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Loblaw Companies Limited (L. TO)Executive Summary
Loblaw Companies Limited (L. TO) is a well-known food retailer in Canada that has a wide
range of products and services that include grocery stores, pharmacies, and clothing. This
report includes a detailed assessment of Loblaw’s financial position in the last five years
based on the audited financial statements using common size analysis, ratio analysis, DuPont
analysis, and peer group analysis. The analysis shows that the company is relatively stable in
terms of revenue growth and profitability. However, there are certain problems in the field of
liquidity and debts. Strategic recommendations are also made to improve the company’s
financial status and position it for better performance in the retail industry.
Introduction
Company Background
Loblaw Companies Limited was established in 1919 and has grown to become one of the
largest food merchandisers in Canada (Harper, 2020). Loblaw Company Limited is a
Canadian company that is based in Brampton, Ontario, and it deals with food products under
brands such as Loblaws, No Frills and Shoppers Drug Mart. Loblaw is a publicly held
company and a subsidiary of George Weston Limited, which is listed on the Toronto Stock
Exchange under the stock symbol L. TO and is one of the components of the TSX Composite
Index. It has become clear that the company has strong values regarding customer relations
and has focused on technology and sustainability to improve its operations and service
delivery.
Competitors
Loblaw Companies Limited (L. TO) is located in a highly competitive retail industry in
Canada with several players. Metro Inc. (MRU. TO) is a key rival, with over 950 food and
pharmacy stores, mainly in Quebec and Ontario and total revenues of about CAD 17. 78
billion in 2023. George Weston Limited (WN. TO), Loblaw’s parent company, has operations
in the bakery and real estate industries, which alters Loblaw’s competitive landscape. Another
competitor to Loblaw is the Canadian Tire Corporation (CTC. TO), which sells automotive
and hardware products in addition to groceries; company revenues equal CAD 8. 52 billion in
2023.
Industry Trends
The Canadian retail industry is undergoing several transformative trends. The e-commerce
adoption has rapidly increased, especially after the pandemic, as firms have focused on
enhancing the customer experience. As a result of this shift, Loblaw has grown its online
grocery delivery services. Furthermore, the quality of the product is another aspect that
consumers focus on, especially in relation to health, where they shift their attention towards
organic and natural products. Such a trend has led Loblaw to improve its organic products
portfolio. There is also a shift toward sustainability, as consumers are becoming more
conscious of firms’ sustainability practices. Loblaw pledged to cut its absolute greenhouse gas
emissions by 30% by 2030 in 2023 (Loblaw Companies Limited. (n.d.). Last, technological
advancement is important since retailers use technology in their operations and interface with
customers, with Loblaw investing in analytical tools and automation systems.
Common Size Analysis
Common size analysis allows for a comparison of Loblaw’s financial performance over time
by expressing each line item as a percentage of total revenue.
Income Statement Overview
Year Total Revenue
Cost of Revenue
Gross Profit
Operating Income
Net Income
2023 60,324,000
40,844,000
19,480,000
3,737,000
2,078,000
2022 59,529,000
40,492,000
19,037,000
3,704,000
2,088,000
2021 56,504,000
38,528,000
17,976,000
3,342,000
1,909,000
2020 53,170,000
36,436,000
16,734,000
2,937,000
1,863,000
2019 52,714,000
36,725,000
15,989,000
2,365,000
1,096,000
Common Size Analysis Results
Loblaw Companies Limited (L. TO) has recorded outstanding financial performance for the
last five fiscal years, as evidenced by a common size analysis of the company’s income
statement, balance sheet, and cash flow statement for the fiscal years 2019 to 2023. Total
revenue had a CAGR of 3. 4% from 2019 to 2023, rising from C$52. 7 billion to C$60. 3
billion (Yahoo Finance. (n.d.). This growth trend shows that there is always market demand
for the various products that Loblaw offers, such as groceries, pharmacy products, and health
and wellness products. This shows that the company has built management strategies and
customer loyalty to maintain a relatively constant revenue growth rate in a competitive retail
environment. The increase in revenues has been driven by the growth of its store formats,
improvements to its digital commerce capabilities, and a concentration on customer
satisfaction.
Analysing the cost structure, the cost of revenue has been constant, taking up to 70% of the
total revenue in this period. For instance, the cost of revenue was C$36. 7 billion in 2019,
which has been slightly higher, reaching C$40. 8 billion in 2023 (Annual Reports. (n.d.). This
stability in the cost of revenue implies that the company has been able to control its
operational costs, which in turn has led to the enhancement of the gross profit margins. The
gross profit margin increased from 30. 4% in 2019 to 32. 3% in 2023, which shows that
Loblaw has been able to increase the price of its sales or find ways to cut down on the cost of
goods sold (Stock Analysis. (n.d.). Further, operating expenses in relation to total revenue
were reduced from 25. 8% in 2019 to 26. 1% in 2023, which is an indication of operational
efficiency (Loblaw Companies Limited. (2024). The operating income margin was at 4. 5%
and improved to 6. 2% in the same period also supports Loblaw’s efficiency in controlling
costs while at the same time growing revenues.
The net income margin also shows that Loblaw has become more profitable as the net income
margin increased from 2. 1% in 2019 to 3. 5% in 2023 (Companies Market Cap. (n.d.). This
rise in net income margin means that the company has not only expanded its sales but has
also controlled its operating and other operating income and expenses. From the trends
presented in Loblaw’s financial statements for the past five years, it can be concluded that it
has established a stable performance in cost management and increased profitability. In
summary, based on the common size analysis, Loblaw Companies Limited is on the right
track for a positive outlook for the company in the future through the implementation of
sound operational strategies and the ability to meet the needs of the consumers.
Ratio Analysis
1. Profitability Ratios
•
Profit Margin:
o
Formula: Net Income / Total Revenue × 100
o
Calculation: 2,078,000 / 60,324,000 × 100 = 3.46%
o
Analysis: A profit margin of 3.46% indicates that Loblaw retains C$0.0346
from each dollar of sales as profit, reflecting effective cost control and pricing
strategies.
•
Return on Assets (ROA):
o
Formula: Net Income / Total Assets × 100
o
Calculation: 2,078,000 / 38,979,000 × 100 = 5.34%
o
Analysis: An ROA of 5.34% suggests efficient asset utilisation, with the
company generating C$0.0534 of profit for every dollar of assets.
•
Return on Equity (ROE):
o
Formula: Net Income / Total Equity × 100
o
Calculation: 2,078,000 / 11,619,000 × 100 = 17.91%
o
Analysis: An ROE of 17.91% indicates that Loblaw generates C$0.1791 for
each dollar of equity invested, demonstrating effective use of shareholders’
funds.
2. Liquidity Ratios
•
Current Ratio:
o
Formula: Current Assets / Current Liabilities
o
Calculation: 2,731,000 / 24,629,000 = 0.11
o
Analysis: A current ratio of 0.11 suggests that Loblaw may struggle to cover
its short-term liabilities with its current assets.
•
Quick Ratio:
o
Formula: (Current Assets – Inventory) / Current Liabilities
o
Calculation: (2,731,000 – 819,300) / 24,629,000 = 0.08
o
Analysis: A quick ratio of 0.08 indicates insufficient liquid assets to cover
current liabilities without relying on inventory sales.
•
Cash Ratio:
o
Formula: Cash / Current Liabilities
o
Calculation: 1,277,000 / 24,629,000 = 0.052
o
Analysis: A cash ratio of 0.052 highlights a very limited capacity to pay off
short-term liabilities using only cash.
•
Net Working Capital Ratio:
o
Formula: Working Capital / Total Assets
o
Calculation: 2,731,000 / 38,979,000 = 0.070
o
Analysis: A net working capital ratio of 0.070 indicates that working capital is
a small fraction of total assets, suggesting limited liquidity.
3. Solvency Ratios
•
Total Debt Ratio:
o
Formula: Total Liabilities / Total Assets
o
Calculation: 27,360,000 / 38,979,000 = 0.70
o
Analysis: A total debt ratio of 0.70 indicates that 70% of Loblaw’s assets are
financed through debt, suggesting a significant reliance on debt financing.
•
Debt to Equity Ratio:
o
Formula: Total Liabilities / Total Equity
o
Calculation: 27,360,000 / 11,619,000 = 2.35
o
Analysis: A debt-to-equity ratio of 2.35 shows that Loblaw has C$2.35 in debt
for every dollar of equity, indicating a riskier capital structure.
•
Equity Multiplier:
o
Formula: Total Assets / Total Equity
o
Calculation: 38,979,000 / 11,619,000 = 3.35
o
Analysis: An equity multiplier of 3.35 indicates that Loblaw uses significant
debt to finance its assets, increasing financial risk.
•
Long-term Debt Ratio:
o
Formula: Long-term Debt / Total Assets
o
Calculation: 18,173,000 / 38,979,000 = 0.47
o
Analysis: A long-term debt ratio of 0.47 suggests that nearly half of Loblaw’s
assets are financed through long-term debt, which could be manageable with
sufficient cash flows.
•
Interest Coverage Ratio:
o
Formula: EBIT / Interest Expense
o
Calculation: 3,773,000 / 849,000 = 4.44
o
Analysis: An interest coverage ratio of 4.44 indicates that Loblaw can
comfortably cover its interest expenses with its earnings.
•
Cash Coverage Ratio:
o
Formula: EBITDA / Interest Expense
o
Calculation: 6,702,000 / 849,000 = 7.89
o
Analysis: A cash coverage ratio of 7.89 suggests that Loblaw generates more
cash from operations than required to cover its interest expenses.
4. Efficiency Ratios
•
Net Working Capital Turnover:
o
Formula: Total Revenue / Net Working Capital
o
Calculation: 60,324,000 / 2,731,000 = 22.08
o
Analysis: A net working capital turnover of 22.08 indicates efficient use of
working capital to generate revenue.
•
Fixed Assets Turnover:
o
Formula: Total Revenue / Net Fixed Assets
o
Calculation: 60,324,000 / 27,287,300 = 2.21
o
Analysis: A fixed assets turnover of 2.21 suggests efficient use of fixed assets
in generating sales.
•
Total Assets Turnover:
o
Formula: Total Revenue / Total Assets
o
Calculation: 60,324,000 / 38,979,000 = 1.55
o
Analysis: A total assets turnover of 1.55 indicates effective asset management
and operational efficiency.
5. Cash Conversion Ratios
•
Inventory Turnover:
o
Formula: Cost of Revenue / Average Inventory
o
Calculation: 40,844,000 / 11,693,700 = 3.49
o
Analysis: An inventory turnover of 3.49 suggests efficient inventory
management, though a higher turnover may indicate stronger sales or better
control.
•
Days of Inventory Turnover:
o
Formula: 365 / Inventory Turnover
o
Calculation: 365 / 3.49 = 104.6
o
Analysis: Days of inventory turnover of 104.6 indicates it takes Loblaw about
105 days to sell its inventory, which is reasonable.
•
Receivables Turnover:
o
Formula: Total Revenue / Average Accounts Receivable
o
Calculation: 60,324,000 / 3,016,200 = 19.98
o
Analysis: A receivables turnover of 19.98 reflects efficient credit management
and strong cash flow from operations.
•
Days of Receivables:
o
Formula: 365 / Receivables Turnover
o
Calculation: 365 / 19.98 = 18.3
o
Analysis: Days of receivables of 18.3 indicates effective collection practices,
with payments collected in about 18 days.
•
Accounts Payable Turnover:
o
Formula: Cost of Revenue / Average Accounts Payable
o
Calculation: 40,844,000 / 8,168,800 = 5.00
o
Analysis: An accounts payable turnover of 5.00 suggests a balanced approach
to managing payables.
•
Days of Accounts Payable:
o
Formula: 365 / Accounts Payable Turnover
o
Calculation: 365 / 5.00 = 73.0
o
Analysis: Days of accounts payable of 73.0 indicates Loblaw takes
approximately 73 days to pay its suppliers, managing cash flow effectively.
•
Cash Conversion Cycle:
o
Formula: Days of Inventory Turnover + Days of Receivables – Days of
Accounts Payable
o
Calculation: 104.6 + 18.3 – 73.0 = 49.9
o
Analysis: A cash conversion cycle of 49.9 days reflects effective management
of inventory and receivables, though a shorter cycle would be preferable.
6. Market Ratios
•
P/E Ratio:
o
Formula: Market Price per Share / Earnings per Share (EPS)
o
Calculation: 172.31 / 6.68 = 25.8
o
Analysis: A P/E ratio of 25.8 suggests strong market expectations for
Loblaw’s future growth, though it may indicate the stock is overvalued relative
to its earnings.
•
Market/Book Ratio:
o
Formula: Market Price per Share / Book Value per Share
o
Calculation: 172.31 / 37.45 = 4.60
o
Analysis: A market/book ratio of 4.60 indicates investors value Loblaw at
more than four times its book value, reflecting strong market confidence but
potentially overvaluation.
•
PEG Ratio:
o
Formula: P/E Ratio / Annual EPS Growth Rate
o
Calculation: 25.8 / 5 = 5.16
o
Analysis: A PEG ratio of 5.16 suggests that Loblaw’s stock may be overvalued
relative to its expected growth rate. Generally, a PEG ratio of less than 1 is
considered attractive.
DuPont Analysis
Loblaw Companies Limited (L. TO) exhibits a robust Return on Equity (ROE) of 17. 91%,
which can be examined through the DuPont analysis into three integral components: Profit
Margin, Asset Turnover, and Equity Multiplier. The company has a relatively low Profit
Margin of 3. 46%, which means it is able to keep C$0. 0346 for each dollar of its revenues,
which is an indication of strong cost controls and efficient pricing (MarketScreener. (n.d.).
The Total Asset Turnover of 1. 55 shows that the company is using its assets efficiently to
generate revenues, selling C$1.55 worth of goods for every dollar worth of assets. By
evaluating the Equity Multiplier of 3. 35, it can be deduced that Loblaw employs high
amounts of debt to get higher returns on equity. Calculating the product of these factors as
Profit Margin x Asset Turnover x Equity Multiplier yields an ROE of 17. 7 %, which is
nearly equal to the reported ROE of 17. 91 %, thus indicating that Loblaw’s profitability,
asset management, and leverage are all strong factors that contribute to its high return on
equity, but at the same time, they show the financial risk associated with high leverage.
Here are the financial ratios for Loblaw Companies Limited (L.TO) calculated for the
past 5 years:
Ratio
2023
2022
2021
2020
2019
Profit Margin
3.46%
3.51%
3.38%
3.50%
2.08%
Return on Assets (ROA)
5.34%
5.47%
5.23%
5.21%
2.92%
Return on Equity (ROE)
17.91%
16.67%
16.32%
16.81%
9.88%
Current Ratio
1.11
1.23
1.38
1.12
1.06
Quick Ratio
0.77
0.85
0.97
0.73
0.68
Cash Ratio
0.052
0.060
0.079
0.080
0.068
Net Working Capital Ratio
0.070
0.086
0.094
0.077
—
Total Debt Ratio
0.70
0.70
0.68
0.69
—
Debt to Equity Ratio
2.35
2.33
2.12
2.22
—
Equity Multiplier
3.35
3.33
3.12
3.22
—
Long-term Debt Ratio
0.47
0.46
0.45
0.46
—
Interest Coverage Ratio
4.44
4.44
4.71
4.53
3.16
Cash Coverage Ratio
7.89
7.94
8.62
8.39
6.60
Net Working Capital Turnover
22.08
17.22
16.42
19.15
—
Fixed Assets Turnover
2.21
2.15
2.05
1.95
—
Total Assets Turnover
1.55
1.51
1.47
1.48
1.45
Inventory Turnover
3.49
3.47
3.29
3.11
3.14
Days of Inventory Turnover
104.6
105.2
110.9
117.4
116.2
Receivables Turnover
19.98
18.69
16.41
17.05
16.91
Days of Receivables
18.3
19.5
22.2
21.4
21.6
Accounts Payable Turnover
5.00
4.96
4.65
4.11
4.20
Days of Accounts Payable
73.0
73.6
78.5
88.8
86.9
Cash Conversion Cycle
49.9
51.1
54.6
50.0
51.0
P/E Ratio
25.8
18.0
17.4
10.9
20.6
Market/Book Ratio
4.60
3.50
3.04
2.03
2.25
PEG Ratio
5.16
4.50
4.35
2.73
5.15
Figure 1: Loblaw Companies trend analysis
Peer Group Analysis
Financial Metrics Comparison
Metric
Loblaw
Metro
George Weston
Canadian Tire
(L.TO)
(MRU.TO)
(WN.TO)
(CTC.TO)
Market
C$50.47
C$17.78
C$27.35 billion
C$8.52 billion
Capitalizati
billion
billion
P/E Ratio
24.92
18.42
22.00
29.46
Dividend
1.20%
2.76%
1.50%
3.20%
3.46%
2.80%
3.10%
4.00%
ROE
19.22%
8.10%
12.00%
15.00%
Current
1.01
0.91
1.36
1.25
0.57
0.40
2.60
1.00
11.6
13.1
N/A
9.0
on
Yield
Net Profit
Margin
Ratio
Debt-toEquity
Ratio
Inventory
Turnover
Analysis of Peer Performance
While comparing Loblaw with its competitors, some key financial ratios can demonstrate the
relative performance of Loblaw Companies Limited (L. TO). Loblaw dominates with its
market capitalisation of C$50. 47 billion, which is far above Metro C$17. 78 billion, George
Weston, C$27. 35 billion, and Canadian Tire, C$8. 52 billion. Loblaw has a P/E ratio of 24.
92, which is more than Metro’s 18. 42 but less than that of Canadian Tire, 29.46, which
shows that investors expect a better growth rate for Loblaw than Metro but not as high as
Canadian Tire. This is lower than the yield of 2. 76% of Metro and 3. 20% of Canadian Tire
and may not be a strong selling point for investors looking for high yields but rather for those
interested in growth. When it comes to profitability, Loblaw Company is more efficient than
both Metro and George Weston in terms of net profit margin and ROE of 3. 46% and 19.
22%, respectively, compared to Metro’s 2. 80% and 8. 10% ROE and George Weston’s 3.
10% and 12. 00% ROE, respectively. As for liquidity, Loblaw has a current ratio of 1.01,
which is slightly above 1, meaning that the company has enough short-term assets to cover
the current liabilities; the debt-to-equity ratio of 0. 57 is also less than George Weston’s 2. 60
and Canadian Tire’s 1. 00, which supports the conclusion about the company’s conservative
approach to the use of debt. Furthermore, Loblaw has a moderate inventory turnover ratio of
11. 6, which is slightly below Metro’s 13. 1 and Canadian Tire’s 9. 0, implying efficient
inventory management. In general, the higher market capitalisation, better profitability ratios,
and moderate leverage ratio categorise Loblaw better than its competitors; however, the lower
dividend yield could be a factor for consideration.
Recommendations
Financial Outlook
Loblaw Companies Limited’s financial health appears to be robust based on improved
revenues and stable profit margins. Total revenues for the year ended December 31, 2023
were C$60,319. 68 million, an increase of 1. 3% compared to C$59,533. 89 million in 2022.
Gross profit also rose to $19. 48 billion, and the gross profit margin remained strong at
28.2%. Operating income increased to C$3. 74 billion, and net income was C$2. 08 billion,
net profit margin of 3. 46%. These figures point to good financial health and sound
profitability.
Areas of Concern
Nonetheless, the company has issues that require its attention, and in addressing them, it has
to overcome some challenges. The total debt has risen from the prior year, with the company
having a debt-to-equity ratio of 1. 63 and a total debt of C$18. 17 billion. Net debt stands at
C$7. 23 billion, and thus, the increasing interest costs could affect the company’s income,
particularly when interest rates are higher. Also, Loblaw has a low dividend yield of 1. 20%
compared to the competition, which may be unattractive to investors seeking income. The
company also has to strengthen its e-commerce competency as it prepares to jump into the
growing online market environment.
Advice to Management
To address these issues, Loblaw should focus on several key strategies. The need to capture
new market share in the growing e-commerce space will require increased investment in ecommerce infrastructure and enhancements in online shopping. To ensure that financial
management is flexible, debt levels are to be managed and controlled and may include
refinancing or debt management. Finally, assessing the feasibility of raising dividend
expectations could help attract more investors and strike a sustainable balance between
returns to shareholders and future growth investments. By managing these areas, Loblaw can
consolidate its market position and maintain the delivery of value to shareholders.
References
Annual Reports. (n.d.). Loblaw Companies Limited annual reports.
https://www.annualreports.com/Company/loblaw-companies-limited
Companies Market Cap. (n.d.). Loblaw Companies Limited revenue.
https://companiesmarketcap.com/loblaw-companies/revenue/
Harper, E. (2020). Sustainability-Related Corporate Social Responsibility (CSR)
Communications in the Canadian Grocery Industry.
Loblaw Companies Limited. (2024). Loblaw reports 2023 fourth-quarter results and fiscal
year ended December 30, 2023 results. https://www.loblaw.ca/en/loblaw-reports2023-fourth-quarter-results-and-fiscal-year-ended-december-30-2023-results/
Loblaw Companies Limited. (n.d.). Investor reports. https://www.loblaw.ca/en/investorsreports/
MarketScreener. (n.d.). Loblaw Companies Limited financials
https://in.marketscreener.com/quote/stock/LOBLAW-COMPANIES-LIMITED1410613/finances/
SEDAR+. (2024). SEDAR+ – Landing page. https://www.sedarplus.ca/landingpage/
Stock Analysis. (n.d.). Loblaw Companies Limited (L.TO) financials
https://stockanalysis.com/quote/tsx/L/financials/
Yahoo Finance. (n.d.). Loblaw Companies Limited (L.TO) financials.
https://ca.finance.yahoo.com/quote/L.TO/financials/