Cash Flow Analysis and Risk Profile - Paper Example

Published: 2021-08-15
1754 words
7 pages
15 min to read
Harvey Mudd College
Type of paper: 
Research paper
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The cash flow for Loblaw Company is often generated by various underwriting activities in the company. Furthermore, the capital is obtained from discounted operations, financing, investments, and discounted investment activities among other sources. Below is an analysis of the company's financial, historical data through 2012-2016.Exhibit 1

2016 2015 2014 2013 2012

Net Cash flow and cash equivalent $46,385

Million $45,454

Million $42,611

Million $32,371

Million $31,604


Operating cash flow $3,045

Million $ 2,588

Million $2,063

Million $1,121

Million $1,281


Exhibit 2

2016 2015 2014 2013 2012

Current liabilities $6,942

Million $7,222

Million $6,395

Million $5,513

Million $5,396


Long term liabilities $21,408

Million $ 20,775

Million $20897

Million $ 13,741

Million $11,542


Exhibit 3

2016 2015 2014 2013 2012

Cash debt Coverage ratio 10.7% 9.2% 7.6% 5.8% 7.5%

From the cash flow analysis shown above, that is from the year 2012 to 2016; it is evident that the operating cash meets the company's current and long-term liabilities. For instance, in the year 2016, the company had cash on debt ratio coverage of 10.7% which is far above the 1% for offsetting the companys liabilities. Furthermore, the rate of cash growth is high. In the financial data released by the company, cash growth was considered enough and sustainable due to a dramatic reduction in the long-term liability debts followed by the companys operating cash increment. Moreover, a critical analysis of the companys cash inflow that is majorly sourced from financing and investing activities is ultimately sufficient to cater for the companys short and long-term debts.

Most significantly, it is essential to note that the companys financial annual reports prove the company's capability to raise the operating cash flow for an upcoming year from the accumulation of net cash flow together with other cash equivalents. Critically, a cash debt coverage ratio that is greater than one symbolizes the companys capability to pay off its debts. In the case study above, the operating cash received from the operating activities showed a seemingly increasing trend from the year 2012 to the year 2015. For example, from the data given the companys financial reports, the cash from operating activities was recorded at $3, 079 in the year 2016, which is remarkably a reasonable cash inflow to the company. This number according to the financial statement of 2016 increased to 3519 in the following year which was 2016. The percentage increase, in this case, was 14.3%. According to the financial statement, the growth could have been mainly driven by the following factors; first, it could have been brought by the higher cash earnings which were partially offset by the change which was experienced in the non-cash working capital. Typically, such drastic increase can be attributed to the companys use of cash in trading payable liabilities.

An analysis of the company's debt coverage ratio between the years 2011 to 2015, it is evident the company's ability to pay off its debts is increasing as evidenced by a drastically dropping cash debt coverage ratio. The current debt ratio trend has a positive impact on the company's investment sector has such a ratio will attract investors to the company. However, about the company's latest financial report, the company is likely to experience increasing cash debt coverage due to the companys increased sales. It, therefore, means that a view on the debt ratio cannot give substantial information about the companys cash flow in the specified years. From the companys financial reports, is evident that between the years 2012 to the year 2014, the company has been experiencing a remarkably larger share of the market recording total revenue of approximately $107 billion within the three fiscal years. Moreover, between the year 2015 and 2016, the company experienced an increment in the revenue of approximately 2%. Furthermore, the acquisition of QHR significantly brought the increment of the investment activities over the period. Also, there was a substantial increment in the short-term investment in the company.

The companys cash equivalents which represent current assets that can easily be converted into cash on short-term bond basis also play a significant role in the companys cash inflow. About the company's financial report, published recently by the financial statements, the company has the value of approximately $1.67 Billion in cash and equivalents. A critical analysis of this data shows that this amount is significantly higher than the consumer sector. Furthermore, this value of the companys cash and equivalence is remarkably higher than the companys retail and diversified industries. Typically, the companys cash and equivalents for the total stock are significantly lower by around 1000% than the firm. The companys balance sheet indicates that cash or cash equivalent forms the most liquid of all the companys assets. It, therefore, follows that the information related to the cash or cash equivalent is essential as it is used by the company to calculate most of the company's firms liquidity ratios. More precisely, the cash and the equivalents is a perfect indicator of the companys financial health.

The companys financial statement, the cash inflow for financing activities shows a decreasing trend progressively from the year 2012. In the year 2015, for instance, the cash used for financing the companys activities was recorded at 1839. In the following fiscal year, 2016, this cash reduced by 3.1% to 1782. From the financial statement, the decrease was attributed to the lower net repayment of the long-term debts. Furthermore, the financial reports recorded that there was a significant increase in the presidents choice banks co-ownership interest. Another factor attributing to this was the fact that in 2015, the cash flow which was used in financing the companys activities comprised of the proceeds of the insurance. From the financial information provided, it is clear that the firm has high expectations on cash equivalent, cash, future operating cash flows and short-term investment in financing its capital investment.

Loblaw Company is however faced with certain factors that affect its cash inflow and the short and long-term obligation of the firm in the long run. As stipulated in its books the firm seems to be managing its capital structure on a segmented basis. The purpose of this arrangement is to ensure that each of the segments is capable of employing a capital structure which is considered to be appropriate in the industry in which it operates. Some of the obligation which was able to be reduced in the firm includes bank indebtedness and the long-term debt which is less than one year. The rest of the responsibility, as discussed above, showed an improving trend. One of the cash flow ratios used analyses the cash flow movement is the operating cash flow ratio. The operating cash flow ration examination indicates that the companys current liabilities are usually covered by the cash flow which is usually generated from the firm operations. The operating cash flow ratio is a significant element in gauging the firm's liquidity on the short-term basis.

Financial Information Accessibility

Typically, Loblaw company structure ensures that its financial information is readily available to the investors and the public in general. The financial reports of the company are often published by the financial statement department and made available to the public domain. Furthermore, the company has ensured that the stakeholders can easily access the companys information including financial information from the companys official website. The availability and accessibility of the companys information has made it possible for various financial analysts and interested investors to make rightful decisions based on the companys financial health


An analysis of the companys organizational structure and the market shares indicates that the company is likely to face some risks. The total liability of the firm seems to be exposing the company to credit risk situation. The risky situation may even be worse if the companys counterparts fail to owner their financial obligations to the company. The move is likely to impact the companys derivative instruments, short-term investments, security deposits and card receivables. Typically, the failure by a company to manage its credit risk effectively in most cases result in a negative financial performance by that particular company. From the companys cash flow analysis, the following analysis provides the true picture of the companys risk profile.

The Companys Collective Bargaining & Minimum Wage Increases

Information about the companys operation indicates that a large section of Loblaws workforce decisions are governed and unionized by collective agreement within the companys management. Despite the companys strategies to mitigate the risks that are associated with delays or potential interruptions that may result from the collective nature of bargaining on the right decisions to be implemented, the company is risking losing more critical changes that are bound to time. Furthermore, such delays and interruptions are likely to impact negatively on the companys daily operations and the companys general financial operations. Loblaw Company is also at a risk of potential increases in the designed minimum wage together with challenges of retaining and managing its current staff.

Inflation and Higher COGS

The current trend on the prices of food in the global market is an alarming issue to the company. The prices of food are increasingly becoming higher, which therefore means that Loblaw is at risk and to mitigate that, the company has to make a choice, a right choice to salvage its financial health. For the company to maintain its profitability, the company should structurally strategize on how to overcome the high inventory costs that are likely to emerge due to the escalating prices of food in the global market. Furthermore, its essential to note that such an escalating trend may compel consumers to change their consuming behaviors and preferences which will even expose the company to more risks.

Competitive Landscape

Currently, Loblaw enjoys a significant share in the Canadian grocery and has a remarkably higher dominance of the market share. However, a seemingly increasing trend of the other business into the market which is likely to be a real threat if the company does not strategize to curb the effects that are related to such a rapid increase market. With such increment in the number of businesses, the Canadian market will eventually reach a point of saturation that will be a threat to the players of the market. Moreover, the company's competitor has opened new stores in a proximity to the company's premises, a move that is likely to impact negatively on Loblaws market share together with its general financial statement through creating a regional price of war through competition. Furthermore, it is likely to be difficult for the companys higher-margin private label products compete to favorably with a wide array of national brands. Below is an analysis of the companys market share about its competitors.

Exhibit 4

Disruptions of the Supply Chain

Delays and disruptions that occur in the companys inventory store replenishment are likely to impact on the company's general operations together with the general income. Such factors include shipping slowdown, extreme weather conditions and disruptions among other factors. Likewise, the companys move to restructure its supply chain and integrate the new systems with the...

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