North West Company: Analyzing Financial Performance
(4 pages of text)
Case (Pub Mat)
In June 2015, a new analyst at an investment fund company had to review the financial performance of a potential investment target, the North West Company Inc. (NWC), and make a recommendation. NWC was a food retailer operating in underserved markets. The company operated retail locations in Western and Northern Canada, Alaska, the South Pacific, and the Caribbean, reporting total sales of CA$1.6 billion in 2014. Twelve years after NWC’s initial push outside of Canada, international sales accounted for 35.8 per cent of the company’s business. Whereas rivalry among competitors and consumer choice defined the mainstream Canadian market, food retail in Northern Canadian markets was characterized by limited offerings, high prices, and few competitors.
The analyst’s report needed to include an assessment of NWC’s profitability, liquidity, and financial structure. The analyst was particularly interested in NWC’s international operations; although international expansion carried with it the potential for significant revenue growth, she wondered whether the profit potential was as great as that of NWC’s operations in Northern and Western Canada. She also knew that if NWC did choose to expand its international operations, it would require significant capital investment. Was NWC a good investment opportunity?
The case offers students the opportunity to review some strategic considerations around domestic and international growth, and to consider several aspects of serving essential products to communities that, in some cases, have challenging economic or social situations. The case may be used to do the following:
- Develop understanding of financial statements.
- Complete a preliminary evaluation of the financial position and historical performance of a firm, and in particular, demonstrate financial statement analysis calculations and understand their purpose, how to interpret them, and the significance of these calculations—specifically, in comparison to a rival or industry indicators.
- Learn about a distinct segment of a major industry—food retail in underserved, remote markets—and the unique characteristics of the industry.
Canada, Large, 2015
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