Question

Project Scenario

You have been an Analyst for the professional service firm, FINACC LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. In your first day on the job you have helped the Manager in the Consulting area in making investment decisions for one of your large clients, Big Spenders Inc. Big Spenders Inc. was very impressed with your report and has asked your Manager if you could work on another project.

Additional Information

Big Spenders Inc. plans to expand its portfolio of investments and requires your firm to suggest and evaluate several Canadian equity investment opportunities. Your responsibility is to pick an industry that you are an expert in and choose a listed company that you think will be a great potential investment opportunity (the target company). You will then have to perform a comparative analysis of the profitability and financial health of this company compared to one of its competitors (the competitor). Finally, you will be asked to give recommendation on why you think your target company will be a great investment for Big Spenders Inc.

As you are new to the job, your Manager has provided you with some initial instructions to carry out this project. He recommends that you break the project into parts.

Part 1- Identify the companies

To start with, you can visit the Toronto Stock Exchange website for information on listed companies in Canada. You can then perform a stock screening to obtain information about the stocks listed as well as the companies' financial information. The stock screener can be found at https://web.tmxmoney.com/screener.php?locale=EN.

After you have picked a company of your choice and identified one of its competitors, your Manager has asked that you provided a brief background on the operations of the two companies as well as on the current stock prices of the two companies.

Part 2- Read and understand the financial statements

Similar to your past project, an important part of the analysis of the potential equity investment is an assessment of each company’s current and future profitability as well as their financial soundness. You will have to extract details from their income statements in the last five years for both the target and the competitor companies. You can obtain this information directly after you have performed the stock screening on the TSX website, or you can go to the SEDAR filing system to search for Canadian companies’ financial statements (https://www.sedar.com).

Part 3- Perform Financial Statement Analysis

Based on the information obtained from the two companies' income statements as well as the background information, you are to compare the performance of the two companies using financial statement analysis. From the BUSI 1043 course that you took in the past at Yorkville University, you know there are at least the horizonal analysis, the vertical analysis and the ratio analysis that you can perform. You have been asked to discuss any other issues that you believe are relevant to the investment decision and make a recommendation to Big Spenders Inc. for whether your target would be a good investment.

Big Spenders Inc. would likely be a long-term client of FINACC LLP if you could once again gain their trust from this project. The Manager would like you to prepare the final report and trust that your analysis will be throughout and completed as always.

Answer 1

Two companies selected :

1. Canadian Natural Resources Limited

2. Cenovus Energy Inc.

Canadian Natural Resources Limited
	CNRL develops, produces, markets and sells crude oil, natural gas and natural gas liquids.
	Canadian Natural's headquarters is in Calgary, Alberta. Canadian Natural has a revenue of $16.9B, and 7,270 employees.
	Canadian Natural's main competitors are Husky Energy, Cenovus and Encana.
Annual Revenue	$16.9B
Employees	7270
Founded:	1989
Headquarters:	Calgary, Alberta
Status:	PublicNYSECNQ
	Oil & Gas Exploration, Production, Sales Cenovus Energy Inc. Cenovus Energy explores, acquires, develops, produces and markets crude oil and gas properties. Cenovus is headquartered in Calgary, Alberta. Alex Pourbaix is the President & CEO of Cenovus. Cenovus's main competitors are Enbridge, Suncor Energy and TC Energy. Annual Revenue Employees $16.3B 2361 Founded: 2009 Headquarters: Calgary, Alberta Status: PublicTMX Group - Toronto Stock ExchangeCVE Industry Sector: Multi-Utilities Canadian Natural Resources Limited Cenovus Energy Inc. Fiscal Year ends in Dec Dec-19 Dec-18 Dec-17 Dec-16 Dec-15 Fiscal Year ends in Dec Dec-19 Dec-18 Dec-17 Dec-16 Dec-15 CAD in Millions except per share data CAD in Millions except per share data total revenue Created with Highcharts 5.0.7 24,394 22,282 17,669 11,098 13,167 total revenue Created with Highcharts 5.0.7 2,877.10 3,320.50 2,830.90 2,184.60 2,364.30 Operating Revenue Created with Highcharts 5.0.7 24,394 22,282 17,669 11,098 13,167 Operating Revenue Created with Highcharts 5.0.7 2,877.10 3,320.50 2,830.90 2,184.60 2,364.30 excise taxes Created with Highcharts 5.0.7 — — — — — excise taxes Created with Highcharts 5.0.7 — — — — — Cost of Revenue Created with Highcharts 5.0.7 18,045 17,069 14,717 11,535 13,392 Cost of Revenue Created with Highcharts 5.0.7 2,738.70 5,308.70 1,741.40 2,220.10 3,138.30 exploration development and mineral property lease expenses Created with Highcharts 5.0.7 — — — — — gross profit Created with Highcharts 5.0.7 138.4 -1,988.20 1,089.50 -35.5 -774 other costof revenue Created with Highcharts 5.0.7 — — — — — operating expense Created with Highcharts 5.0.7 1,000.50 1,184.90 1,131.90 1,006.70 1,040.40 gross profit Created with Highcharts 5.0.7 6,349 5,213 2,952 -437 -225 selling general and administration Created with Highcharts 5.0.7 240.5 299.6 293.8 288.6 308.7 operating expense Created with Highcharts 5.0.7 757 365 617 842 517 general and administrative expense Created with Highcharts 5.0.7 240.5 299.6 293.8 288.6 308.7 operation and maintenance Created with Highcharts 5.0.7 — — — — — salaries and wages Created with Highcharts 5.0.7 24.9 46 62 57.7 58.6 selling general and administration Created with Highcharts 5.0.7 567 179 453 700 344 rent and landing fees Created with Highcharts 5.0.7 — — — — — general and administrative expense Created with Highcharts 5.0.7 567 179 453 700 344 insurance and claims Created with Highcharts 5.0.7 — — — — — salaries and wages Created with Highcharts 5.0.7 223 146 134 355 46 other gand a Created with Highcharts 5.0.7 215.6 253.6 231.8 230.9 250.1 rent and landing fees Created with Highcharts 5.0.7 — — — — — selling and marketing expense Created with Highcharts 5.0.7 — — — — — insurance and claims Created with Highcharts 5.0.7 — — — — — research and development Created with Highcharts 5.0.7 — — — — — other gand a Created with Highcharts 5.0.7 344 325 319 345 390 depreciation and amortization Created with Highcharts 5.0.7 — — — — — selling and marketing expense Created with Highcharts 5.0.7 — — — — — depreciation Created with Highcharts 5.0.7 — — — — — research and development Created with Highcharts 5.0.7 — — — — — amortization Created with Highcharts 5.0.7 — — — — — depreciation and amortization Created with Highcharts 5.0.7 — — — — — amortization of intangibles Created with Highcharts 5.0.7 — — — — — depreciation Created with Highcharts 5.0.7 — — — — — depletion Created with Highcharts 5.0.7 — — — — — amortization Created with Highcharts 5.0.7 — — — — — provision for doubtful accounts Created with Highcharts 5.0.7 — — — — — amortization of intangibles Created with Highcharts 5.0.7 — — — — — other taxes Created with Highcharts 5.0.7 — — — — — depletion Created with Highcharts 5.0.7 — — — — — other operating expenses Created with Highcharts 5.0.7 760 885.3 838.1 718.1 731.7 provision for doubtful accounts Created with Highcharts 5.0.7 — — — — — Operating Income Created with Highcharts 5.0.7 -862.1 -3,173.10 -42.4 -1,042.20 -1,814.40 other taxes Created with Highcharts 5.0.7 — — — — — net non operating interest income expense Created with Highcharts 5.0.7 -170.4 -163.7 -162.3 -158.2 -146 other operating expenses Created with Highcharts 5.0.7 190 186 164 142 173 interest income non operating Created with Highcharts 5.0.7 — — — — — Operating Income Created with Highcharts 5.0.7 5,592 4,848 2,335 -1,279 -742 interest expense non operating Created with Highcharts 5.0.7 170.4 163.7 162.3 158.2 146 net non operating interest income expense Created with Highcharts 5.0.7 -836 -739 -631 -383 -322 total other finance cost Created with Highcharts 5.0.7 — — — — — interest income non operating Created with Highcharts 5.0.7 76 59 97 48 53 other income expense Created with Highcharts 5.0.7 -159.8 -218.6 181.1 -113.4 516.1 interest expense non operating Created with Highcharts 5.0.7 912 798 728 431 374 gain on sale of security Created with Highcharts 5.0.7 -1.9 -90.6 149.9 -101.3 495 total other finance cost Created with Highcharts 5.0.7 — — — — — earnings from equity interest Created with Highcharts 5.0.7 — — — — — other income expense Created with Highcharts 5.0.7 200 -587 1,169 599 397 securities amortization Created with Highcharts 5.0.7 — — — — — gain on sale of security Created with Highcharts 5.0.7 200 -1,039 790 349 -342 special income charges Created with Highcharts 5.0.7 -199.2 -129.1 31.1 -15.3 18.8 earnings from equity interest Created with Highcharts 5.0.7 — — — — — other non operating income expenses Created with Highcharts 5.0.7 — — — — — securities amortization Created with Highcharts 5.0.7 — — — — — pretax income Created with Highcharts 5.0.7 -1,192.30 -3,555.40 -23.6 -1,313.80 -1,444.30 special income charges Created with Highcharts 5.0.7 — 452 379 250 739 tax provision Created with Highcharts 5.0.7 -159 -938.5 100.4 -381.1 -574.1 other non operating income expenses Created with Highcharts 5.0.7 — — — — — earnings from equity interest net of tax Created with Highcharts 5.0.7 — — — — — pretax income Created with Highcharts 5.0.7 4,956 3,522 2,873 -1,063 -667 net income common stockholders Created with Highcharts 5.0.7 -1,033.30 -2,616.90 -124 -932.7 -870.2 tax provision Created with Highcharts 5.0.7 -460 931 476 -859 -30 Net Income Created with Highcharts 5.0.7 -1,033.30 -2,616.90 -124 -932.7 -870.2 earnings from equity interest net of tax Created with Highcharts 5.0.7 — — — — — preferred stock dividends Created with Highcharts 5.0.7 — — — — — net income common stockholders Created with Highcharts 5.0.7 5,416 2,591 2,397 -204 -637 diluted nia com stockholders Created with Highcharts 5.0.7 — — — — — Net Income Created with Highcharts 5.0.7 5,416 2,591 2,397 -204 -637 basic eps Created with Highcharts 5.0.7 — — — — — preferred stock dividends Created with Highcharts 5.0.7 — — — — — basic continuous operations Created with Highcharts 5.0.7 — — — — — diluted nia com stockholders Created with Highcharts 5.0.7 — — — — — basic discontinuous operations Created with Highcharts 5.0.7 — — — — — basic eps Created with Highcharts 5.0.7 — — — — — basic extraordinary Created with Highcharts 5.0.7 — — — — — basic continuous operations Created with Highcharts 5.0.7 — — — — — basic accounting change Created with Highcharts 5.0.7 — — — — — basic discontinuous operations Created with Highcharts 5.0.7 — — — — — tax loss carryforward basic eps Created with Highcharts 5.0.7 — — — — — basic extraordinary Created with Highcharts 5.0.7 — — — — — basic epso gains losses Created with Highcharts 5.0.7 — — — — — basic accounting change Created with Highcharts 5.0.7 — — — — — diluted eps Created with Highcharts 5.0.7 — — — — — tax loss carryforward basic eps Created with Highcharts 5.0.7 — — — — — diluted continuous operations Created with Highcharts 5.0.7 — — — — — basic epso gains losses Created with Highcharts 5.0.7 — — — — — diluted discontinuous operations Created with Highcharts 5.0.7 — — — — — diluted eps Created with Highcharts 5.0.7 — — — — — diluted extraordinary Created with Highcharts 5.0.7 — — — — — diluted continuous operations Created with Highcharts 5.0.7 — — — — — diluted accounting change Created with Highcharts 5.0.7 — — — — — diluted discontinuous operations Created with Highcharts 5.0.7 — — — — — tax loss carryforward diluted eps Created with Highcharts 5.0.7 — — — — — diluted extraordinary Created with Highcharts 5.0.7 — — — — — diluted epso gains losses Created with Highcharts 5.0.7 — — — — — diluted accounting change Created with Highcharts 5.0.7 — — — — — basic average shares Created with Highcharts 5.0.7 — — — — — tax loss carryforward diluted eps Created with Highcharts 5.0.7 — — — — — diluted average shares Created with Highcharts 5.0.7 — — — — — diluted epso gains losses Created with Highcharts 5.0.7 — — — — — dividend per share Created with Highcharts 5.0.7 — — — — — basic average shares Created with Highcharts 5.0.7 — — — — — total operating income as reported Created with Highcharts 5.0.7 — — — — — diluted average shares Created with Highcharts 5.0.7 — — — — — reported normalized basic eps Created with Highcharts 5.0.7 — — — — — dividend per share Created with Highcharts 5.0.7 — — — — — reported normalized diluted eps Created with Highcharts 5.0.7 — — — — — total operating income as reported Created with Highcharts 5.0.7 — — — — — rent expense supplemental Created with Highcharts 5.0.7 — — — — — reported normalized basic eps Created with Highcharts 5.0.7 — — — — — total expenses Created with Highcharts 5.0.7 3,739.20 6,493.60 2,873.30 3,226.80 4,178.70 reported normalized diluted eps Created with Highcharts 5.0.7 — — — — — net income from continuing and discontinued operation Created with Highcharts 5.0.7 -1,033.30 -2,616.90 -124 -932.7 -870.2 rent expense supplemental Created with Highcharts 5.0.7 — — — — — Normalized Income Created with Highcharts 5.0.7 -859.02 -2,455.19 -257.03 -847 -1,247.84 total expenses Created with Highcharts 5.0.7 18,802 17,434 15,334 12,377 13,909 Interest Expense Created with Highcharts 5.0.7 170.4 163.7 162.3 158.2 146 Interest Expense Created with Highcharts 5.0.7 912 798 728 431 374 ebit Created with Highcharts 5.0.7 -1,021.90 -3,391.70 138.7 -1,155.60 -1,298.30 net income from continuing and discontinued operation Created with Highcharts 5.0.7 5,416 2,591 2,397 -204 -637 ebitda Created with Highcharts 5.0.7 1,691.40 1,893 1,880.10 1,064.50 1,840 Normalized Income Created with Highcharts 5.0.7 5,269 3,022.83 1,543.63 -644.26 -928.79 reconciled cost of revenue Created with Highcharts 5.0.7 — — — — — ebit Created with Highcharts 5.0.7 5,868 4,320 3,601 -632 -293 reconciled depreciation Created with Highcharts 5.0.7 — — — — — ebitda Created with Highcharts 5.0.7 11,414 9,481 8,787 4,226 5,190 net income from continuing operation net minority interest Created with Highcharts 5.0.7 — — — — — reconciled cost of revenue Created with Highcharts 5.0.7 — — — — — total unusual items excluding goodwill Created with Highcharts 5.0.7 — — — — — reconciled depreciation Created with Highcharts 5.0.7 — — — — — total unusual items Created with Highcharts 5.0.7 — — — — — net income from continuing operation net minority interest Created with Highcharts 5.0.7 — — — — — normalized basic eps Created with Highcharts 5.0.7 — — — — — total unusual items excluding goodwill Created with Highcharts 5.0.7 — — — — — normalized diluted eps Created with Highcharts 5.0.7 — — — — — total unusual items Created with Highcharts 5.0.7 — — — — — normalized ebitda Created with Highcharts 5.0.7 — — — — — normalized basic eps Created with Highcharts 5.0.7 — — — — — tax rate for calcs Created with Highcharts 5.0.7 — — — — — normalized diluted eps Created with Highcharts 5.0.7 — — — — — tax effect of unusual items Created with Highcharts 5.0.7 — — — — — normalized ebitda Created with Highcharts 5.0.7 — — — — — tax rate for calcs Created with Highcharts 5.0.7 — — — — — tax effect of unusual items Created with Highcharts 5.0.7 — — — — — Conclusion : From long term growth prospective , it will be benificial for investor to consider Cenovus Energy Inc.