Cineplex is acorporation who has developed to the company it is today because of issuccessive years and lessons. 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(Jerry J.Weygandt 182). In 2015, Cineplex had $0.41 of current assets to everydollar of current liabilities (“Cineplex 2016 Annual Report”). In 2016 itincreased to $0.45 of current assets to every dollar of current liabilities.
With only a slight increase of $0.04, theycould handle their currents assets better. The inventory turnover ratiomeasures the number of times, on average, the amount of times inventory is sold(Jerry J.
Weygandt 304). In 2015, Cineplex sold inventory on average 6.54 times.In comparison to 2016, they sold inventory on average 4.38 times. Inventory wasbeing sold faster on average in 2016 because they had more inventory on handthan in 2015. Since most of their inventory is food it makes sense that is wassold faster and more efficiently than in comparison to previous years.
The debtto total assets measures the percentage of the total assets that is financed bycreditors than by shareholder (Jerry J.Weygandt 780). In 2015, 54.61% of theassets were financed by creditors and it increased to 56.49% in 2016.
More than 50% of Cineplex’s assets arefinanced by creditors which is riskier than financing provided by shareholder (“Why the Fall at Cineplex Inc. IsOnly Getting Started”). This is why Shareholders equity decreasedfrom 15.69% to 9.08% from 2015 to 2016 respectively. More money was spent repaying creditors becausethey have rights over the shareholders first.
Cineplex should consider tochoose to finance by equity over debt because of the decline is theirshareholders profile and even though debt may be better in the long run,Cineplex may be in financial damage within the next few years. The interestcoverage ratio indicates a company’s ability to pay interest payments as theycome due (Jerry J.Weygandt 780). Cineplex covered interestcharges 8.
63 times in 2015 and 6.81 times in 2016. Although Cineplex’s debt tototal assets is about 57%, they are still equipped to handle their interestpayments in 2016. The profit margin measures the percentage of each dollar ofsales that results in net income (Jerry J.
Weygandt 245). In 2015, 9.81%of all expense were covered. In 2016, Cineplex only managed to cover only 9.08% of their expenses. In order to increase thispercentage, Cineplex needs to control their operating and non-operatingexpenses. The return on equity is a ratio valuable to many investors and shareholder (JerryJ.Weygandt 684).
It is used to evaluate how many dollars are earned for each dollarinvested (Jerry J.Weygandt 684). In 2015, return on equitywas 15.68% and dropped to 9.
08% in 2016. This may concern many investors of Cineplex. SinceCineplex’s P/E of 36.6x is higher than its industry peers (33.4x), it meansthat investors are 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. In 2016, for each dollar invented inassets produced $0.86 in sales. A slight increase between the two years wouldnot be a huge factor to say the company was running more efficiently in 2016.Also, more than 50% of their expenses was spent on other costs which includedrent expense, theatre occupancy expenses, other operating expenses, and generaland administrative expenses (“Cineplex 2016 Annual Report”). Their revenueincreased from $1,370,943 in 2015 to $1,478,326 in 2016.
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 the Fall at Cineplex Inc. Is Only Getting Started”). As the economystarts to change with online competitors such as Netflix, more people arefinding other alternatives and putting companies like Cineplex at risk.
Hence thereason why the downfall at Cineplex has only started.