W12213

BNL STORES1
Paul Cruz wrote this case under the supervision of Professor Vaughan Radcliffe solely to provide material for class discussion. The authors do not intend to
illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to
protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction o

Copyright © 2012, Richard Ivey School of Business Foundation Version: 2020-01-15

In the spring of 2020, Paul Cruz was an analyst at an investment bank who had recently graduated from the Ivey Business
School MBA program. As an initial assignment, his supervisor had given him the task of analyzing the financial position of
BNL Stores.
Cruz was interested in BNL Stores because it was one of his favorite places to shop. However, recently he had read in the
business press that BNL’s stock had fallen dramatically, dropping from a high of $160 per share to less than $8, despite
the fact that the company was known to pay out relatively constant dividends to its shareholders.

BNL was an established Midwestern retailer that had been in business for over 50 years. In recent times, management had
undertaken a series of new business strategies, one of which was to expand the number of BNL’s new supercenter stores,
while phasing out the traditional discount stores. The supercenter stores carried a greater selection of durable goods, such as
appliances and furniture. In order to entice customers to purchase these more expensive items, BNL had started offering
store credit to its customers. Each individual store manager was responsible for authorizing the opening of store
credit accounts and ultimately had the final say as to whether credit would be granted to a customer. Store managers were
paid an annual bonus, based on net income for their respective store, and were known for being quite lenient in
granting credit in order to increase net income for the year and, therefore, the size of their bonus.

Cruz wondered whether these new strategies were responsible for the decline in BNL’s share price, which he had read
about. To collect the financial statement information that he required to complete his assignment, he went to a
business reference library and obtained BNL’s balance sheets, statements of income, and statements of cash flows for
the fiscal years ending 2012 through 2017. However, for 2018 to 2020, he was able to obtain income the balance sheets and
statements of income, but not statements of cash flows (see Exhibits 1, 2 and 3).

1
This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not
necessarily those of BNL Stores or any of its employees.

Page 2 9B12B027
Armed with these financial statements and the information he had learned in his MBA studies, Cruz calculated the
following financial ratios (see Exhibit 4).
Question 1
Calculate the 11 ratios done in Exhibit 4 for each year from 2018 to 2020. Do you notice any trends? What insights do these
trends provide into the operations of BNL?
Question 2
Following the format given in Exhibit 3, prepare statements of cash flows for BNL for each year from 2018 to 2020. Please
use the following figures for the additions to property, plant and equipment:
       2018            2019 2020
 
(Increase) or decrease in property, plant and equipment (177,982) (154,747) (97,171)
Question 3
What do the cash flow statements show? What does this mean for the future viability of the firm? How helpful is this
analysis in understanding the company’s stock price performance?
Cash flows

Operating Cycles

Altmen Z score

Du Pont Analysis

Return On Equity
 Exhibit 1
BNL STORES INCOME STATEMENT
(for the year ended January 31)
(amounts in 000s)
2012 2013 2014 2015 2016 2017
Sales $6,258,259 $6,659,614 $7,424,663 $8,235,435 $8,536,806 $9,344,542
Cost of goods sold 4,376,822 4,661,786 5,210,254 5,543,809 5,716,842 6,313,787
Gross profit 1,881,437 1,997,828 2,214,409 2,691,626 2,819,964 3,030,755
Operating expenses
Amortization of property, plant and equipment 51,013 55,616 56,871 60,830 65,217 71,712
Selling, general, and administrative expenses 1,403,094 1,493,159 1,615,437 2,018,114 2,170,610 2,462,760
Interest expense 65,563 80,099 93,578 105,117 131,742 115,057
1,519,670 1,628,874 1,765,886 2,184,061 2,367,569 2,649,529
Operating income 361,767 368,954 448,523 507,565 452,395 381,226
Other income 21,154 32,510 38,924 33,541 38,321 37,182
Net income (loss) before
taxes 382,921 401,464 487,447 541,106 490,716 418,408
Provision for income taxes 168,890 177,772 230,520 257,640 222,384 179,670
Net Income (loss) after taxes 214,031 223,692 256,927 283,466 268,332 238,738

Dividends 95,537 97,408 139,783 133,817 141,166 143,322

Retained earnings for the year 118,494 126,284 117,144 149,649 127,166 95,416
Opening retained earnings 923,612 1,042,106 1,168,390 1,285,534 1,435,183 1,562,349
Closing retained earnings 1,042,106 1,168,390 1,285,534 1,435,183 1,562,349 1,657,765

Other Data

Earnings per share $ 2.50 $ 2.71 $ 2.99 $ 2.87 $ 2.64 $ 2.25

 2018 2019 2020
$11,176,830 $12,568,581 $11,974,768
7,629,270 8,698,367 8,836,150
3,547,560 3,870,214 3,138,618

81,387 89,903 90,744

2,931,489 3,572,857 5,047,696
146,638 163,086 256,087
3,159,514 3,825,846 5,394,527
388,046 44,368 (2,255,909) 534,684 207,454 -1,999,822
42,734 51,847 43,812

430,780 96,215 (2,212,097)

174,585 22,299 (796,419)
256,195 73,916 (1,415,678)

143,343 143,207 30,218

112,852 (69,291) (1,445,896)

1,657,765 1,770,617 1,701,326
1,770,617 1,701,326 255,430

$ 2.49 $ 0.76 ($ 12.74)

113492.6216641
907940.9733124
Page 4
Exhibit 2
BNL STORES BALANCE SHEET
9B12B027
(for year ended January 31) (amounts in
000s)
2012 2013 2014 2015 2016 2017 2018
Assets
Current assets
Cash and cash equivalents $254,297 $169,819 $192,959 $223,584 $230,581 $337,990 £209,794
Accounts receivable $747,868 $904,486 10,49,741 $24,96,850 $28,45,776 $3,246,562 $3,689,622
Inventories $1,183,998 $1,245,628 14,13,515 $1,506,028 $1,766,136 $2,025,023 $2,708,834
Prepaid expenses $21,059 $24,239 $27,940 $34,151 $35,568 $36,463 $45,073
Total Current assets $2,207,222 $2,344,172 26,84,155 $4,260,613 4,878,061.00 $5,646,038 $6,653,323
Other assets $294,245 $418,814 $443,934 $156,449 $178,436 $235,591 $257,382
Property, plant and equipment $325,915 $322,538 $333,664 $375,009 $419,221 $523,233 $619,828
Total assets $2,827,382 $3,085,524 $3,461,753 $4,792,071 $5,475,718 $6,404,862 $7,530,533
Liabilities and shareholders' equity
Current liabilities
Short-term notes payable - - - $12,34,855 $16,70,728 $1,611,884 $2,644,431
Accounts payable $452,077 $511,558 $6,54,970 $6,41,281 $7,08,672 $783,169 $707,949
Corporate income taxes payable $378,534 $430,408 $523,070 $610,220 $732,620 $829,357 $939,823
$830,611 $941,966 $1,178,040 $2,486,356 $3,112,020 $3,224,410 $4,292,203
Long term liabilities
Long-term debt $474,600 $424,577 2,93,242 $2,40,026 $219,001 $870,769 $858,836
Deferred corporate income taxes $47,691 $51,196 $53,840 $56,186 $57,752 $65,522 $80,858
Other liabilities $34,978 $35,853 $37,419 $38,639 $39,141 $35,609 $31,825
Shareholders’ equity
Share capital $397,396 $463,542 6,13,678 $5,35,681 £485,455.00 $550,787 $496,194
Retained earnings $1,042,106 $1,168,390 $1,285,534 $1,435,183 $1,562,349 $1,657,765 $1,770,617
$1,439,502 $1,631,932 $1,199,212 $1,970,864 $2,047,804 $2,208,552 $2,266,811
  Total liabilities and equity                $2,827,382 $3,085,524 $3,461,753 47,92,071 $54,75,718 $6,404,862 $7,530,533
$1,387,880 $1,453,592 $1,269,299 $2,581,181 $3,427,914 $4,196,310 $5,263,722

0.4908710602 0.4711005327 0.5141962098 0.5670376721 0.6260209163 0.6551757087 0.6989839896

2019 2020

$311,548 $539,973
$3,684,015 $2,945,781
$3,055,319 $2,761,880
$49,487 $44,687
$7,100,369 $6,292,321
$316,972 $354,350
$684,672 $691,099
$8,102,013 $7,337,770

$3,071,998 $4,068,000
$711,107 $876,050
$698,869 $133,566
$4,481,974 $5,077,616

$1,280,566 $1,473,538
$99,320 $0
$28,449 $14,801

$510,378 $516,385
$1,701,326 $255,430
$2,211,704 $771,815
$8,102,013 $7,337,770
$5,890,309 $6,565,955

0.7270179645 0.8948161362
 Exhibit 3
BNL STORES STATEMENT OF CASH FLOWS
(for the year ended January 31) (in 000s)

2012 2013 2014 2015 2016

Cash flows from operating activities
Net Income (loss) after taxes 214,031 223,692 $256,927 $283,466 $268,332
Adjustments for:
Amortization of property, plant and equipment 51,013 55,616 56,871 60,830 65,217
265,044 279,308 313,798 344,296 333,549
Changes in:
Accounts receivable 4,326 (156,618) (145,255) (1,447,109) (348,926)
Inventories (157,743) (61,630) (167,887) (92,513) (260,108)
Prepaid expenses (2,631) (3,180) (3,701) (6,211) (1,417)
Accounts payable 51,291 59,481 143,412 (13,689) 67,391
Corporate income taxes payable 130,562 51,874 92,662 87,150 122,400
Deferred corporate income taxes 5,187 3,505 2,644 2,346 1,566
30,992 (106,568) (78,125) (1,470,026) (419,094)
Net cash from operating activities 296,036 172,740 235,673 (1,125,730) (85,545)
Cash flows from investing activities
(Increase) or decrease in property, plant and equipment (103,240) (52,239) (67,997) (102,175) (109,429)
Proceeds from sale of (acquisition of) other assets (16,726) (124,569) (25,120) 287,485 (21,987)
Net cash from investing activities (119,966) (176,808) (93,117) 185,310 (131,416)
Cash flows from financing activities
Proceeds from (repayment of) notes payable - - - 1,234,855 435,873
Proceeds from (repayment of) long-term debt - (50,023) (131,335) (53,216) (21,025)
Proceeds from (repayment of) other liabilities 2,542 875 1,566 1,220 502
Proceeds from issuing (repurchase of) share capital 18,272 66,146 150,136 (77,997) (50,226)
Dividends paid (95,537) (97,408) (139,783) (133,817) (141,166)
Net cash from (used in) financing activities (74,723) (80,410) (119,416) 971,045 223,958
Net increase (decrease) in cash and cash equivalents 101,347 (84,478) 23,140 30,625 6,997
Opening balance, cash and cash equivalents 152,950 254,297 169,819 192,959 223,584
Closing balance, cash and cash equivalents 254,297 169,819 192,959 223,584 230,581
 2017 2018 2019 2020

$238,738 256,195 73,916 (1,415,678)

71,712 81,387 89,903 90,744

310,450 337,582 163,819 (1,324,934)

(400,786) (443,060) 5,607 738,234

(258,887) (683,811) (346,485) 293,439
(895) (8,610) (4,414) 4,800
74,497 (75,220) 3,158 164,943
96,737 110466 (240,954.00) -565303
7,770.00 15,336.00 18,462.00 (99,320.00)
(481,564) (1,084,899) (564,626) 536,793
(171,114) (747,317.00) (400,807.00) (788,141)

(175,724) (177,982) (154,747) (97,171)

(57,155) (21,791) (59,590) (37,378)
(232,879) (199,773) (214,337) (134,549)

(58,844) $1,032,547 $427,567 $996,002

651,768 (11,933.00) $421,730 $192,972
(3,532) (3,784.00) (3,376.00) (13,648.00)
65,332.00 (54,593.00) 14,184.00 6,007.00
(143,322) (143,343) (143,207) (30,218)
511,402 818,894 716,898 1,151,115
107,409 (128,196.00) 101,754.00 228,425
230,581 337,990 209,794 311,548.00
337,990 209,794.00 311,548.00 539,973
 2012 2013 2014 2015
Net Income 214,031 223,692 256,927 283,466
Taxes 168,890 177,772 230,520 257,640
Net income (loss) before Taxes 382,921 401,464 487,447 541,106
Less: Non -Operating Income 21,154 32,510 38,924 33,541
Add: Non- Operating Expense 65,563 80,099 93,578 105,117
Operating Profit 427,330 449,053 542,101 612,682
Add: Depreciation/Amortization 51,013 55,616 56,871 60,830
EBITDA 478,343 504,669 598,972 673,512
Impact of Accruals
Accounts receivable 4326 -156618 -145255 -1447109
Inventories -157743 -61630 -167887 -92513
Prepaid expenses -2631 -3180 -3701 -6211
Accounts payable 51291 59481 143412 -13689
-104757 -161947 -173431 -1559522
Cash generated from operations 373,586 342,722 425,541 -886,010
Less: Taxes paid 257,335 122,393 135,214 168,144
Net Cash Generated From Operating Activities 116,251 220,329 290,327 -1,054,154

Cash flows from investing activities

(Increase) or decrease in property, plant and equipment -103240 -52239 -67997 -102175
Proceeds from sale of (acquisition of) other assets -16726 -124569 -25120 287485
Other Income 21,154 32,510 38,924 33,541
Net cash from investing activities -98812 -144298 -54193 218851

Cash flows from financing activities

Proceeds from (repayment of) notes payable - - - 1234855
Proceeds from (repayment of) long-term debt - -50023 -131335 -53216
Proceeds from (repayment of) other liabilities 2542 875 1566 1220
Proceeds from issuing (repurchase of) share capital 18272 66146 150136 -77997
Dividends paid -95537 -97408 -139783 -133817
Interest Expense -65,563 -80,099 -93,578 -105,117
Net cash from financiang activities -140286 -160509 -212994 865928
Net increase (decrease) in cash and cash -122,847 -84,478 23,140 30,625
equivalents
Opening balance, cash and cash equivalents 152,950 254297 169819 192959
Closing balance, cash and cash equivalents 254297 169,819 192,959 223,584
 2016 2017 2018 2019 2020
268,332 238,738 256,195 73,916 -1,415,678
222,384 179,670 174,585 22,299 -796,419
490,716 418,408 430,780 96,215 -2,212,097
38,321 37,182 42,734 51,847 43,812
131,742 115,057 146,638 163,086 256,087
584,137 496,283 534,684 207,454 -1,999,822
65,217 71,712 81,387 89,903 90,744
649,354 567,995 616,071 297,357 -1,909,078

-348926 -400786 -443060 5607 738234

-260108 -258887 -683811 -346485 293439
-1417 -895 -8610 -4414 4800
67391 74497 -75220 3158 164943
-543060 -586071 -1210701 -342134 1201416
106,294 -18,076 -594,630 -44,777 -707,662
98,418 75,163 48,783 244,791 -131,796
7,876 -93,239 -643,413 -289,568 -575,866

-109429 -175724 -177982 -154747 -97171

-21987 -57155 -21791 -59590 -37378
38,321 37,182 42,734 51,847 43,812
-93095 -195697 -157039 -162490 -90737

435873 -58844 1032547 427567 996002

-21025 651768 -11933 421730 192972
502 -3532 -3784 -3376 -13648
-50226 65332 -54593 14184 6007
-141166 -143322 -143343 -143207 -30218
-131,742 -115,057 -146,638 -163,086 -256,087
92216 396345 672256 553812 895028
6,997 107,409 -128,196 101,754 228,425

223584 230581 337990 209794 311548

230,581 337,990 209,794 311,548 539,973
 Exhibit 4
BNL STORES FINANCIAL RATIOS

2012 2013 2014 2015 2016 2017 2018 2019

Profitability ratios
Gross profit margin 30.06% 30.00% 29.82% 32.68% 33.03% 32.43% 31.74% 30.79%
Net profit margin 3.42% 3.36% 3.46% 3.44% 3.14% 2.55% 2.29% 0.59%
Return on assets 8.87% 8.70% 8.85% 7.06% 6.22% 4.75% 4.56% 2.46%
Return on equity 14.87% 13.71% 13.53% 14.38% 13.10% 10.81% 11.30% 3.34%

Turnover ratios

Inventory turnover 3.70 3.74 3.69 3.68 3.24 3.12 2.82 2.85
Total asset turnover 2.21 2.16 2.14 1.72 1.56 1.46 1.48 1.55
Days receivables 43.62 49.57 51.61 110.66 121.67 126.81 120.49 106.99

Liquidity ratios

Current ratio 2.66 2.49 2.28 1.71 1.57 1.75 1.55 1.58
Quick ratio 1.21 1.14 1.05 1.09 0.99 1.12 0.92 0.90

Solvency ratios

Debt to equity ratio 0.96 0.89 0.82 1.43 1.67 1.90 2.32 2.66
Debt to capitalization ratio 0.58 0.52 0.39 0.38 0.39 0.64 0.70 0.73

TA $6,404,862 $7,530,533 ###

Tax Rate 42.94% 40.53% 23.18%
1-Tax 0.57 0.59 0.77

Inventory Days 95.12 93.14 96.11 104.46 109.58 113.24 120.94

Payable Days 31.67 33.40 37.31 42.87 45.15 42.32 34.38
2020

26.21%
-11.82%
-17.06%
-183.42%

3.20
1.63
89.79

1.24
0.70

8.51
0.89

###
36.00%
0.64

120.15
17.19
What Is the Altman Z-Score?
The Altman Z-score is the output of a credit-strength test that gauges a publicly traded manufacturing company's likelihood of bankruptcy.

KEY TAKEAWAYS
The Altman Z-score is a formula for determining whether a company, notably in the manufacturing space, is headed for bankruptcy.
The formula takes into account profitability, leverage, liquidity, solvency, and activity ratios.
An Altman Z-score close to 1.8 suggests a company might be headed for bankruptcy, while a score closer to 3 suggests a company is in solid

How to Calculate the Altman Z-Score

One can calculate the Altman Z-score as follows:

Altman Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

Where:

A = working capital / total assets

B = retained earnings / total assets
C = earnings before interest and tax / total assets
D = market value of equity / total liabilities Data not available
E = sales / total assets

2012 2013 2014 2015 2016 2017 2018 2019 2020

WC 1376611 1402206 1506115 1774257 1766041 2421628 2361120 2618395 1214705
A 0.486885 0.454447 0.435073 0.370248 0.322522 0.378092 0.31354 0.323178 0.165541
B 0.368576 0.378668 0.371353 0.299491 0.285323 0.258829 0.235125 0.209988 0.03481
C 0.158622 0.156072 0.167841 0.134853 0.113676 0.083291 0.076677 0.032005 -0.266567
D 0.654193
E 2.213447 2.158341 2.14477 1.718554 1.55903 1.458976 1.484202 1.551291 1.631936

3.837167 3.748849 3.740628 3.027154 2.72064 2.549907 2.442658 2.338703 1.392163

pany's likelihood of bankruptcy.

is headed for bankruptcy.

o 3 suggests a company is in solid financial positioning.

Market Value Of Equity

For 2012
113492.6
907941
 2012 2013 2014 2015 2016 2017 2018 2019

Net Profit Margin 3.420% 3.359% 3.460% 3.442% 3.143% 2.555% 2.292% 0.588%
Asset Turnover 2.21 2.16 2.14 1.72 1.56 1.4589763 1.4842017 1.5512911
Equity Multiplier 1.964139 1.8907185 2.8866898 2.431457 2.6739463 2.9000277 3.3220824 3.6632447

DuPont 14.8453% 13.7177% 21.3770% 14.3949% 13.1116% 10.8097% 11.3020% 3.3420%

2020

-11.822%
1.63193559
9.50716169

-183.4219%