Auto Industry Statistics

Recently Dave has talked a lot about the state of the automotive industry in Toronto and Ontario, specifically through the lense of the auto clients we work with, which gave me the idea of using today’s post to look at the big picture of what’s going on with the auto industry across Canada. The following are some interesting facts* about the industry:

• Canada is the world’s sixth-largest exporter of road vehicles.
• We account for 16% of North America’s vehicle production.
• There are 1,300 auto companies in Canada with revenues totaling over 70 billion dollars.
• Annual exports total over 50 billion dollars.
• There are over 111,000 Canadian autoworkers skilled in engineering, machining, welding, metalwork, manufacturing systems and services, robotics, tool-and-die making, etc.
• Ontario alone has over 300 parts manufacturers and 88,000 skilled workers.
• In the 10 year period leading up to 2011, more than 3 billion dollars in annual capital investment and more than $450 million in annual R&D spending was invested in Canada’s automotive industry.

That shows a lot of vehicles being built in Canada, and a number of sales to be broken out over the various dealerships located throughout Ontario. If you own a dealership or are a controller at a dealership, there are a number of tax planning strategies you should be taking advantage of. To list a few: holding companies, family trusts, purifying your dealership of its redundant assets, creditor proofing your dealership, share for share exchanges and planning considerations for business sale and/or succession.

Leave a comment below for more information or if you have a question, or check out this page for additional information on tax planning.

                              

*Facts are taken from the Canadian Government’s “Invest in Canada” website.

- Jeff

Suzuki Canada Follows American Suzuki Automotive Shut Down

In spite of protests that Suzuki Canada was going to remain in the automotive industry after their US counterpart American Suzuki restructured to focus on motorcycles and ATVs, I had suspicions that the Canadian branch would soon follow suit. I was unfortunately right.

Suzuki Canada has now officially announced the end of their auto division. The will be discontinuing auto sales after their 2014 model to refocus, like the US, on motorcycles, ATVs, and their marine branches. This could give dealerships anywhere from 12 months to the end of 2014 to either shut down or sell Suzuki’s other products.

While Suzuki Canada sold over 13,000 cars just 5 years ago, they sold only 5,500 last year, and American Suzuki ended last year with 25,350 cars sold – a definite year-over-year decline for both.

Suzuki made this statement a few months ago in response to concerns that Suzuki Canada would follow American Suzuki’s lead: “Suzuki Canada Inc. is a completely separate entity than American Suzuki Motor Corporation. We are completely independent of one another, and you will not see a rollback in dealerships for Canada.”

This latest quote shows Suzuki Canada’s reasoning behind their decision to in fact shut down their auto division: “[We have] been monitoring market conditions carefully and, after reviewing the long-term viability of automotive production for Canada, [we] concluded that it was no longer feasible to produce automobiles for distribution and sale in the Canadian market.”

Suzuki is by no means the only automotive manufacturer having troubles in this economy, but they seem to be struggling especially hard as Suzuki Motor Spain also closed its motorcycle plant in Spain as of March 2013. Suzuki sold more than 10,000 motorcycles and marine vehicles in Canada last year, but this development in Spain signal the imminent end of Suzuki motorcycles and Suzuki as a whole? Only time will tell.

-Dave

Financial Statements for Dummies

Financial Statements for Dummies

As a Chartered Accountant in public practice, I have provided assurance on approximately 500 sets of financial statements over the last 10 years. In the process, I have analyzed statements to assess the ongoing viability of different businesses and I have seen what happens when companies fail to act on what their statements are telling them. I will try to sum up the most valuable points of financial statement analysis in this “Financial Statements for Dummies” blog.

Financial statements are typically prepared for a 12 month period. They provide a record of all the transactions that occur during that period, including the payment of related income taxes. There are adjustments to reflect transactions that occur with no cash transacted.

First Step – level of work:

The first thing you should do when you look at a set of financial statements is check if the company in question was audited or reviewed. This information should be clearly stated on the report that accompanies the statements. If there is no report with the statements, you can assume the statements were not audited or reviewed and therefore, there is no objective party providing assurance that the statements accurately reflect the company’s operations.

When accountants conduct a review engagement, they assess the ‘plausibility’ of the financial statements through analysis , inquiry and discussion. An audit includes the same analysis, inquiry and discussion, plus additional substantive work and review of controls to assess the ‘reasonability’ of the financial statements. An audit provides a higher level of comfort that the financial statements fairly represent the company’s operations and it is the standard for public companies , whereas a review provides a lower level of assurance.

Take a close look at the review or audit report to make sure the company has an unqualified opinion, meaning that the external accountant performed their work and the statements are not materially misstated.

Second Step – accounting standard:

The next item I would review is the basis of accounting meaning what accounting standard is the company following. In Canada, private companies will typically be using Accounting Standards for Private Entities (ASPE) for December 31, 2011 year-ends going forward and public companies will be using International Financial Reporting Standards (IFRS). The basis of accounting is important because if you are comparing two sets of financial statements, you want to ensure the accounting policies are the similar.

Also pay close attention to the financial statement notes. Look for issues such as Going Concern, Risks and Contingencies as any one of these can allude to significant issues in the company.

Third Step –analysis:

I have learnt over the years that users look at financial statements for different reasons and therefore different parts of the financial statements are important to each of us. Financial statements are generally prepared for general use to allow for different user requirements. As a result, in preparing this article, I will touch upon some of the more common areas of financial statement analysis.

Comparative analysis
This is an amazing tool if used correctly. Comparing sales, expenses or other balance sheet items year over year can identify many critical issues. Be careful to look at the year over year dollar change as well as percentage change. The dollar change may look small, but percentage-wise it can be significant. For example, if your gross profit (revenue less cost of sales) decreases from 12% to 10% the following year, it may seem like an insignificant 2% change year over year. In reality, the gross profit has decreased by 17% (2%/12%) year over year. This seemingly small change can be indicative of significant issues such as fraud, rising input costs that are not being passed on the customer, downward pressure on prices which is shrinking your revenue or a host of other issues.

Ratio analysis
Financial statement ratio analysis can be used to evaluate a company’s liquidity, efficiency, long-term solvency, profitability and more.

Liquidity ratios look at a company’s ability to meet its short-term obligations. The current ratio looks at current assets : current liabilities. A current ratio below 1 means that the current liabilities exceed the current assets. Clearly this is not good and it could indicate that the company will have trouble meeting its liabilities.

Inventory turnover is used to assess a company’s efficiency. It can tell you how many times inventory is turning over and how long inventory is sitting on the shelves. The longer inventory sits, the longer it takes for the company to make money. The same goes for accounts receivable (AR) turnover, if AR turns over twice per year, it essentially means it takes about half a year to collect AR.

Ratios can be compared year over year or compared to some industry standard. If the ratios are drastically different from one year to the next, or if they are different than the norm for the industry, you need to find an explanation.

Net worth
The net worth of a company is the assets minus the liabilities and it represents what is left for the owner once all assets are liquidated and liabilities are settled. This is an area that is commonly looked at in a purchase and financing arrangements.

Cash flow statement
The cash flow statement provides details as to where cash was used and received throughout the year, and if analysed correctly, can uncover significant matters. For example when reviewing the cash flow, you may see large non-cash items received throughout the year. In this situation the income may look great, but if much of the income was non-cash, it may have no real benefit to the company.

Fourth Step –Intangibles:
The financial statements may include items that are considered intangible, i.e. goodwill, leasehold improvements or intangible assets. Often times these assets are ignored by the banks and outside investors because they carry no tangible value, are not readily saleable and are typically part of an overall valuation of the company.

In conclusion, financial statements can be very useful if you know what you are looking for. If your objectives are simple, then the review of the financial statements can be as quick as just looking at the net income and moving on, but if your objectives are more involved, then following the process above would be appropriate.

-- David Hertzog