Cineplex Inc. is the largest movie exhibition company in Canada. It operates theatres in 10 provinces across Canada. The company’s financial statements are presented in Exhibits 12.13A to 12.13C. 

EXHIBIT 12.13A Cineplex Inc.’s 2016 Consolidated Balance Sheets

EXHIBIT 12.13B Cineplex Inc.’s 2016 Consolidated Statements of Operations

EXHIBIT 12.13C Cineplex Inc.’s 2016 Consolidated Statements of Cash Flows

Required
a. Assess the company’s operating effectiveness by calculating and comparing the activity ratios for Cineplex for 2016 and 2015. (Note: Use media and other revenues for the accounts receivable turnover ratio; use cost of food services as cost of goods sold.)

i. Based on those ratios, do you think Cineplex is operating more effectively in 2016? Support your conclusion.

ii. What other information would you like to have to assess its management of receivables, inventory, and payables?

b. Assess the financial riskiness of the company by calculating and comparing the following ratios. Based on those ratios, do you think the financial risk on the company has decreased in 2016? Support your conclusion.

i. Current ratio

ii. Quick ratio

iii. Debt to equity

iv. Interest coverage

c. Calculate the company’s profitability by determining the following ratios and comment on them:

i. Profit margin

ii. Return on equity

iii. Return on assets

d. Determine the company’s net free cash fl ow for 2016 and 2015. Has this improved or worsened?

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CINEPLEX INc. Consolidated Balance Sheets (expressed in thousands of Canadian dollars) December 31, December 31, 2016 2015 Assets Current assets $ 33,553 $ 35,713 Cash and cash equivalents (note 3) Trade and other receivables (note 4) 115,903 121,398 Income taxes receivable (note 7) 463 Inventories (note 5) 21,412 19,691 Prepaid expenses and other current assets 10,025 10,856 186,827 182,187 Non-current assets Property, equipment and leaseholds (note 6) 564,879 533,192 Deferred income taxes (note 7) 5,891 6,517 Fair value of interest rate swap agreements (note 29) 756 Interests in joint ventures (note 8) 35,288 35,487 Intangible assets (note 9) 132,140 125,492 Goodwill (note 10) 807,953 813,494 $1,728,186 $1,701,917 Business acquisitions (note 2) Commitments guarantees and contingencies (note 28) Liabilities Current liabilities $ 204,725 $ 209,657 Accounts payable and accrued liabilities (note 11) Share-based compensation (note 12) 8,958 9,742 Dividends payable (note 13) 8,238 8,575 Income taxes payable (note 7) 2,042 30,464 Deferred revenue 172,140 159,568 Current debt (note 14) 3,737 Finance lease obligations (note 15) 3,180 2,957 Fair value of interest rate swap agreements (note 29) 2,419 1,414 425,777 402,039 December 31, December 31, 2016 2015 Non-current liabilities Share-based compensation (note 12) 18,346 18,907 Long-term debt (note 14) 297,496 222,340 Fair value of interest rate swap agreements (note 29) 2,020 4,188 Finance lease obligations (note 15) 8,871 12,052 Post-employment benefit obligations (note 16) 7,932 7,296 Other liabilities (note 17) 125,560 131,874 Deferred income taxes (note 7) 11,210 6,283 Convertible debentures (note 18) 102,817 100,703 574,252 503,643 Totalliabilities 976,291 929,420 Equity Share capital (note 19) 859,351 858,305 Deficit (108,342) (86,296) Hedging reserves and other (3,170) (4,979) Contributed surplus 81 (491) Cumulative translation adjustment 1,175 934 Total equity attributable to owners of Cineplex 749,095 767,473 Non-controlling interests 2,800 5,024 Total equity 751,895 772,497 $1,728,186 $1,701,917 December 31, December 31, 2016 2015 Non-current liabilities Share-based compensation (note 12) 18,346 18,907 Long-term debt (note 14) 297,496 222,340 Fair value of interest rate swap agreements (note 29) 2,020 4,188 Finance lease obligations (note 15) 8,871 12,052 Post-employment benefit obligations (note 16) 7,932 7,296 Other liabilities (note 17) 125,560 131,874 Deferred income taxes (note 7) 11,210 6,283 Convertible debentures (note 18) 102,817 100,703 574,252 503,643 Totalliabilities 976,291 929,420 Equity Share capital (note 19) 859,351 858,305 Deficit (108,342) (86,296) Hedging reserves and other (3,170) (4,979) Contributed surplus 81 (491) Cumulative translation adjustment 1,175 934 Total equity attributable to owners of Cineplex 749,095 767,473 Non-controlling interests 2,800 5,024 Total equity 751,895 772,497 $1,728,186 $1,701,917