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Tim Hortons Company Analysis

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FINANCIAL MANAGEMENT I

Company Analysis Group Assignment

Nathan Didone, Nathalie Mihalek, Morgan Padfield, Alex Pittman & Andrew Vani

COMM 2026

Dr. Tov Assogbavi

Wednesday, November 27, 2013


EXECUTIVE SUMMARY

    The financial condition of Tim Hortons was analyzed in order to make a recommendation to potential investors. Ratios were analyzed, seeing an increase to all their ratios from 2011 to 2012, with the exception of long-term debt. The increasing ratios included short-term liquidity, inventory utilization and profitability ratios. On top of a very strong internal financial situation, Tim Hortons showed very well in comparison to top industry brands such as McDonalds, Yum!, Starbucks, and Dunkin’ Brands. Based on the current share properties as well as the thorough ratio analysis, it was recommended that potential investors should look to invest in the Tim Hortons Company.


TABLE OF CONTENTS

EXECUTIVE SUMMARY        3

RECOMMENDATION        5

BACKGROUND        5

SHARE ANALYSIS        5

RATIO ANALYSIS        5

Short-Term Liquidity Ratios        5

Long-Term Debt Ratios        6

Utilization Ratios        6

Profitability Ratios        6

CONCLUSION        7

APPENDIX 1        7

APPENDIX 2        7

APPENDIX 3        7

APPENDIX 4        7

APPENDIX 5        7

APPENDIX 6        7


RECOMMENDATION

     After a thorough analysis of Tim Hortons’ financial situation, it was decided that it would be in potential investors’ best interest to buy into Tim Hortons at this time.  As industry leaders in almost all financial categories, Tim Hortons shows strong share values and dividends per share coupled with increasing short-term liquidity, utilization and profitability ratios.  These strong performers offset decreasing long-term debt ratios that regardless are well above the industry average when considering top performers in McDonalds, Dunkin’ Brands, Starbucks and Yum! Inc.

BACKGROUND

     Tim Hortons is a Canadian multinational corporation.  What started out as a small coffee and donut restaurant has since evolved to offer a wide variety of food and drinks options.

     The first Tim Hortons was established by Ron Joyce and opened in Hamilton, Ontario in 1964.  Three years later, Joyce and Tim Horton became partners in the business.  After Horton was killed in a devastating car crash in 1947, Joyce became the sole owner of the 40 restaurants open at the time[1].  

     Today, Tim Hortons is Canada’s largest fast food service while maintaining close ties to the communities in which their franchises operate in.  There are over 4,000 franchise restaurants to date including restaurants in Canada, America and the Gulf Cooperation Council[2].  Their mission statement states that “our [Tim Hortons] guiding mission is to deliver superior quality products and services for our guests and communities through leadership, innovation and partnerships”[3]. Their community programs and involvement began in 1975 when Joyce opened the Tim Hortons Children’s Foundation to build upon Tim Hortons desire to contribute towards less fortunate communities.  These involvements have since evolved to include sponsorship of minor sport associations, and national and worldwide events[4].

     Tim Hortons has a large presence in the restaurant market and are constantly continuing to grow their corporation.  The first American branch was not opened until 1984, in Tonawanda, New York.  However since this time they have expanded rapidly with their 500th American franchise opening in 2008.  To aid with the transition to the United States, Tim Hortons merged with Wendy’s International Inc., in 1995 but in 2006 the company went back to being a fully separate company which trades on the New York and Toronto Stock Exchanges.  Tim Hortons has also co-branded with Kahala Corporation to expand its operations to Cold Stone Creameries[5].

SHARE ANALYSIS

     To begin with, it is essential to look at both 2011 and 2012 when looking at the price per share of Tim Hortons in order to compare the changes that have occurred.  Price per share is an important category to look into when considering investment in a company as it shows how much money an individual is willing to pay to purchase one share for the company.  

     The price per share increased from $2.36 in 2011 to $2.60 in 2012[6] (see Appendix 1).  This outcome may be the result of a number of different factors.  One of the main reasons could be the actions of their close fast food competitors, McDonalds for example, who have transitioned to a more similar product offering to that of Tim Hortons.  As a result, Tim Hortons has also had to make changes and improvements to further differentiate themselves and in doing so have added additional value to their company.

     The dividends Tim Hortons offers per share also increased from 2011 to 2012 as it went from $0.68 to $0.84[7] (see Appendix 1).  This increase is imperative to consider when observing the growth of the company.  The substantial increase shows that Tim Hortons believes that their company’s growth is manageable.  This is a direct form of profit distribution to shareholders and the increase can be positively correlated to the many changes the company has introduced to respond to industry expansion and demand.

RATIO ANALYSIS

     Ratio analysis is used to compare and investigate the relationships between different pieces of financial information.  It is most effective when put in context through a comparison to the industry average or a group of competitors within the same industry as appropriate ratio values vary from industry to industry.  Ratio Analysis looks specifically at a company’s short-term liquidity, long-term debt, inventory utilization and profitability to aid in the proper assessment in order to make appropriate recommendations to potential investors.  

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