ACCT 1115
GROUP CASE STUDY
WINTER 2024
Instructor: Nadim Merali
Alimentation Couche-Tard:
To Invest or Not Invest?
Case Introduction:
In the file labelled “Alimentation Couche-Tard – Annual-Report EN”, you will find the annual report of
Alimentation Couche-Tard inc. (“ATD”) for the year ended April 30, 2023 including Company Financial
Highlights messages from the Founder, CEO, CFO, financial statements, notes to the financial
statements, and management discussion and analysis.
The objective of the case study is to have you demonstrate basic financial statement analysis and
communicate your thoughts and ideas in a written report. The financial statements will contain some
items which go well-beyond the scope of an introductory accounting course. Examples include lease
liabilities, pension benefit liability, deferred income taxes, and contributed surplus, all of which appear
on the Consolidated Statement of Financial Position (also known as the Balance Sheet). For such items,
go back to the “basics” and identify which type of financial statement element the item relates to – is it
an asset, liability, or equity item? Remember, a liability represents an obligation that will need to be
settled at some point in the future by either transferring assets out of the company or providing
goods/services. Don’t get caught up in the detail on trying to define & understand these complex items.
Should you decide to major in accounting, you will have a more in-depth look at complex items in
intermediate and advanced level courses.
The financial statements have also been prepared on a consolidated basis. Don’t be intimidated by the
terminology – all this means is that ATD is a “parent” company to some smaller companies it owns
shares in. To make the financial statements useful for decision making, all financial records of both the
parent and subsidiary companies have been combined to report the results for the entire economic
entity (picture all companies operating together as if it were one large company).
Required:
A friend of yours is interested in purchasing some common shares of Alimentation Couche-Tard Inc.
and has asked for your help and advice. In an effort to learn more about the company and assess the
overall “risk” associated with the investment, your friend has prepared some questions that need to be
answered.
Prepare a written report that addresses your friends’ questions and concerns using the headings in bold
below. The responses under each of the headings should be in a written paragraph format and provide
clear answers/ recommendations to the questions your friend is asking. Where ratio calculations are
required, use year-end amounts (rather than averages) as this will enable you to identify “trends”
between the current year and the prior year.
Your Friends’ Questions
Company Overview
1. ATD is a publicly traded corporation. If I want to become a shareholder in ATD, what advantages
does this legal form offer to me?
2. Who are the other main users of the financial statements? (Hint: Consider how the total assets of
ATD have been “financed” other than through shareholder investment.)
3. Is ATD a Merchandiser, Manufacturer, or a Service-Based Company? What indicators exist on the
Statement of Financial Position to support your answer?
4. What types of long-term assets has ATD invested in to operate its business?
5. What “risks” or competitive pressures would impact ATD’s operations? Think of industry trends,
substitute products, seasonality, and other market forces.
The Consolidated Statement of Comprehensive Income
6. What is ATD’s revenue recognition policy?
7. Is ATD profitable? What is “quality of earnings”? Does ATD have quality earnings?
8. I’ve noticed that net sales revenue has increased in total dollars, but I’m wondering what ATD’s
profitability looks like when factoring out “size” due to growth. I’ve heard profitability ratios can
allow for this. Could you calculate & explain the following ratios to me?
a. Gross Margin Ratio
b. Profit Margin Ratio
c. Return on Equity
d. Return on Assets
Are the trends favorable or unfavorable? Why? What reasons could have accounted for these
changes?
9. Earnings Per Share (EPS) is disclosed at the bottom of the Statement of Earnings. What does this
mean?
The Cash Flow Statement
10. What information does the cash flow statement provide that is different from the Consolidated
Statement of Comprehensive Income? And how does this relate to analyzing the quality of earnings
of ATD?
11. What type of cash flow pattern does ATD have in the current and the prior year? Are there any
items of concern that I should be aware of? Or is management doing a good job in handling the
cash of the business?
The Consolidated Statement of Financial Position
12. What is meant by the term “capital structure”?
13. Calculate and explain the following ratios for the current & the prior year:
a. Debt Ratio
b. Equity Ratio
c. Interest Coverage Ratio
Is the change in each ratio favorable or unfavorable? How does this relate to overall risk with
respect to investing in the shares of ATD? (Hint: Consider the pro’s & cons of debt versus equity
financing in your discussion.)
14. In the Equity section of the Consolidated Balance Sheet, I see positive numbers for 2023 and 2022 in
the account called Retained Earnings? What does this mean?
15. What is liquidity and how is ATD doing with its liquidity position this year? Is it better or worse than
last year? Calculate and explain the following ratios:
a. Current Ratio
b. Quick Ratio
16. Note 14 to the financial statements shows an A/R Aging. What is this? Are there any items of
concern when you examine the A/R Aging in 2023 relative to the prior year?
Overall Conclusion
17. Overall, based on your analysis, should I purchase ATD shares? Or is this investment too risky?
Explain your reasoning.