Cineplex is a
corporation who has developed to the company it is today because of is
successive years and lessons. From analyzing and researching this company many
conclusions are drawn from their financial statements, ratio analysis and press
commentary. 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 every
dollar of current liabilities (“Cineplex 2016 Annual Report”). In 2016 it
increased to $0.45 of current assets to every dollar of current liabilities. With only a slight increase of $0.04, they
could handle their currents assets better. The inventory turnover ratio
measures 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 was
being sold faster on average in 2016 because they had more inventory on hand
than in 2015. Since most of their inventory is food it makes sense that is was
sold faster and more efficiently than in comparison to previous years. The debt
to total assets measures the percentage of the total assets 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 to 56.49% in 2016. More than 50% of Cineplex’s assets are
financed by creditors which is riskier than financing provided by shareholder  (“Why the Fall at Cineplex Inc. Is
Only Getting Started”). This is why Shareholders equity decreased
from 15.69% to 9.08% from 2015 to 2016 respectively. More money was spent repaying creditors because
they have rights over the shareholders first. Cineplex should consider to
choose to finance by equity over debt because of the decline is their
shareholders profile and even though debt may be better in the long run,
Cineplex may be in financial damage within the next few years. The interest
coverage ratio indicates a company’s ability to pay interest payments as they
come due (Jerry J.Weygandt 780). Cineplex covered interest
charges 8.63 times in 2015 and 6.81 times in 2016. Although Cineplex’s debt to
total assets is about 57%, they are still equipped to handle their interest
payments in 2016. The profit margin measures the percentage of each dollar of
sales 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 this
percentage, Cineplex needs to control their operating and non-operating
expenses. The return on equity is a ratio valuable to many investors and shareholder (Jerry
J.Weygandt 684). It is used to evaluate how many dollars are earned for each dollar
invested (Jerry J.Weygandt 684). In 2015, return on equity
was 15.68% and dropped to 9.08% in 2016. This may concern many investors of Cineplex. Since
Cineplex’s P/E of 36.6x is higher than its industry peers (33.4x), it means
that 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 asset
turnover ratio measures how many dollars of sales are generated by each dollar
invested in assets (Jerry J.Weygandt 488). In 2015, for each dollar
invested in assets produced $0.83 in. In 2016, for each dollar invented in
assets produced $0.86 in sales. A slight increase between the two years would
not 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 included
rent expense, theatre occupancy expenses, other operating expenses, and general
and administrative expenses (“Cineplex 2016 Annual Report”). Their revenue
increased from $1,370,943 in 2015 to $1,478,326 in 2016. This is due to the
expansion of 3D, VIP, UltraAVX, and D-BOX offerings as well as the addition of
4DX in the current period (“Cineplex 2016 Annual Report”). The company
is able to utilize their borrowings efficiently in order to generate cash flow,
but its low liquidity raises concerns whether short term obligations can be met
in 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 economy
starts to change with online competitors such as Netflix, more people are
finding other alternatives and putting companies like Cineplex at risk. Hence the
reason why the downfall at Cineplex has only started.

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