RONA Inc. (www. rona. ca), founded in 1939, is Canada’s leading distributor and retailer of hardware, home improvement, and gardening products. It has a network that exceeds 600 stores across Canada. Its sales grew from $ 478 million in 1993 to $ 4,884 million in 2012. Its financial statements for 2011 and 2012 are shown on the next few pages.
1. Examine RONA’s balance sheets. Why did the company’s assets increase significantly in 2012? Which sections of the annual reports would include information that helps the reader answer this question? Which assets show the largest increases, and how did the company finance the increase in these assets?
2. RONA’s current assets include a prepaid expenses account with a balance of $ 20,162. What does this account represent, and what type of transactions would cause an increase or a decrease in the account balance? Explain.
3. Compute the total asset turnover ratio, return on assets, return on equity, and net profit margin ratio for both 2011 and 2012. Comment on the profitability of RONA’s operations in both years. RONA’s total assets and shareholders’ equity at December 26, 2010, amounted to $ 2,921,620 and $ 1,911,697, respectively.
4. RONA’s operations generated significant amounts of cash during both 2011 and 2012. The company also made significant investments in 2012. How did the company finance these investments?
5. Compute and interpret the quality of earnings ratio for both 2011 and 2012.
6. Access one of the online information services listed in the chapter, search for RONA Inc. (RON. TO), and look for analyst estimates. What is the average analysts’ estimate of RONA’s earnings per share (EPS) for the next two years? Do analysts expect RONA’s EPS to increase or decrease in the future? What information did the analysts take into consideration in computing their EPS estimates for the next two years?