All amounts in 000's of Canadian dollars, except common shares issued (a) (1) (a) (2)

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1 Shoppers Suggested Solution (a) (1) and (2) Shoppers Drug Mart All amounts in 000's of Canadian dollars, except common shares issued (a) (1) (a) (2) Horizontal Analysis Vertical Analysis Comparison Comparison Amount Percentage Balance Sheet Items Cash $ 36,567 $ 27,588 $ 62,865 8, % 0.6% 0.5% Accounts Receivable 448, , ,779 76, % 7.0% 6.6% Inventory 1,743,253 1,545,599 1,372, , % 27.2% 27.5% Other Current Assets 156, ,644 78,655-48, % 2.4% 3.6% Current Assets 2,384,464 2,150,137 1,821, , % 37.1% 38.2% Property, Plant and Equipment 1,442,135 1,126, , , % 22.5% 20.0% Other Assets 2,592,707 2,345,327 2,199, , % 40.4% 41.7% Total Assets $ 6,419,306 5,621,977 $ 4,929,014 $ 797, % 100.0% 100.0% Current Liabilities $ 1,843,860 $ 2,158,320 $ 1,577, , % 28.7% 38.4% Long-Term Debt 647, , ,250 n/a 10.1% 0.0% Other Liabilities 468, , ,276 80, % 7.3% 6.9% Total Liabilities 2,959,893 2,546,267 2,205, , % 46.1% 45.3% Total Shareholders' Equity 3,459,413 3,075,710 2,723, , % 53.9% 54.7% Total Liabilities and Shareholders' Equity $ 6,419,306 5,621,977 $ 4,929,014 $ 797, % 100.0% 100.0% Weighted Average Number of Common Shares 216,976, ,062, ,931, , % Common Dividends $ 186,679 $ 138,398 $ 102,952 48, % Preferred Dividends $ - $ - $ - Statement of Earnings Items Net Sales $ 9,422,911 $ 8,478,382 $ 7,786, , % 100.0% 100.0% Cost of Goods Sold and Other Operating Expenses 8,335,038 7,520,033 6,958, , % 88.5% 88.7% Earnings from Operations 1,087, , , , % 11.5% 11.3% Depreciation Expense 205, , ,549 33, % 2.2% 2.0% Interest Expense 63,952 52,873 49,872 11, % 0.7% 0.6% Income Tax Expense 253, , ,163 10, % 2.7% 2.9% Net Earnings $ 565, ,441 $ 422,491 $ 74, % 6.0% 5.8% Other Items Cash flows from Operating Activities $ 478,989 $ 565,058 $ 579,006-86, % Net Capital Expenditures $ 496,975 $ 377,512 $ 293, , %

2 Shoppers Suggested Solution (a) (3) Shoppers Drug Mart Liquidity Working Capital = Current Assets - Current Liabilities = $540,604 ($8,183) Current Ratio = Current Assets = omparison = #VALUE! :1 $2,150,137 = 1.0 :1 Current Liabilities $1,843,860 $2,158,320 Inventory Turnover = Cost of Goods Sold(including operating expenses) = $8,335,038 = 5.1 times $7,520,033 = 5.2 times Average Inventory $1,644,426 $1,458,862 Days in Inventory = 365 Days = 365 = 72.0 days 365 = 70.8 days Inventory Turnover Receivables Turnover = Net Credit Sales = $9,422,911 = 23.0 times $8,478,382 = 24.9 times Average Gross Accounts Receivable $410,391 $340,043 Average Collection Period = 365 Days = 365 = 15.9 days 365 = 14.6 days Receivables Turnover Ratio Cash Current Debt Coverage = Net Cash Provided (Used) by Operating Activities = $478,989 = 0.2 times $565,058 = 0.3 times Average Current Liabilities $2,001,090 $1,868,052 Solvency Debt to Total Assets = Total Liabilities = $2,959,893 = 46.1% $2,546,267 = 45.3% Total Assets $6,419,306 $5,621,977 Free Cash Flow = Cash Provided (Used) by Operating Activities - Net Capital Expenditures - Dividends Paid = ($204,665) $49,148 Times Interest Earned Earnings Before Interest Expense = and Income Tax Expense (EBIT) = $882,502 = 13.8 times $786,274 = 14.9 times Interest Expense $63,952 $52,873 Cash Total Debt Coverage = Net Cash Provided (Used) by Operating Activities = $478,989 = 0.2 times $565,058 = 0.2 times Average Total Liabilities $2,753,080 $2,375,664 Profitability Gross Profit Margin = Gross Profit = $1,087,873 = 11.5% $958,349 = 11.30% Net Sales $9,422,911 $8,478,382 Profit Margin = Net Earnings = $565,212 = 6.0% $490,441 = 5.8% Net Sales $9,422,911 $8,478,382 Return on Assets = Net Earnings = $565,212 = 9.4% $490,441 = 9.3% Average Total Assets $6,020,642 $5,275,496 Asset Turnover = Net Sales = $9,422,911 = 1.6 times $8,478,382 = 1.6 times Average Total Assets $6,020,642 $5,275,496 Return on Common = Net Earnings - Preferred Dividends = $565,212 = 17.3% $490,441 = 16.9% Shareholders' Equity Average Common Shareholders' $3,267,562 $2,899,832 Equity Earnings Per Share = Net Earnings - Preferred Dividends = $565,212 = $2.60 $490,441 = $2.27 Weighted Average Number of Common Shares 216, ,063 Payout Ratio = Cash Dividends = $186,679 = 33.0% $138,398 = 28.22% Net Earnings $565,212 $490,441

3 Shoppers Drug Mart - Continued Acid-Test = Cash + Short term Investments + Accounts Recievables = $485,043 = 0.3 $399,894 = 0.2 Current Liabilities $1,843,860 $2,158,320 Price Earnings Ratio = Market Price per Share = $48.05 = 18.4 $53.26 = 23.5 Earnings per Share $2.60 $2.27 Dividend Yield = Dividend per Share = $0.86 = 1.8% $0.64 = 1.2% Market Price per Share $48.05 $53.26 Book Value per Share = Common Shareholers' Equity = $3,459,413 = $15.92 $3,075,710 = $14.19 Outstanding Shares 217, ,788

4 Jean Coutu Suggested Solution (a) (1) and (2) Jean Coutu Group All amounts in Canadian dollars, except common shares issued expressed in 000's (a) (1) (a) (2) Horizontal Analysis Vertical Analysis Comparison Comparison Balance Sheet Items Amount Percentage Cash - $ $ - $ 40,700 0 n/a 0.0% 0.0% Accounts Receivable 183, , ,600 16, % 18.1% 8.6% Inventory 159, , ,000 4, % 15.7% 7.9% Other Current Assets 6,200 5,600 8, % 0.6% 0.3% Current Assets 349, , ,300 21, % 34.4% 16.8% Property, Plant and Equipment 366, , ,400 36, % 36.1% 16.9% Other Assets 299,000 1,292,200 1,668, , % 29.5% 66.3% Total Assets $ 1,014,400 1,949,300 $ 2,336,700 $ -934, % 100.0% 100.0% Current Liabilities $ 259,300 $ 266,600 $ 282,500-7, % 25.6% 13.7% Long-Term Debt 269, ,500 7, , % 26.6% 8.7% Other Liabilities 29,700 29,100 29, % 2.9% 1.5% Total Liabilities 558, , ,200 93, % 55.1% 23.9% Total Shareholders' Equity 455,600 1,484,100 2,017,500-1,028, % 44.9% 76.1% Total Liabilities and Shareholders' Equity $ 1,014,400 1,949,300 $ 2,336,700 $ -934, % 100.0% 100.0% Weighted Average Number of Common Shares 242,400, ,900, ,900,000-14,500, % Common Dividends $ 38,700 $ 30,700 $ 31,400 8, % Preferred Dividends $ - $ - $ - Statement of Earnings Items Net Sales $ 2,369,300 $ 1,676,300 $ 13,265, , % 100.0% 100.0% Cost of Goods Sold 1,944,400 1,370,000 10,040, , % 82.1% 81.7% Other Operating Expenses 199, ,600 2,683,900 59, % 8.4% 8.3% Earnings from Operations 225, , ,000 58, % 9.5% 9.9% Depreciation Expense 16,100 11,700 75,400 4, % 0.7% 0.7% Interest Expense 12,600 5, ,300 7, % 0.5% 0.3% Other Losses 1,327, ,500 34, , % 56.0% 23.7% Income Tax Expense 61,800 3,800 25,000 58, % 2.6% 0.2% Net Earnings (Loss) $ (1,192,100) (251,400) $ 162,500 $ -940, % -50.3% -15.0% Other Items Cash Provided (Used) by Operating Activities $ 143,800 $ 146,400 $ 192,300-2, % Net Capital Expenditures $ 48,400 $ 21,700 $ 144,800 26, %

5 Jean Coutu Suggested Solution (a) (3) Jean Coutu Group Liquidity Working Capital = Current Assets - Current Liabilities = $89,900 $61,200 Current Ratio = Current Assets = $349,200 = 1.3 :1 $327,800 = 1.2 :1 Current Liabilities $259,300 $266,600 Inventory Turnover = Cost of Goods Sold = $1,944,400 = 12.4 times $1,370,000 = 9.4 times Average Inventory $157,050 $146,350 Days in Inventory = 365 Days = 365 = 29.5 days 365 = 39.0 days Inventory Turnover Receivables Turnover = Net Credit Sales = $2,369,300 = 13.5 times $1,676,300 = 10.2 times Average Gross Accounts Receivable $175,550 $165,050 Average Collection Period = 365 Days = 365 = 27.0 days 365 = 35.9 days Receivables Turnover Ratio Cash Current Debt Coverage = Net Cash Provided (Used) by Operating Activities = $143,800 = 0.5 times $146,400 = 0.5 times Average Current Liabilities $262,950 $274,550 Solvency Debt to Total Assets = Total Liabilities = $558,800 = 55.1% $465,200 = 23.9% Total Assets $1,014,400 $1,949,300 Free Cash Flow = Cash Provided (Used) by Operating Activities - Net Capital Expenditures - Dividends Paid = $95,400 $124,700 Times Interest Earned Earnings Before Interest Expense = and Income Tax Expense (EBIT) = ($1,117,700) = times ($242,500) = times Interest Expense $12,600 $5,100 Cash Total Debt Coverage = Net Cash Provided (Used) by Operating Activities = $143,800 = 0.1 times $146,400 = 0.1 times Average Total Liabilities $969,850 $1,750,800 Profitability Gross Profit Margin = Gross Profit = $424,900 = 17.9% $306,300 = 18.27% Net Sales $2,369,300 $1,676,300 Profit Margin = Net Earnings = ($1,192,100) = -50.3% ($251,400) = -15.0% Net Sales $2,369,300 $1,676,300 Return on Assets = Net Earnings = ($1,192,100) = -80.4% ($251,400) = -11.7% Average Total Assets $1,481, $2,143,000 Asset Turnover = Net Sales = $2,369,300 = 1.6 times $1,676,300 = 0.8 times Average Total Assets $1,481,850 $2,143,000 Return on Common = Net Earnings - Preferred Dividends = ($1,192,100) = % ($251,400) = -14.4% Shareholders' Equity Average Common Shareholders' $969,850 $1,750,800 Equity Earnings Per Share = Net Earnings - Preferred Dividends = ($1,192,100) = ($4.92) ($251,400) = ($0.98) Weighted Average Number of Common Shares 242,400, ,900,000 Payout Ratio = Cash Dividends = $38,700 = -3.2% $30,700 = % Net Earnings ($1,192,100) ($251,400)

6 Jean Coutu Group - Continued Acid-Test = Cash + Short term Investments + Accounts Recievables = $183,600 = 0.7 $167,500 = 0.6 Current Liabilities $259,300 $266,600 Price Earnings Ratio = Market Price per Share = $7.56 = -1.5 $10.36 = Earnings per Share ($4.92) ($0.98) Dividend Yield = Dividend per Share = $0.16 = 2.1% $0.12 = 1.2% Market Price per Share $7.56 $10.36 Book Value per Share = Common Shareholers' Equity = $455,600 = $1.93 $1,484,100 = $5.98 Outstanding Shares 236, ,300

7 (b) Intracompany Analysis: Shoppers Drug Mart Horizontal Analysis Balance Sheet Overall, Shoppers has experienced a $234,327,000 or 10.9% increase in its current assets between 2007 and Cash increased by $8,979,000 (32.5%) while other current assets decreased by $48,476,000 (19.8%). Accounts receivable have increased by $76,170,000 (20.5%) and inventory has increased by $197,654,000 (12.8%). It is important to note that accounts receivable have increased at a rate higher than sales at 11.1%. This may indicate slower collections of receivables or some potential bad debts. In the long-term assets section, Shoppers property, plant and equipment increased by $315,622,000 (28%). An increase is expected as Shoppers spent $496,975,000 on capital expenditures in the past year. Other assets increased by $247,380,000 (10.5%) as did overall assets by $797,329,000 (14.2%) In the past year, Shoppers appears to have refinanced a portion of its debt from current to long-term. Its current liabilities decreased by 14.6% ($314,460,000) while long-term debt increased by $647,250,000. Other liabilities also increased by $80,836,000 (20.8%) for an overall liabilities increase of $413,626,000 or 16.2% Common shareholders equity also increased in 2008 by $383,703,000 or 12.5%. Given the level of earnings in 2008 of $565,212,000 and cash dividends of $186,679,000, a significant increase in shareholders equity would be expected. Statement of Earnings The increase in sales of 11.1% or $944,529,000 is larger than the increase in Shoppers cost of goods sold and other operating expenses of 10.8% or $815,005,000, which indicates a slight but overall increase in gross profit levels. It should be noted Shoppers includes other operating expenses with its cost of goods sold rather than separately reporting them. Depreciation expense has increased by $33,296,000 (19.3%) which overall is expected as the amount of this asset category has also increased. Earnings from operations experienced an overall increase of $129,524,000 or 13.5%. Due in part to the increased amount of debt, interest expense has increased by $11,079,000 or 21.0% in Net earnings overall has increased by $74,771,000 (15.2%) which has contributed to the increase of $10,378,000 (4.3%) in income tax expense. Financial Analysis Assignment Shoppers and Jean Coutu Page 7

8 (b) (Continued) Intracompany Analysis: Shoppers Drug Mart Vertical Analysis Balance Sheet Overall, current assets have slightly decreased as a proportion of total assets, moving from 38.2% to 37.1%. Accounts receivable experienced a slight increase from 6.6 in 2007 to 7.0% in Inventory remained the largest current asset but experienced a slight decrease from 27.5% to 27.2%. Property, plant and equipment experienced an increased from 20% to 22.5%. Other assets experienced a slight drop moving from 41.7% to 40.4% There has been a slight increase in Shoppers liabilities as a proportion of liabilities and shareholders equity. This has moved from 45.3% to 46.1% with the current liabilities decreasing from 38.4% to 28.7% and long term liabilities moving up from 0% to 10.1% Common shareholders equity decrease slightly from 54.7% to 53.9% Statement of Earnings Overall, earnings from operations has seen a slight increase from 11.3% to 11.5% due in part to a small reduction in the cost of goods sold and other operating expenses from 88.7% to 88.5%. Net earnings have also increased from 5.8% to 6.0% in Financial Analysis Assignment Shoppers and Jean Coutu Page 8

9 (b) Intracompany Analysis: Jean Coutu Group Horizontal Analysis Balance Sheet Note that Shoppers has a year end of December 31, 2008 while Jean Coutu s year-end is February 28, This is why Shoppers is comparing 2008 and 2007 and Jean Coutu 2009 and However, all but two months of their years overlap. Jean Coutu s sales have increased by $693,000,000 or 41.3%. Consequently, an overall increase in accounts receivable is expected. Its accounts receivable have increased by 9.6% or $16,100,000 dollars since Other current assets have also increased by $600,000 or 10.7%. Note the relatively small dollar increase but the large percentage increase. This company purchased more property, plant and equipment in 2009 as this account has increased by $36,900,000 or 11.2% over the prior year. This is supported by an increase in net capital expenditures of $48,400,000. Note that the property, plant and equipment number is a net number so the difference between the two may be a combination of new capital purchases and sales plus a change in depreciation expense. Other assets have decreased dramatically by 76.9% or $993,200,000. This was primarily due to a write-down in the carrying amount of Jean Coutu s investment in Rite Aid pharmaceutical stores in the U.S. This decrease is related to the large loss in investment income in On the liabilities side, this group appears to be moving from current debt to long-term debt. This group has slightly decreased its current liabilities by $7,300,000 (2.7%) while significantly increasing its long-term debt by $100,300,000 (59.2%) Overall, shareholders equity has significantly decreased by $1,028,500,000 (69.3%). Likely the majority of this drop is related to Jean Coutu s drop in earnings of $940,700,000 down to a loss of $1,192,100,000. Also, there has been a significant decrease in the weighted average number of shares outstanding from 256,900,000 to 242,400,000. Statement of Earnings The change in sales, in terms of percentage, is consistent with the change in cost of goods sold. Sales have increased by 41.3% and cost of goods sold by 41.9%. Note that Jean Coutu reports its cost of goods sold separately from other operating expenses, whereas Shoppers does not. As the amount of property, plant and equipment overall has increased, an increase in the amount of depreciation expense of $4,400,000 is not unusual. The percentage increase in earnings from operations of 35.2% is lower than that of the sales increase of 41.3%, primarily because of increased operating expenses. Interest expense increased significantly by 147.1% from prior year. Given the overall increase in liabilities, we would expect a significant increase in interest costs. Income taxes have also significantly increased. Due to the amount of data given it is not possible to analyze this further. It is important to note that the overall earnings of the company have significantly decreased due to a large investment loss. Further analysis of this tax expense increase at a corporate level would be recommended. Financial Analysis Assignment Shoppers and Jean Coutu Page 9

10 (b) (Continued) Intracompany Analysis: Jean Coutu Group Vertical Analysis Balance Sheet Overall current assets have increased as a proportion of total assets moving, from 16.8% to 34.4% in Accounts receivable were 8.6% in 2008 and 18.1% in 2009 with inventory at 7.9% in 2008 and 15.7% in These are the two largest items within current assets and they have significantly increased in terms of percentages. Property, plant and equipment have also increased from 16.9% up to 36.1%. Other assets (primarily investments) have significantly decreased from 66.3% representing Jean Coutu s largest asset in 2008 down to 29.5%. Overall liabilities have increased from 23.9% to 55.1%. This is consistent with the large increase in long-term debt from 8.7% to 26.6% and a large decrease in shareholders equity from 76.1% to 44.9% indicating that Jean Coutu operations now rely more on debt financing rather than equity. Statement of Earnings Overall, earnings from operations has seen a slight decrease from 9.9% to 9.5%. Income taxes have increased from 0.2% to 2.6%. The largest change is in the company s overall net loss moving from -15% down further to -50.3% due to a large increase in investment losses. Financial Analysis Assignment Shoppers and Jean Coutu Page 10

11 (c) Intercompany Comparison: Shoppers Drug Mart vs. Jean Coutu Group When comparing Shoppers Drug Mart with Jean Coutu Group we will look primarily at the fiscal year ended February 28, 2009 for Shoppers and the fiscal year ended December 31, 2008 for Jean Coutu. While these year ends may be slightly different, they have 10 months of overlap and can therefore be considered as similar periods of time for purposes of a competitor comparison. Liquidity: Measuring the company's short-term ability to pay its maturing obligations Conclusion: Overall, comparing the companies' liquidity ratios, Jean Coutu s liquidity ratios overall present a slightly more positive picture than Shoppers Drug Mart, which may indicate that of these two companies the Jean Coutu Group has a stronger liquidity position. Working Capital, Current and Acid-Test Ratios In terms of working capital from both companies improved their working capital positions in the most recent year, increasing their liquid holdings. Shoppers Drug Mart was in a stronger working capital position at the end of 2008 at $540,000,000 compared to Jean Coutu at $89,900,000. A more useful indicator is the current and the acid test ratios. Both Shoppers Drug Mart and Jean Coutu Group experienced improvements in their current ratios, which may indicate that both organizations were better able to manage their current assets. In terms of overall performance both had a current ratio of 1.3 to 1 in their most recent fiscal year. Looking at the acid test ratio the Jean Coutu Group is in a better position. Although Shoppers moved from 0.2 in 2007 up to 0.3 in 2008, Jean Coutu Group experienced higher values in both 2008 (0.6) and 2009 (0.7). Better Performer: Jean Coutu Cash to Current Debt Coverage In terms of cash to current debt coverage ratios, Jean Coutu has a stronger position in both years. Jean Coutu Group has maintained their cash current debt coverage ratio at 0.5 times. Shoppers Drug Mart in contrast is in the 0.2 to 0.3 range and still has a ways to go to catch up to Jean Coutu. As this ratio covers a period in time rather than the current ratio it may be a better indicator of liquidity. In this case we can draw the conclusion that Jean Coutu has a stronger position overall compared to Shoppers. Better Performer: Jean Coutu Receivables Turnover and Average Collection Period Overall Shoppers Drug Mart appears to have been better at collecting its accounts receivables than Jean Coutu in both 2008 and Shoppers receivables turnover moved from 24.9 times down to 23.0 times and average collection period from 14.6 to Jean Coutu, although improving, remains behind with its receivables turnover moving from 10.2 times up to 13.5 times. Its average collection period has also dropped from 35.9 to 27.0 days. Inventory Turnover and Days in Inventory In terms of inventory turnover, Jean Coutu turns over its inventory at a faster rate than Shoppers. In fact, the company has experienced an increase in inventory turnover rates of 9.4 times and 39 days in 2008 to 12.4 and 29.5 days in 2009 (a trend to keep an eye on). Overall, their inventory rates present a much stronger picture of inventory management than Shoppers. Shoppers turned over its inventory 5.2 times in 2008 and 5.1 times in 2009, or every 70.8 days in 2007 and 72 days in Financial Analysis Assignment Shoppers and Jean Coutu Page 11

12 Better Performer: Jean Coutu Solvency: Evaluating the company's capability of meeting financial obligations Conclusion: Overall, comparing the companies' solvency ratios, Shoppers Drug Mart s ratios overall present a more positive picture and less risky position than Jean Coutu. Overall, Shoppers Drug Mart has a stronger solvency position. Debt to Assets Shoppers debt to total assets ratio from 2007 to 2008 remained fairly steady at 45.3% to 46.1%. Jean Coutu appears to have significantly increased their reliance on debt from 23.9% to 55.1% thereby increasing its risk. Times Interest Earned and Free Cash Flow Shoppers times interest earned ratio has decreased from 15.1 times in 2007 to 13.8 times in This trend is consistent with a slight decrease in the company s debt to assets ratio. Jean Coutu has an increasingly negative times interest earned ratio moving from times in 2008 to times in 2009 also indicating a level of increased risk. Overall, both companies have decreasing levels of free cash flow. Shoppers did undertake major capital expenditures in 2008 resulting in its negative free cash flow. Cash Total Debt Coverage Overall, Shoppers cash to debt coverage ratios exceed those of Jean Coutu in both years. Jean Coutu cash to total debt coverage ratio remained at 0.1 times for both years. Shoppers also experienced a relatively consistent cash to total debt coverage of 0.2 in both years. Book Value per Share Shoppers book value per share has increased from $14.19 in 2007 up to $15.92 in Jean Coutu on the other hand has experienced a significant decrase in value moving from $5.98 down to $1.93. Profitability: Evaluating management effectiveness and how well the company has operated during the year Conclusion: Overall, comparing the companies' profitability ratios, Shoppers Drug Mart is in a stronger overall profitability position than Jean Coutu. The one area of exception may appear to be the gross profit margin, but further analysis would have to be done to remove the operating expenses from cost of goods sold in order to make the comparisons more relevant Return on Common Shareholders Equity Shoppers experienced a slight increase in its return on common shareholders equity from 16.9% in 2007 to 17.3% in Jean Coutu experienced a dramatic increased level of loss moving from -14.4% in 2008 to % in 2009 largely due to negative investment income. Financial Analysis Assignment Shoppers and Jean Coutu Page 12

13 Return on Assets, Profit Margin and Asset Turnover Consistent with the return on equity figures, Shoppers return on assets position experienced a slight increase moving from 9.3% to 9.4%. Jean Coutu experienced a negative return on assets moving from a return level of -11.7% to -80.4%. Shoppers return on equity figures are higher than its return on assets which indicates that it has made effective use of leveraging. Shoppers profit margin exceeds Jean Coutu s for both 2007 (5.8% vs. -15%) and 2008 (6.0% vs %), respectively. For the asset turnover ratio, Jean Coutu s turnover was much less than Shoppers in 2008 coming in at 0.8 times vs. 1.6 times. In the latest year, both companies had an equal asset turnover ratio of 1.6 times. For Jean Coutu, this positive improvement was not enough to offset the effects of its negative profit margin as exhibited by its overall return on assets results. Gross Profit Margin Shoppers Drug Mart had a slight increase in gross profit margin from 11.3% in 2007 to 11.5% in 2008 while Jean Coutu experienced a slight decrease moving from 18.3% to 17.9%. Overall Jean Coutu s gross profit margins appear to exceed Shoppers in both years, however Shoppers reports other operating expenses as part of cost of goods sold while Jean Coutu identifies these expenses separately. For the purpose of the ratio analysis, Jean Coutu s operating expenses were combined with its cost of goods sold to improve the comparability of this analysis. Better Performer: Uncertain Earnings per Share and Price Earnings As expected, given the above analysis Shoppers Drug Mart s earnings per share exceeds that of Jean Coutu in both 2009 ($2.60 vs. -$4.92) and 2008 ($2.28 vs -$.98). Shoppers price earnings ratio significantly exceeded Jean Coutu s in both years. In 2007 Shoppers position was 23.5 vs Jean Coutu s In 2008 Shoppers position decreased slightly to 18.4 while Jean Coutu s improved moving up to Payout Ratio and Dividend Yield Shoppers payout ratio also significantly exceeded Jean Coutu s at 28.0% in 2007 and 33.0% in 2008 vs. Jean Coutu s in 2008 and -3.2 in 2009 In 2007 both Shoppers and Jean Coutu had a dividend yield of 1.2%. In 2008 however Shoppers dividend yield moved up to 1.8% and Jean Coutu to 2.1% Better Performer: Uncertain Conclusion In terms of overall strength, Shoppers Drug Mart appears to be the stronger of these two competitors. While the Jean Coutu Group may have the stronger position in terms of liquidity (a short term measure), Shoppers Drug Mart is stronger overall in terms of solvency and profitability. Financial Analysis Assignment Shoppers and Jean Coutu Page 13