SALONI BAID, ANGELA CIPOLA,EZRA KASSIN,

Stephany Carvajal

DOLLAR TREE, INC.

HISTORY

Dollar Tree, Inc. operates discount variety stores in the United States and Canada. Sells Variety of products

Toys, food, gifts, greeting cards etc.Dollar Tree’s Business model:

Everything $1 or less!Founded in 1986 Based in Chesapeake, Virginia.

Sector: Retail, Consumer Goods, Services

Industry: Discount.Variety stores

Full Time Employees: 17,600

History

Initial Public Offering in March of 1995 at $15 a share.

Dollar Tree acquired many companies throughout the years.

By 2012, operated approximately 5,080 stores and exceeded $7 billion in sales.

Recently, the company is in talks to buy out Family Dollar

WHY DOLLAR TREE

To analyze the factors that contributed to the firm’s success

Leading company that targets customers due to their low cost distribution

Acquired and opened thousands of stores in the past few years

Competitors are Family Dollar, 99 cents store, etc.

Dollar Tree Today

Balance Sheet

Profitability

Financial Strength

Dollar Tree Ratios (2012-2014)

Dollar Tree Vs. Comps

Dollar tree vs. Industry Average

Company Industry

Short term Solvency:

Current Ratio 2 1.19

Quick Ratio 0.51 0.51

Long Term Solvency

Total Debt Ratio 57.76 53.61

Long Term Debt Ratio 27.3 37.4

Interest Coverage (TIE) 62.96 105.09

Asset management Measures

Inventory Turnover 7.58 7.66

Profitibility Measures

Profit Margin 7.61 4.23

ROA 21.52 8.23

ROE 47.62 17.61

Marekt Value Measures

P/E 23.42 37.28

CAPITAL STRUCTURE:DEBT & EQUITY

Debt VS Equity

2014 Debt-Equity Ratio = 0.66 2014 Total Debt Ratio = 57.76%

Sustainable Growth Rate

SGR= [ROE x Retention Ratio]/[1 - (ROE x Retention Ratio)]

SGR for 2014= [.509695054 x 1]/[1 – (.509695054 x 1)] = 1.039547037 x 100 = 103.95%

SGR for 2013= [.37143853 x 1]/[1 – (.37143853 x 1)] = .5909342964 x 100 = 59.09%

SGR for 2012= [.363156329 x 1]/[1 – (.363156329 x 1)] = .5702440733 x 100 = 57.02%

Internal Growth Rate

IGR= [ROA x Retention Rate]/[1-(ROA x Retention Ratio)]

IGR for 2014= [.215267506 x 1]/[1 – (.215267506 x 1)] = .274319602726 x 100 = 27.43%

IGR for 2013= [.225036337 x 1]/[1 – (.225036337 x 1)] = .290383082129 x 100 = 29.04%

IGR for 2012= [.209696814 x 1]/[1 – (.209696814 x 1)] = .26533717403 x 100 = 26.53%

Decomposing ROE using DuPont Identity

ROE=Net Income Sales × Sales Assets × Assets Total Equity

ROE for 2014= (596,700/7, 840,300) × (7,840,300/1, 035,300) × (1,035,300/1, 170,700) =0.5097

ROE for 2013= (619,300/7, 394,500) × (7,394,500/971700) × (971700/1, 667,300) =0.3714

ROE for 2012= (488,300/6, 630,500) × (6,630,500/867, 400) × (867,400/1, 344,600) =0.3632

Comparison

Years ROE Profit Margin Total Asset Turnover

Equity Multiplier

2014 0.5097 7.61% 7.5730 88.43%

2013 0.3714 8.38% 7.6099 58.28%

2012 0.3631 7.36% 7.6441 64.51%

ROE= Profit Margin x Total Asset Turnover x Equity Multiplier

COST OF DEBT

Using a competitor to determine cost of debt: Dollar General

Dollar Gen Corp New 3.25% | Maturity:10

YTM = 4.45%After Tax Cost =

2.77% Corp Tax Rate= 37.8

DLTR Vs S&P 500

CAPM Calculation

Treasury Rates10 Year 0.0227515 Year 0.025920 Year 0.0269

BetaYahoo Finance 0.7Nasdaq.com 0.87Morningstar.com 0.76

In order to calculate WACC, we need to calculate The Cost of Equity (rE) using Capital Asset Pricing Model (CAPM)

CAPM

CAPM= (.7+.03)*(.11-.03)= 8.6%

Weighted Average Cost of Capital

The weighted average cost of capital (WACC) is the rate of return that a company is expected to pay to all its security holders to finance its assets.

 WACC= (D/V) Rd (1-Tc) + (E/V) ReWACC = (520,550,000/14,580,550,000) (.0296) (1

- .3717) + (14,060,000,000/14,580,550,000) (.086)

WACC = 8.36%