THE SOBEYS INC. AND LOBLAW COMPANIES LIMITED CASE
...n 2002 and 0.92 in 2003. There results display that Sobeys has less than 2 times less debt in the long-run. Loblaw finances its good liquidity with a long-term debt. The second analysis, the financial performance, gives an idea of how well companies are managed. Firstly, the return on equity (ROE) ratio indicates how much return the companies are generating on the historically accumulated owners' investment. Sobeys had a 3.92% increase from 0.102 in 2002 to 0.106 in 2003 and Loblaw gained 1.13% from 0.177 in 2002 to 0.179 in 2003. Loblaw is more productive according to this test. Secondly, the leverage shows the difference between a company's gain and the cost of borrowing money for its activities.Sobey has benefited by 2.8% from favourable borrowing in 2002 and by 1.8% in 2003. In the other hand, Loblaw benefited by 6.5% from favourable borrowings in 2002 and by 6.4% in 2003, which is more than the double of its competitor. Thirdly, the interest coverage ratio indicates if the company operates at a sufficiently profitable level to cover the interest obligation comfortably, an indicator for solvency regarding performance then. Sobeys had an interest coverage ratio of 7.82 in 2002 and 6.96 in 2003, a decrase of 11%. Loblaw had a ratio of 8.09 in 2002 and 7.48 in 2003, a decrease of 7.54%. This test brings that Loblaw's operations provide about 7.4% more ressources to pay back the debt, though Sobeys' results are still very good. Fourthly, the price earnings ratio relates the accounting earnings and market price of the share. This ratio is subject to stock fluctuation, but is still useful to compare similar companies, like we are doing at present. To make the comparison more accurate, we will use stocks price from the same date: April 30th 2004. Sobeys' price earnings ratio decreased by 16.51% from 13.51 (2002) to 11.28 (2003) while Loblaw's ratio had a 8.07% increase from 20.45 (2002) to 22.10 (2003). We can interpret from these datas that the market expectations go in favour of Loblaw in a very obvious way. Fifthly, the days in inventory is the number of days a company needs for an inventory rotation. Sobeys improved its system by passing from 16.26 days in 2002 to 14.3 days in 2003. This is almost half of the time needed for Loblaw for the same exercise. Loblaw did it in 29 days in 2002 and slightly improved to 27.78 days in 2003. And sixthly, the days in accounts receivable is of course the number of days the company takes to collect its accounts receivable. Both companies are similar. Sobeys took 10 days in 2002 and 9 days in 2003, while Loblaw has a little advance taking 9.03 days in 2002 and 8.51 days in 2003. Solvency and liquidity analysis Loblaw's cash and cash equivalens decreased by 25% from $823M in 2002 to $618M 2003 while the company made a net earning of $845M, 16% mor...