Rona Vs Canadian Tire

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section 1 RONA INCORPORATED VS. CANADIAN TIRE CORPORATION WORD COUNT: 2500 Introduction The mutual fund’s investment in either RONA Inc. or Canadian Tire Corporation (CTC) must be according to a set of investment criteria that reflect the fund’s goals and risk tolerance. Since past underperforming investments have negatively impacted the fund, the investment must be stable and low-risk. Specifically, the decision criteria are: 1. Stability & liquidity 2. Growth prospects and earnings 3. Qualitative analysis of industry and competitive position 4. Management track record and competency The purpose of this report is to analyze and select an investment, while placing an emphasis on conservative and consistent accounting policies. Industry The Canadian retail industry has been greatly impacted by the recent recession, leading to greater price consciousness amongst consumers. Specifically, the home improvement industry has contracted by 1.2% in 2009. Companies have responded by increasing sales promotions and discounting in order to grow their share of the declining market. This has increased competition and deferred new entrants. However, as the economy recovers, the industry is expected to grow at a forecasted compounded annual growth rate of 3% until 2014. The Canadian general merchandise retailing industry is highly competitive. A major risk is the potential for downward price pressure from competitors like Wal Mart and Sears, which would be detrimental to margins. Accordingly, retailers have increased their focus on private label brands which offer higher margins than comparable products. On average, RONA will be impacted less by economic downturns compared to CTC. This is due the inherent infeasibility of delaying certain necessary home improvement projects and repairs. RONA and CTC are both affected

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