saloni baid, angela cipola,ezra kassin, stephany carvajal dollar tree, inc
DESCRIPTION
History Initial Public Offering in March of 1995 at $15 a share. Dollar Tree acquired many companies throughout the years. By 2012, operated approximately 5,080 stores and exceeded $7 billion in sales. Recently, the company is in talks to buy out Family DollarTRANSCRIPT
SALONI BAID, ANGELA CIPOLA,EZRA KASSIN,
Stephany Carvajal
DOLLAR TREE, INC.
HISTORY
Dollar Tree, Inc. operates discount variety stores in the United States and Canada. Sells Variety of products
Toys, food, gifts, greeting cards etc.Dollar Tree’s Business model:
Everything $1 or less!Founded in 1986 Based in Chesapeake, Virginia.
Sector: Retail, Consumer Goods, Services
Industry: Discount.Variety stores
Full Time Employees: 17,600
History
Initial Public Offering in March of 1995 at $15 a share.
Dollar Tree acquired many companies throughout the years.
By 2012, operated approximately 5,080 stores and exceeded $7 billion in sales.
Recently, the company is in talks to buy out Family Dollar
WHY DOLLAR TREE
To analyze the factors that contributed to the firm’s success
Leading company that targets customers due to their low cost distribution
Acquired and opened thousands of stores in the past few years
Competitors are Family Dollar, 99 cents store, etc.
Dollar Tree Today
Balance Sheet
Profitability
Financial Strength
Dollar Tree Ratios (2012-2014)
Dollar Tree Vs. Comps
Dollar tree vs. Industry Average
Company Industry
Short term Solvency:
Current Ratio 2 1.19
Quick Ratio 0.51 0.51
Long Term Solvency
Total Debt Ratio 57.76 53.61
Long Term Debt Ratio 27.3 37.4
Interest Coverage (TIE) 62.96 105.09
Asset management Measures
Inventory Turnover 7.58 7.66
Profitibility Measures
Profit Margin 7.61 4.23
ROA 21.52 8.23
ROE 47.62 17.61
Marekt Value Measures
P/E 23.42 37.28
CAPITAL STRUCTURE:DEBT & EQUITY
Debt VS Equity
2014 Debt-Equity Ratio = 0.66 2014 Total Debt Ratio = 57.76%
Sustainable Growth Rate
SGR= [ROE x Retention Ratio]/[1 - (ROE x Retention Ratio)]
SGR for 2014= [.509695054 x 1]/[1 – (.509695054 x 1)] = 1.039547037 x 100 = 103.95%
SGR for 2013= [.37143853 x 1]/[1 – (.37143853 x 1)] = .5909342964 x 100 = 59.09%
SGR for 2012= [.363156329 x 1]/[1 – (.363156329 x 1)] = .5702440733 x 100 = 57.02%
Internal Growth Rate
IGR= [ROA x Retention Rate]/[1-(ROA x Retention Ratio)]
IGR for 2014= [.215267506 x 1]/[1 – (.215267506 x 1)] = .274319602726 x 100 = 27.43%
IGR for 2013= [.225036337 x 1]/[1 – (.225036337 x 1)] = .290383082129 x 100 = 29.04%
IGR for 2012= [.209696814 x 1]/[1 – (.209696814 x 1)] = .26533717403 x 100 = 26.53%
Decomposing ROE using DuPont Identity
ROE=Net Income Sales × Sales Assets × Assets Total Equity
ROE for 2014= (596,700/7, 840,300) × (7,840,300/1, 035,300) × (1,035,300/1, 170,700) =0.5097
ROE for 2013= (619,300/7, 394,500) × (7,394,500/971700) × (971700/1, 667,300) =0.3714
ROE for 2012= (488,300/6, 630,500) × (6,630,500/867, 400) × (867,400/1, 344,600) =0.3632
Comparison
Years ROE Profit Margin Total Asset Turnover
Equity Multiplier
2014 0.5097 7.61% 7.5730 88.43%
2013 0.3714 8.38% 7.6099 58.28%
2012 0.3631 7.36% 7.6441 64.51%
ROE= Profit Margin x Total Asset Turnover x Equity Multiplier
COST OF DEBT
Using a competitor to determine cost of debt: Dollar General
Dollar Gen Corp New 3.25% | Maturity:10
YTM = 4.45%After Tax Cost =
2.77% Corp Tax Rate= 37.8
DLTR Vs S&P 500
CAPM Calculation
Treasury Rates10 Year 0.0227515 Year 0.025920 Year 0.0269
BetaYahoo Finance 0.7Nasdaq.com 0.87Morningstar.com 0.76
In order to calculate WACC, we need to calculate The Cost of Equity (rE) using Capital Asset Pricing Model (CAPM)
CAPM
CAPM= (.7+.03)*(.11-.03)= 8.6%
Weighted Average Cost of Capital
The weighted average cost of capital (WACC) is the rate of return that a company is expected to pay to all its security holders to finance its assets.
WACC= (D/V) Rd (1-Tc) + (E/V) ReWACC = (520,550,000/14,580,550,000) (.0296) (1
- .3717) + (14,060,000,000/14,580,550,000) (.086)
WACC = 8.36%