Loblaw Companies Limited, headquartered in Toronto, Ontario, is a large food and pharmacy retailer. Loblaw’s authorized share capital includes an unlimited number of common shares, 1 million first preferred shares, and an unlimited number of second preferred shares. As at January 2, 2021, no first preferred shares had ever been issued. The following information is also available for the years ended January 2, 2021 (2020 fiscal year) and December 28, 2019: 

Instructions 

a. Discuss the change in Loblaw’s profitability from 2019 to 2020. 

b. Is your assessment in part (a) consistent with the change in market price per share? Explain.

c. Loblaw issued 1,187,274 common shares during the fiscal year 2020 and received proceeds of $46 million in settlement of stock option plans for its employees and directors. What are the advantages to the employees when they receive a portion of their annual compensation in shares? What are the advantages to the corporation? 

d. The preferred shareholders receive a dividend of 5.30% on the face value of the preferred shares. The company has issued a total of 9 million second preferred shares, series B, with total face value of $225 million. What is the dollar amount of the dividend per share? Why is this rate higher than the interest rate on savings accounts paid by banks?

e. Loblaw has not issued any additional preferred shares in many years. Why would it be more advantageous for the company to issue common shares instead of preferred shares?

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2020 29.5% 3.3% 2019 29.7% 3.4% 14.0% 13.7% $62.81 $67.78 $25.69 Gross profit margin Return on assets Return on equity Market price per common share Market price per second preferred share, series B $25.89