.293785309 4.007263864 Total 59 0.0% Intercept 0.015732433 0.826484043 0.990059923 0.662710448 -0.437022633 R Square 0.780215195 0.079010639 0.010728509 0.030264276 X Variable 1 1.329138808 -0.832425008 0.488010863 2.028519233 -0.29534788 0.128561304 0.329138808 Residual 34 0.005809745 Adjusted R Square -0.358554464 0.386802591 R Square 0.017186825 0.015732433 0.83635368 -0.512916823 0.0% Intercept 0.20450134 0.381506701 1.149616244 Adjusted R Square 0.662044552 0.14850501 Adjusted R Square 0.076221685 R Square 0.488010863 2.000804933 0.

535685184 2.004440655 Total 35 0.008298226 Total 71 0.0538705 0.006004769 Adjusted R Square -0.136106174 16.051240188 7.295617848 0.00355091 0.0% Intercept 0.147726687 Adjusted R Square 0.031544469 -0.4343373 2.006993695 0.019292385 0.867306089 0.132902965 0.039176833 Standard Error 0.008295151 Total 71 0.010733797 0.572435616 1.0% Upper 95.775530578 SUMMARY OUTPUT .000128839 0.776243669 109 SUMMARY OUTPUT Regression Statistics Multiple R 0.003906649 0.36455859 0.580875825 0.022877503 0.000831953 0.01012926 0.375517483 -0.495428196 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.167435662 R Square 0.002332744 Residual 58 0.031544469 X Variable 1 1.658469008 0.838258026 -0.435697218 R Square 0.60480647 1.022877503 0.Residual 70 0.000552514 Standard Error 0.0% Upper 95.346858036 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.030981049 X Variable 1 1.658469008 SUMMARY OUTPUT Regression Statistics Multiple R 0.718921732 Residual 22 0.000831953 0.660537583 110 SUMMARY OUTPUT Regression Statistics Multiple R 0.189832066 Adjusted R Square 0.293750187 4.590893965 SUMMARY OUTPUT Regression Statistics Multiple R 0.40183969 0.018364892 0.895458121 -0.973296219 0.011043416 0.0% Upper 95.129199006 Standard Error 0.718921732 -1.132129505 0.990289196 0.011834717 0.027105682 X Variable 1 0.004354829 0.051240188 0.0% Upper 95.531590467 -0.512615632 0.60480647 1.017191212 0.206553818 0.155337089 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.603798044 1.385788312 R Square 0.011415474 0.032101481 0.148832622 Adjusted R Square 0.085267563 Observations 60 ANOVA df SS MS F Significance F Regression 1 0.015155613 0.04991848 0.14170924 0.007270557 Total 59 0.073735877 10.316183885 0.015155613 0.029055985 X Variable 1 1.293676147 4.0% Intercept 0.980672692 0.19052507 0.590893965 0.066638238 Observations 36 ANOVA df SS MS F Significance F Regression 1 0.027105682 -0.079119247 Observations 24 ANOVA df SS MS F Significance F Regression 1 0.482498847 2.4343373 2.136106174 0.734288894 -0.000130612 0.716981999 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.032101481 0.000130612 Residual 70 0.580660593 0.029055985 -0.572435616 1.080165298 Observations 48 ANOVA df SS MS F Significance F Regression 1 0.009573166 0.329028391 -0.15098226 0.0% Upper 95.039203302 -0.943356229 0.775530578 0.006259855 Total 23 0.002332744 0.02609193 -0.019292385 0.0% Intercept 0.138548767 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.030981049 -0.0910946 Observations 72 ANOVA df SS MS F Significance F Regression 1 0.028034701 Adjusted R Square -0.482498847 2.544050983 0.039203302 X Variable 1 0.184605037 0.114866617 10 Year SUMMARY OUTPUT Regression Statistics Multiple R 0.001607214 0.384352295 R Square 0.114866617 -1.660537583 -0.011834717 0.0% Intercept 0.378260776 1.378260776 1.137716814 0.01128595 0.716981999 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.823702573 0.178258238 Standard Error 0.010737471 0.776243669 0.189664311 0.603798044 1.0% Intercept 0.073735877 0.629351098 0.006950186 0.006993695 Residual 46 0.891871344 0.077490443 R Square 0.0% Upper 95.01128595 0.0% Intercept 0.342223966 0.004354829 0.549385962 0.421692318 0.134157322 Standard Error 0.319777454 3.329028391 Residual 34 0.02609193 X Variable 1 1.012163928 0.348743333 -0.006426475 Total 47 0.

0% Upper 95.989461653 0.147019195 Adjusted R Square 0.592782462 0.com Dollar General 10-K 2.137705871 0.004033295 0.657161797 0.026571291 X Variable 1 1.536956941 2.181529438 0.079116103 Observations 24 ANOVA df SS MS F Significance F Regression 1 0.022175177 0.007142339 Residual 46 0.383430821 R Square 0. www.431105968 2.011387311 0.073550082 10.0% Upper 95.979034364 0.017169595 0.329427052 Residual 34 0.stlouisfed.134661775 0.431105968 2.004347757 0.928528899 0.549104824 0.027989176 Adjusted R Square -0.480906553 2.329427052 -0.867594906 0. http://moneycentral.011034922 0.657161797 111 SUMMARY OUTPUT Regression Statistics Multiple R 0.022175177 0.007427615 0.085286345 Observations 60 ANOVA df SS MS F Significance F Regression 1 0.421878114 0.027175096 -0.006259358 Total 23 0.0% Intercept 0.org/fred2/ .00236524 Residual 58 0.research.503556421 -0.0% Intercept 0.319816166 3.318375148 0.027175096 X Variable 1 0.com Dollar Tree 10-K 4.032048209 0.000842896 0.72538225 -0.856749571 -0. www.Regression Statistics Multiple R 0.717152766 Residual 22 0.376798583 1.128476134 Standard Error 0.004347757 0.148457603 Adjusted R Square 0.0% Intercept 0.032048209 0.03916691 X Variable 1 0.543318167 0.295863247 0.029516412 X Variable 1 1.com 5. www.11169963 0.837678188 -0.00643181 Total 47 0.0% Upper 95.385301963 R Square 0.014661182 0.366962907 0.006083751 Adjusted R Square -0.57259709 1. www.03909426 Standard Error 0.57259709 1. www.03916691 -0.077998405 R Square 0.01698019 0.003559351 0.dollargeneral.673100803 0.dollartree.073550082 0.717152766 -1.138548767 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.050994789 7.007142339 0.000842896 0.019108506 0.815764354 0.com 7.066639798 Observations 36 ANOVA df SS MS F Significance F Regression 1 0.0% Intercept 0.finance.207305462 0.msn.167299661 R Square 0.117656849 -1.346858036 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.155337089 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.511944215 0.002198057 0. www.354192039 0.edgarscan.026571291 -0.0% Upper 95.376798583 1.150989332 0.179889877 0.007273761 Total 59 0. www.480906553 2.com Family Dollar 10-K 3.495428196 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.nyse.familydollar.00236524 0.012108544 0.014661182 0.659233423 SUMMARY OUTPUT Regression Statistics Multiple R 0.117656849 112 References 1.659233423 -0.000599377 Standard Error 0.yahoo.019108506 0.592782462 SUMMARY OUTPUT Regression Statistics Multiple R 0.080198564 Observations 48 ANOVA df SS MS F Significance F Regression 1 0.050994789 0.com 6.029516412 -0.004440863 Total 35 0.133775837 Standard Error 0.com 8.

Bernard. Business Analysis & Valuation Third Edition. 2004 .9. Paul Healy. Victor. and Krishna Palepu.

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