Media and Financial Statement Analysis - Roots Corp

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Centennial College *

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741

Subject

Finance

Date

Apr 3, 2024

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pdf

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4

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Financial Analysis of Roots Corp. (2022-2023) This report provides a comprehensive financial analysis of Roots Corp., a global lifestyle brand, from the fiscal year 2022 to the third quarter of 2023. The analysis is based on the company's financial statements and management's discussion and analysis (MD&A) reports, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Roots Corp., established in 1973, operates in various markets worldwide, including Canada, the United States, and Asia. As of July 29, 2023, the company operated 105 corporate retail stores and 13 temporary pop-up locations in Canada, two corporate retail stores in the United States, and an eCommerce platform, roots.com. The company also has more than 100 partner- operated stores in Asia and operates a dedicated Roots-branded storefront on Tmall.com in China. The financial analysis covers a range of key performance indicators and financial metrics, including sales growth, inventory management, and profitability. It also examines the company's strategic initiatives and responses to the challenging economic conditions that have impacted its financial performance, such as improving inventory management, maintaining promotional discipline, transitioning to sustainable materials, and strengthening full-price sales. The report aims to provide a detailed understanding of Roots Corp.'s financial performance and the factors influencing it during the specified period. It should assist in making informed decisions about the company's financial health and future prospects. FY 2022 Total Sales: $272.12 million Net Income: $2.46 million Gross Margin: 57.7% Debt-to-Equity Ratio: 32.4% Interest Coverage Ratio: 2.10 2023 (Q1-Q3) Total Sales: $154.43 million (YTD) Net Loss: $(26.08) million (YTD)
Key Ratios Roots Corp. has a debt-to-equity ratio of 32.4%, with total debt at CA$56.33 million and total shareholder's equity at CA$173.81 million. The company's interest coverage ratio is 1.3x, indicating that its earnings can cover its interest expenses. Roots' cash ratio is 0.43, showing its ability to meet short-term obligations. The company's gross margin is 57.7%, indicating its profitability in the retail industry. Balance Sheet Insights Roots' balance sheet shows total assets of CA$362.79 million and total liabilities of CA$188.88 million. The company's total shareholder's equity is CA$173.81 million, and its book value per share is CA$4.54. Their inventory turnover is 44.24, indicating company’s inventory management efficiency. The company ended the fiscal year 2022 with a net debt of $24.8 million, down 6.8% from the end of FY2021. The company's net debt decreased by 10% in Q3 2023. The balance sheets of Roots Corp. for FY2022 and Q2 and Q3 2023 indicate that the company has been successful in reducing its net debt, which is a positive sign for its financial health. Income Statement Insights The company's revenue for the fiscal year 2022 was $272.12 million, with a 0.63% growth. Roots' operating profit for the fiscal year 2022 was $11.6 million, and its pre-tax margin was $3.53 million. The company's net margin for the fiscal year 2022 was $2.46 million. Sales decreased by 8.1% year-over-year to $111.5 million. The company reported a gross margin of 56.5%. Cash Flow Statement Insights Roots' cash and short-term investments for the fiscal year 2022 were $5.41 million. The company's total debt to total capital was 42.18% Operating Activities: The company experienced a decrease in cash used in operating activities in Q2 2023 and YTD 2023 compared to the same periods in 2022. This decrease was primarily attributable to higher cash inflows from working capital changes as a result of reducing inventory purchases. Additionally, the company received a tax refund based on higher tax installments paid in F2022 than owed, as compared to net tax paid in Q2 2022 and YTD 2022
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