Group Project final

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CSAC2500 Fundamentals of Financial Accounting - Full-Time Summer 2023, Section 2 Group Project 3 Participating Members  Rishabh Khatri : 220060711  Vinootna Akkala : 220189510  Navkar Mahendra Bhasoria : 220078929  Priya Chugh : 220152328  Monika Singh : 220012399 Company’s Selected The team has made a decision to consider and evaluate the “Dollarama” as our group project, we believe that this project holds a great potential and will bring better understanding of the accounting concepts. Context  Company’s Overview  Strength and Weakness  Competitors and Competing Strategies  Ratios  Trend Analysis  Recommendations  Overall Performance and Future Potentials  Appendix ABOUT DOLLARAMA

Dollarama is a company that manages and operates discount stores. Household goods, cleaning supplies, paper and plastics, health and beauty care, party supplies, toys, food, novelty items, and seasonal items are all offered from the company. Pet food, confectionary, office supplies, arts and craft goods, greeting cards and stationery, giftware, durable house wares, kitchenware, glassware, hardware and electronics, clothes, toys, and gift cards are all provided. Offering a wide range of general goods, consumables, and seasonal items, Dollarama aims to offer customers a consistent experience while shopping and appealing value. All of these stores are corporately owned and manage, and they are all in the best places in big cities, medium-sized cities, and small towns. Products are offered at low, specified price points and can be bought separately or in bulk. HISTORY OF DOLLARAMA Canadian investor and third-generation retailer Larry Rossy established Dollarama. It all originated in 1992 with just one location in Matane, Quebec, and developed rapidly over the next two decades to become an internationally recognized company and a favourite place to shop for Canadians from coast to coast. With well over 1,000 locations, Dollarama is a famous Canadian value store today. Neil Rossy, a fourth-generation retailer and member of Dollarama's founding management team, is the firm's present ceo. 1910-1930 (WHEN DOLLARAMA STARTED) Salim Rossy commences the first S.Rossy Inc. store on Craig Street in Montreal, Quebec in 1910. Salim's 10 children gradually engage in the firm over the next two decades, and its operations gradually grow. 1937(TRANSITION) George Rossy, Salim's son, takes over as president and changes the company's approach to one that's closer to the Woolworth chain of variety stores. He manages the business till he dies away in 1973. 1973 (NEW GENERATION) Larry Rossy, George's son, took over as CEO of the company, which has 20 stores as of the moment. He grows the S. Rossy Inc. buy network from more than dual, to 44 places, between 1973 and 1992. 1992-24 (THE BIRTH OF DOLLARAMA) Based on the simple concept of providing things for $1 or less, Larry Rossy changes one of his stores into the first Dollarama in Matane, Quebec, in April 1992.Based on this initial success, Larry Rossy and his founding management team plan to expand the chain by opening new stores and changing the chain's other locations to this fresh concept. The same year, Grand Falls, New Brunswick, announces the grand opening of the first Dollarama store outside of Quebec. Dollarama opens its first location in Ontario in 1994. 2001-03(EXPANDING INTO OTHER CANADIAN PROVINCES) Dollarama quickly grows its reach in Ontario in 2001 by buying 60 places following the bankruptcy of a retail chain. It opens its first store in Manitoba in 2003.Dollarama increases its distribution and

warehousing skills over the same time period, with the opening of two warehousing facilities in Montreal, Quebec. STRENGHTS OF DOLLARAMA:- 1. Competitive Advantage- As a result of lower prices, number, and a differentiated concept Dollarama's product and brand portfolio allows it to compete in a number of domestic market industries. Due to this, Dollarama has been able to develop a different mix of ways to make money and profit. 2. Canadian Leading Trade Retail Brand - Dollarama is one of the leading players in its industryIt has changed the business environment not only in its specialization but also throughout the entire industry over the years. Dollarama has expanded into new markets, reached out to new customers, and offered various value propositions to various clients in the international markets because of its ability to leading abilities. 3. Efficient Profitable Store- Dollarama has an established history of successfully introducing new goods based on input from local customers. Andre F. Perold says that Dollarama has successfully developed solutions for Finance & Accounting after testing several concepts in various areas. Compared to competitors, Dollarama charges more. This has given Dollarama resources to not only fight competition difficulties but also to invest in research and development 4. Good Relations with Current Vendors - As a market leader, Dollarama has strong relationships with the companies who make up its supply chain. By using the skills of its suppliers and supply chain partners, the company might increase the number of products and services it offers. WEAKNESS OF DOLLARAMA:- 1. Low Return on Investment - Despite Dollarama having a stable balance sheet, "Return on Invested Capital" is an indicator needed for review. Return on Invested Capital, rather than measurements of profitability preferred by financial analysts like Return on Equity and Return on Assets, is the best measure of profitability in the pricing and supply chain areas in which Dollarama works. 2. No Environment Consideration- It’s not very promising that Dollarama has a poor track record in terms of relates to environmental thoughts. Since consumers today see environmental protection as a vital part of running business, this could result in consumer backlash. 3. Limited only to domestic market- Given that the majority of Dollarama growth so far has been in the domestic market, company's workforce is not diverse enough. This could reduce the probability that Dollarama will be successful on the global market. 4. Less Diversified- Greater diversity is required; Dollarama has made significant progress in inclusion, equity, and diversity. However, the attempts have had only little outcomes so far. In order to hire more people from minority and those with disadvantages, the recruitment and selection process must be expanded.

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5. High operating cost and interest cost - In contrast to rival. Dollarama took out higher-interest loans on the capital market. In order to compete better and increase profitability, it needs to restructure the interest payment and costs. Dollarama has high business expenses which makes hard the speed of competition that are using technology to attract dollarama's wealthy customers, it may be more difficult to maintain this. Competitors and Competing Strategies Dollar tree is a prominent affordable store chain and the biggest rivalry of Dollarama, with operating over 15000 stores across the North America. Dollar Tree major competing strategies are as follows:- domestic market, company's workforce is not diverse enough. This could reduce the probability that Dollarama will be successful on the global market. 1. Wide product selection : A wide range of amenities are available at Dollar Tree, including food and snacks, toys, seasonal decoration, cleaning supplies, party supplies, health and beauty products, and other necessities for the home. By providing a wide selection, Dollar Tree hopes to meet the various needs of its clientele at a reasonable cost. 2. Pricing strategy: Dollar Tree uses effective sourcing and procurement techniques to obtain goods at fair pricing. The main marketing plan of Dollar Tree is to sell everything in its stores for a set price of $1. Since they work directly with suppliers, distributors, and manufacturers to source quality products at low prices, this constant pricing structure appeals budget friendly to consumers on a low budget and give customers a sense of affordability and value. 3. Business Expansion: Dollar Tree is constantly working towards the market expansions and trying to come as a multi brand store as in addition to $1 item, Dollar Tree also operates another section known as “Dollar Tree Plus” where they offer products priced above $1 but still at an affordable price. This step has allowed them to diversify they client base and expand their products offering different price points. Thus “The Family Dollar” stores cater to a broader range of customers, offering products at varying price levels. 4. Customer Base: Dollar Tree's customer base primarily consists of budget-conscious consumers seeking affordable products. They conduct market research, analyze customer need, choice and preferences, and make data-driven decisions to improve the shopping experience and enhance customer satisfaction. 5. Store Expansion and Optimization: Dollar Tree has experienced significant growth over the years, expanding its store footprint and market presence, thus they pursues an aggressive store expansion strategy to increase its market presence. By opening new stores in both existing and new markets, along with both in domestic and international markets as well, they aim to reach more customers base, expand into new geographic areas, and capture additional market share. Additionally, they optimize their store layouts and merchandise placement to enhance the shopping experience and maximize sales. 6. Private Labels: Dollar Tree has also developed an assortment of private label brands; such as "Dollar Tree" and "Greenbrier,” There are not as many name-brand items in Dollar Tree because they want to showcase more of their private label items that were made cheaper than branded items. These private label brands help differentiate Dollar Tree from its competitors and provide customers with unique

offerings and more cheaply made products mean they will garner a higher profit margin on their merchandise. 7. Store Format: Dollar Tree stores are typically modest to medium-sized and are designed to make shopping convenient. Customers may easily navigate and discover what they need thanks to the stores' division into various sections depending on product categories. Comparison Based on Financials  The sales of Dollar Tree are 4 times of dollarama, mainly because dollartree have a strong hold in USA and compete with dollartree in Canada. The annual sales of dollarrama are 5052 millions and dollartree has 28318 millions.  The net earning to Sales ratio of dollarrama is better compared to dollartree. The net-earning to sales of dollarrama is 15.86% and dollartree is 7.45. Dollarama:- 15.86% = 80186300 ( Net earning ) 5,052,741,000 ( Sales ) , Dollartree:- 2110,600,000 ( Net earning ) 28,318,200,000 = 7.45% .  The total asset employed by dollartree is 5.75times of dollartree. Dollarama employed 23022millionsand dollarama with 4819 million. The same is reflected in number of store as dollarama has 1500 stores and dollartree with 15115 stores.  The earning price per share of dollartree is 3.5 times. The dollartree have 7.24$ and dollarama 2.77$ (CAD).  The market cap of dollartree is 30.51 billion and dollarama have 24.71 billion. Ratio and Trend Analysis For the purpose of the project, we have considered the following ratios: S No., Particulars FY 2022-23 FY 2021-22 Increase/decrease a) Test of Profitability 1. Net profit margin 16% 15% 1% 2. Return on Equity -4262.51 493.39 -963.62% 3. Return on Assets 20.59 18.15 13.44% b) Test of Liquidity 1. Inventory turnover ratio 3.69 3.98 7.25% 2. Current ratio 0.99 0.79 26.47% 3. Quick ratio 0.09% 0.08% 11.75% c) Test of Solvency 1. Times interest earned 10.55 11.05 -4.52% 2. Debt to Equity ratio 168.65 -62.54 369.67% d) Market tests

1. P/E ratio 31.00 39.21 -20.94% 2. Dividends Yield 0.064% 0.058% 10.33% Test of profitability 1. Net profit margin: Net profit margin is the percentage of revenue remaining after deducting all operating expenses, interest, taxes from company’s total revenue. Any profit margin ratio above 10% is considered as a good net profit margin ratio and highest being 20%. Dollarama has around 15% as net profit margin ratio which is pretty decent for an FMCG Company. 2. Return on Equity: ROE is calculated by dividing a company's net income by its shareholders' equity. Generally ROE is 20% or high for FMCG Company. In case of Dollarama, the ROE is around 493.93% which is way higher than the usual ROE. However, the ROE for the FY 2022-23 is negative due to repurchase of shares. The repurchase of shares was made at a premium, due to which the balance share capital also was written off. 3. Return on Assets : Return on Assets which is known as total return on assets, helps investors understand the return a company generates return on its assets. Higher the return on assets ratio, the more efficient a company’s management is in generating value for its investors. Usually, ROA for a Company is between 5-20 %. Where a Company is generating ROA of more than 20 %, Signals attractive investment opportunities. Here Dollarama has 18.15 % in FY 2021-22 and 20.59% in FY 2022-23. a) Test of Liquidity 1. Inventory Turnover ratio: In order to calculate inventory turnover ratio, you have to divide COGS by average inventory. Different sectors have different stock turnover ratio. The ideal Inventory turnover ratio is between 5 and 10. So the Company restocks once in every two months. In case of Dollarama, restocking is done once in every 3 months, thus the ROA is 3.69 in FY 2022-23 and 3.98 in FY 2021-22 2. Current ratio:

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A current ratio will be calculated in order to find out whether the Company will be able to repay the current liabilities with the current assets or not. A good current ratio is anywhere between 1.5 to 2. However, in case of Dollarama, the current ratio is 0.99 in FY 2022-23 and 0.79 in FY 2021-22. It can be said that Dollarama has to increase in current ratio because if the liabilities increase due to inflation, then it might not be in a position to repay with the now available current assets. 3. Quick ratio: Quick ratio is a more conservative one to decide whether the liquid cash can be used to repay the current liabilities or not. Quick ratio does not involve inventories because it might take some time to liquidate the inventories. An ideal quick ratio is 1:1. However, Dollarama has to work on the quick ratio since liquidity position will be affected. This might also be the reason for repurchase of shares from a market at a premium. b) Test of Solvency 1. Times interest earned: The times interest earned ratio is a company's earnings before interest and taxes divided by a company's interest payable on bond and debt obligations. It is often referred to as the interest coverage ratio , the times interest earned ratio depicts a company's ability to cover the interest owed on debt obligations. An organisation that has a times interest earned ratio greater than 2.5 is considered as acceptable risk. Dollarama has around 10.55 which may be due to high earnings. The Company is doing good in this area and can continue to maintain the same. 2. Debt to Equity ratio: The Debt- Equity ratio is one of the financial ratios that compare the owner's equity or capital to debt, or funds borrowed by the company. Sometimes it is referred to as a financial leverage ratio. Usually, a ratio of less than 0.40 is considered strong, with a 0.40 to 1.0 as satisfactory and more than 1.0 is considered weak. Dollarama has debt equity ration of 168.65 in FY 2022-23 and -62.54 in FY 2021-22. The major difference is being observed here due to repurchase of shares. This is an exception to the usual trend. c) Market Test 1. P/E ratio: P/E ratio is the ratio of the share price of a company’s stock to its earnings per share (EPS). Most FMCG companies have P/E ratio between 25 to 50. Thus Dollarama also has P/E ratio of 31 in FY 2022-23 and 39.21 in FY 2021-22. This P/E ratio makes the company more

attractive for Investment in secondary market sue to which there is a high chance of price rise. 2. Dividends Yield: Dividend yield is calculated by dividing the total annual dividend amount of a stock by price per share. Yield may range from 2% to 6%. However, if the dividend is not declared and is re-invested into business again it could fetch higher returns due to increasing market price. In the same, way Dollarama has declared dividend of $0.05 per share dividend in the FY 2021- 22 and $ 0.0553 per share in the FY 2022-23. Recommendation of Change The net profit margin has increased by 1%, Return on Equity decreased by 963.62% which is due to repurchase of shares from market and Return of assets has increased by 13.44%. In case of liquidity tests, inventory turnover ratio increased by 7.25%, current ratio increased by 26.47%, quick ratio increased by 11.75%. In case of tests of solvency, times interest earned decreased by 4.52%, debt to equity ratio increased by 369.67% and in case of Market tests P/E ratio decreased by 20.94% and dividend yield increased by 10.33%. It is to recommend to the Company that ideal current ratio is 2:1, however the Company has ratio is less than 1. The Company has to increase the current assets in order to be in a safe situation in case of liquidation. Though the quick ratio is also way less compared to a good quick ratio i.e 1:1, Dollarama has very less quick ratio. Even though the dividend per share is less, the company is aiming for a higher market price which is lucrative for any investor. The same technique of re-investing is now a day used for attracting any investor. Overall Performance and Future Potentials Commentary on overall performance and its potential in future: Dollarama has been growing earnings at an average annual rate of 8.9%, while the Multiline Retail industry saw earnings growing at 14.8% annually. Revenues have been growing at an average rate of 8.3% per year. Dollarama's return on equity is 383.2%, and it has net margins of 15.9%. During its 2023 fiscal year, Dollarama opened 65 new sites across Canada. Before the conclusion of fiscal 2024, the company hopes to open another 60 to 70 establishments. In the first half of Fiscal 2024, the Corporation anticipates profiting from strong interest for its reasonably priced, basic goods in an environment of ongoing consumer inflationary pressures. Through the second half of the fiscal year, these demand trends should normalize. By 2031, the firm wants to have 2,000 outlets throughout Canada. There are currently 1,486 locations spread throughout ten provinces and two territories. Competitive Advantage

On numerous fronts, Dollarama sets itself apart from its competitors. It owns and operates 1,462 stores across Canada, way higher than its peers. Plus, it offers value to customers from all walks of life at fixed, multiple price points. Ingeniously, the business added a $5 pricing point at the beginning of this year as inflation was beginning to increase. Dollarama sources its products directly from vendors on an order-by-order basis. Additionally, Dollarama produces product design and packaging by working directly with the vendor, which helps with negotiating power and differentiated items. Over the past ten years, Dollarama's net income has grown by 15% yearly, compounded. In comparison to rivals throughout the same time span, its margins and return ratios have likewise been fairly constant. DOL claimed an operational profit margin of 23.4% during the previous 12 months, more than twice that of comparable North American merchants. Growth plans The goal of Dollarama is to add 2,000 more locations by 2031. Its remarkable expansion to date has been largely attributed to a vast geographic footprint. So, expanding on the same competitive edge will likely pay off in the long term. To top it off, the retail market is still underdeveloped in several Canadian provinces. Thus, the need for brick and mortar retail should be positive for the expansion of its industry. Dollarama owns a 50.1% stake in Latin American retailer Dollar City. Currently, it runs 350 stores in Guatemala, Peru, Columbia, and El Salvador. With enormous population areas and relatively untapped markets, this might be a significant growth driver for Dollarama in the long run. Over the years, Dollarama has consistently experienced growth in free cash flow. In addition to consistent dividend payments, it buys back shares as part of a strategy to distribute extra cash to shareholders. It has used buybacks to return $5.5 billion in cash to shareholders since 2013. Share repurchases raise future per-share earnings as well as share prices in the immediate term. DOL paid a meagre $0.22 per share in dividends in 2022, translating to a 0.3% return.

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Appendix The group consists of five members and each member was assigned a certain market Professionalism, Spelling, Format and Grammar of the report This Group project consisted of 5 members and each member was assigned a certain task to conduct their research and analysis. I have taken the responsibility of the all the professional, spelling and other formatting part including the competitor part along with managing of everything. Second, it was assigned to Monika to conduct the entire task related to description, strength and weakness of the organization. Thirdly, it was decided to assign Navkar Mahendra Bhasoria to determine the entire ratio and its computation part along with the excel sheet preparation for the same. Then, Priya Chugh was assigned the responsibility of identifying the trend in the ratios and discusses its impact on the corporation. Vinootna Akkala was tasked with investigating the ratios areas and indicating a challenge along with this she has also worked on the overall performance if the company and its potential in the future. Overall, the task was evenly distributed, and each team member gave a precise and timely contribution of their results. We were able to explore and compare the Dollarama with its competitors through our teamwork and solitary efforts, which improved our knowledge and comprehension of the topic. References https://www.dollarama.com/en-CA/corp/about-us https://www.globaldata.com/company-profile/dollarama-inc/ https://embapro.com/frontpage/swotcase/2065-dollarama-color-dollarama https://www.dollartreecanada.com/