Dollarama Inc. Harvard Case Solution & Analysis

Dollarama Inc. Case Solution

Introduction:

Dollarama Inc. was established in 1992 and it is one of the leading operators of dollar stores in Canada. Presently, the company has 989 dollar stores in whole of Canada. It offers both the private and branded products at the fixed price of up to $ 3, which includes products for everyday use and seasonal usage.

In order to rate the company, Moody’s approach is used that will assess the credit risk for companies in the retail industry. Along with this, it will help the companies, investors, and others stakeholders to analyze and understand the factors whether quantitative or qualitative that show the impact on rating results of the company.

Four important factors have been analyzed for the assessment for credit rating, which includes scale, business profile,leverage &coverage,and financial policy. These factors are further divided into sub-factors such as; revenue stability, EBIT/interest expense for overall grading.

Therefore, the objective of the case is to measure and estimate each factor and sub-factors for credit analysis that provides a general approach and rationale for measuring credit ratings and it also provides the future outlook for company’s financial and operating performances. All quantitative factors for Moody’s ratings can be analyzed through the company's income statement, balance sheet, and cash flows statements,while bond ratios and comparison would be made based on historic trends. The qualitative factors can be examined through the management experience and assessment of corporate governance.

1.      Company’s Profile:

The Dollarama Inc. was founded by Larry Rossy, and it is a Canadian holding company that hasmore than 900 dollar stores in ten provinces of Canada. The Dollarama stores are not franchised, rather corporate owned that provide the line of offerings that consist of merchandise products, consumables, and seasonal items, the price of all items is less than $3.00. The company’s profile is measured through two main factors, which include stability of products and execution & competitive position and it takes 10% and 20% weights for credit rating analysis. Its credit rating is Baa and it is considered as low projected business risk with low risk of failure.

The Dollarama Inc. believes that retail dominance by giving a higher valuation toits customers will provide growth opportunities, superior competency, and increase in scale efficiencies. The stability of products is rated as Baa, based on historic evidence, it is categorized as that the products are necessary but also the delay of purchasing the products could be possible due to macro-economic or cyclic factors. Moreover, the change in demand due to change in patterns and trends would lead to increase the competition and availability of product substitution.

Dollarama Inc. execution is better than its competitors as it is a leading dollar retail store in a variety of markets in different geographic locations along with the company's line of product offerings. The company can also defend itself from threats, such as the share loss value.(Dollarama, 2014)

Major risk factors:

  • Change in industry fundamentals due to change in demand and pricing for the products.
  • Increase in competition and new product would change the investor attitudes
  • Management and accounting and financial policies that change the valuation of company
  • External geographical factors that change the company’s investment prospects due to change in the interest and exchange rates.

2.      Scale of Operations:

The scale of operations carries various benefits from buying power to make position in the market with price leadership strategy that helps in creating competitive advantage and position in the retail industry. The scale of operations is measured through the revenue, it takes 10% weight in the credit rating of the company. The company’s revenue lies in the range of 10 to 25 billion dollars, therefore, its credit rating based on this factor is Baa........................

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