Cineplex is acorporation who had developed to the company it is today because of issuccessive years and failures. From analyzing and researching this company manyconclusions are drawn from their financial statements, ratio analysis and presscommentary.
The current ratio is measure of the ability to pay short-term debt (JerryJ.Weygandt 182). In 2015 Cineplex had $0.41 of current assets to every dollarof current liabilities (“Cineplex 2016 Annual Report”). In 2016 itincreased to $0.45 of current assets to every dollar of current liabilities (“Cineplex2016 Annual Report”). A slight increase of $0.
04, they couldhandle their currents assets better. The inventory turnover ratio measures thenumber of times, on average, the amount of times inventory is sold (JerryJ.Weygandt 304). In 2015, Cineplex sold inventory on average 6.
54 times (“Cineplex2016 Annual Report”). In comparison to 2016, they sold inventoryin average 4.38 times (“Cineplex 2016 Annual Report”). Inventorywas being sold faster on average because in 2016, they had more averageinventory on hand than in 2015. Since most of their inventory is food it makessense that is was sold more faster and more efficiently than in comparison toprevious years. The debt to total assets measures the percentage of the totalassets that is financed by creditors than by shareholder (Jerry J.Weygandt 780).In 2015, 54.
61% of the assets were financed by creditors and it increased to56.49% in 2016 (“Cineplex 2016 Annual Report”). More than50% of Cineplex’s assets are financed by creditors which is riskier thanfinancing provided by shareholder (“Why the Fall at Cineplex Inc. Is OnlyGetting Started”). This is why Shareholders equity decreasedfrom 15.
69% to 9.08% from 2015 to 2016 respectively (“Cineplex 2016 Annual Report”). More money wasspent repaying creditors because they have claim over shareholders first.Cineplex should consider to choose to finance by equity over debt because ofthe decline is their shareholders profile. The interest coverage ratioindicates a company’s ability to pay interest payments as they come due (JerryJ.Weygandt 780). Cineplex covered interest charges 8.
63 times in 2015 and 6.81 times in2016 (“Cineplex2016 Annual Report”). Although Cineplex’s debt to total assets is about57%, they are still equipped to handle their interest payments in 2016 (“Cineplex2016 Annual Report”). The profit margin measures the percentage of eachdollar of sales that results in net income (JerryJ.Weygandt 245). In 2015, 9.
81% of all expense were covered (“Cineplex 2016 Annual Report”). In 2016,Cineplex only managed to cover only 9.08% (“Cineplex 2016 Annual Report”). In order inincrease this percentage, Cineplex needs to control is operating andnon-operating expenses. The return on equity is a ratio valuable to manyinvestors and shareholder (Jerry J.Weygandt 684).
It is used toevaluate how many dollars are earned for each dollar invested (JerryJ.Weygandt 684). In 2015 return on equity was 15.68% and dropped to 9.08% in 2016 (“Cineplex2016 Annual Report”).
This may concern many investors of Cineplex. Since Cineplex’sP/E of 36.6x is higher than its industry peers (33.4x), it means that investorsare paying more than they should for each dollar of their earnings(“Should You Sell Cineplex Inc (TSE:CGX) At This PE Ratio?”).
The assetturnover ratio measures how many dollars of sales are generated by each dollarinvested in assets (Jerry J.Weygandt 488). In 2015, for each dollarinvested in assets produced $0.83 in sales (“Cineplex 2016 Annual Report”).
In 2016, foreach dollar invented in assets produced $0.86 in sales (“Cineplex 2016 Annual Report”). A slightincrease between the two years would not be a huge factor to say the companywas running more efficiently in 2016. Also, more than 50% of their expenses wasspent on other costs which included rent expense, theatre occupancy expenses,other operating expenses, and general and administrative expenses (“Cineplex2016 Annual Report”). Their revenue increased from $1,370,943 in 2015to $1,478,326 in 2016 (“Cineplex 2016 Annual Report”).
This is due to theexpansion of 3D, VIP, UltraAVX, and D-BOX offerings as well as the addition of4DX in the current period (“Cineplex 2016 Annual Report”). The companyis able to utilize their borrowings efficiently in order to generate cash flow,but its low liquidity raises concerns whether short term obligations can be metin time and financing by debt for expenses could be challenging in the future (“Why theFall at Cineplex Inc. Is Only Getting Started”).
As the economy starts tochange with online competitors such as Netflix, more people are finding otheralternatives and putting companies like Cineplex at risk.