Question

Interpreting Financial Statements

BYP14.2 Loblaw Companies Limited is Canada's food and pharmacy leader and the nation's largest retailer. The company operates stores such as Real Canadian Superstore and Shoppers Drug Mart in communities across Canada. In 2017, Loblaw renewed its application to repurchase up to 21 million more common shares after 15.5 million and 10.3 million were repurchased and cancelled in 2017 and 2016, respectively. Financial information for Loblaw for the years ended December 31, 2017, and 2016 follows (in millions of dollars except per share data):

	2017	2016
Profit for the year	$  1,526	$     990
Shareholders' equity at December 31	$13,052	$13,028
Dividends declared to common shareholders	$      421	$      416
Number of common shares outstanding	385.5	399.7
Weighted average number of common shares outstanding	393.8	405.1

Instructions

a. Explain the different effects that a cash dividend, stock dividend, and stock split would have on Loblaw's assets, liabilities, shareholders' equity, and the number of shares outstanding.

b. What is the likely reason that Loblaw has repurchased its common shares?

c. During the fiscal periods ended December 31, 2016, and 2017, Loblaw repurchased and cancelled a total of 25,820,827 common shares. In 2015, the common share market price per share was $65.34; in 2016, it was $70.84; and in 2017, it was $68.22. In 2015, the dividend declared per common share was $0.995; in 2016, it was $1.03; and in 2017, it was $1.07. Comment on the impact the reacquisition may have had on the market price and dividends per share.

d. Based on the following excerpt from the notes to the financial statements of Loblaw (in millions of dollars except common share data) for the year ended December 31, 2017, on the share reacquisition, did the company pay more than the average per share amount or less than the average per share amount to repurchase the common shares in 2017 and 2016? Explain.

	2017	2016
Common shares repurchased for cancellation	15,533,527	10,287,300
Repurchase resulted in a reduction of:
Share capital	$  301	$198
Retained earnings	790	510
Total cost	$1,091	$708

e. Calculate the return on shareholders' equity, earnings per share, and payout ratio for the shareholders for 2017 and 2016. Comment on the company's profitability. Shareholders' equity at January 2, 2016 (2015 fiscal year end) was $13,124.

Answer 1