Canadian Tire goes back to future

http://www.thestar.com/business/article/791930--canadian-tire-goes-back-to-future

Summary:

Canadian Tire decided to return its focus in the automotive parts and services. They have devised a three-to-five year strategic plan by sharply focusing on its automotive segment and core retail. By doing so, Canadian Tire may boost its shareholders’ return on equity through drenching more profit and sales from its current 479 stores and the impending 11 new stores this year. Canadian Tire aims to increase 3%-5% in sales, 8%-10% in profit and 10%-12% in return on equity to shareholders. Along with the new stores, Canadian Tire has arranged a deal with the province to open its first 23 Canadian Tire gas stations on the 400 series of provincial highways. Also, Canadian Tire is currently reformatting its store layouts which will increase the storage space and make it more efficient for its customer’s to shop. With all these changes taking place, Canadian Tire stated that it can achieve its targets without further increasing its capital expenditures.

Connection:

This article ties in closely with the simple small ratios in chapter 15.3 and to be more precise, the rate of return on equity and the rate of return on net sales. The actions taken by Canadian Tire all share the common focus, to increase the rate of return on net sales and the rate of return on owner’s equity. By increasing the sales, profit and the return on equity to shareholders, Canadian Tire can automatically increase the rate of return on net sales and owner’s equity. Since these two ratios are vital to the outsiders when it comes to analyzing a company’s financial health, Canadian Tire must maintain and increase these ratios in order to impress the outsiders.

Reflection:

From my perspective, I believe Canadian Tire is taking the correct actions by putting its customers and investors as its priority. If I was an investor and I was told that Canadian Tire will increase its rate of return on equity to shareholders, I would be interested to invest into Canadian Tire because there’s a high chance of dividend. The increase of the two ratios can also raise the value of the stock as it can prove to the outsiders that the company is performing well. I strongly believe that Canadian Tire will have an optimistic future if it can achieve its goals.