Indigo Kobo Inc. which is a worldwide

Indigo
Books & Music Inc. is the biggest book, gift, and speciality toy retailer
in Canada. (Investor Relations, 2017). Indigo conducts business in Canada and
provides online access over the company’s website and mobile programs
(Investor, 2017). Back in 1995, Coles and SmithBooks joined together to form
Chapters Inc (Our Company | Timeline, 2017). Then in
1996, Indigo was created and they opened their first store called Indigo Books
& Music in the following year in Burlington, Ontario (Our, 2017). In 1999, Chapters
Online is available on the stock exchange (Our, 2017). In 2001, Indigo and
Chapters merged to create Indigo Books & Music Inc and the official online
store and website is created (Our, 2017). In 2006, Indigo widens their product
line to carry toys and they open toy departments in Toronto (Our, 2017). In
2009, Indigo forms Kobo Inc. which is a worldwide online reading company
running in over 100 countries (Our, 2017). In 2011, Indigo adds paper merchandise
and fashion decorations to their product line (Our, 2017). Also in the same
year, Rakuten, a Japanese company wants to buy Kobo from Indigo and in 2012,
Kobo is sold to Rakuten for $315 million US dollars (Our, 2017). In 2015 and
2016, Indigo is titled the top Canadian retailer for the most attractive retail
employer by Randstad Canada (Our, 2017). In 2017, Indigo is considered one of
Canada’s top 10 most trusted brands in the Gustavson Brand Trust Index (Our,
2017). Heather Reisman is the founder and Chief Executive Officer (CEO) of
Indigo (Corporate, 2017). Management has selected Ms. Reisman as the person who
controls shareholder inquires and interests (Corporate, 2017). Ms. Reisman is
open to interviews by shareholders, analysts, the media, and other investors
(Corporate, 2017). The board consists of ten individuals (Corporate Governance
Practices, 2017). There are two committees within the board, “…the Audit
Committee, and the Human

Resources,
Compensation and Governance Committee (the “HRCG Committee”)” (“Corporate
Governance Practices,” 2017, para. 3). The board of directors supervises the
tasks of the corporation and the management of the business (Corporate, 2017). The
board checks and accepts all major strategic arrangements (Corporate, 2017).
The board uses quarterly financial reports to monitor the corporation’s
performance and to improve any critical procedures (Corporate, 2017). The Audit
Committee reviews the Corporation’s financial reports and approves any
disclosure documents (Corporate, 2017). The HRCG Committee finds skilled
individuals to work with senior management at Indigo (Corporate, 2017). The
HRCG Committee also reviews if the board maintains specific qualifications to
operate efficiently (Corporate, 2017).

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Indigo
Books & Music Inc. uses the straight-line method to calculate amortization
over the estimated useful life of their assets (Indigo, 2017). The straight-line
method generally has the same amount of amortization expense each year. The
residual value is expected to be zero unless Indigo decides to discard the
asset at a value that is higher than the disposal costs (Indigo, 2017).
According to Indigo, amortization methods, residual values, and useful lives
enforced on assets are examined based on appropriate market information
available at the time and on management decisions (2017). For furniture,
fixtures, and equipment the useful life is five to ten years (Indigo, 2017).
For computer equipment, and equipment under finance leases the useful life is
three to five years (Indigo, 2017). For leasehold improvements, it is over the
shorter useful life to a maximum of ten years (Indigo, 2017). The straight-line
method is appropriate for Indigo because they own property rather than many vehicles
or equipment. The other methods, the declining-balance and units-of-activity
are usually applied to vehicles and equipment. Indigo uses the average cost
flow assumption to measure their inventory (Indigo, 2017). This makes sense
because it would be impossible to measure a specific flow of inventory with the
number of books, and small items each location holds, and has already sold. Therefore,
the average cost flow assumption is appropriate for Indigo.

Indigo’s
interest rate risk is limited to its long-term debt, the interest rates are
fixed at the time a contract is completed (Indigo, 2017). The initial fair
value of long-term debt is predicted in accordance to the discounted cash
payments of the debt at Indigo’s estimated borrowing rates for

debt
of identical outstanding maturities (Indigo, 2017). The fair value of long-term
debt estimates its carrying value (Indigo, 2017). There is an unlimited amount
of authorized class A preference shares with no par value with voting rights
(Indigo, 2017). One class A preference share can be exchanged for one common
share at the decision of the shareholder (Indigo, 2017). There is an unlimited
amount of a common shares that have voting rights (Indigo, 2017). As of April
1, 2017, there are 26,351,484 issued shares which is equivalent to 215,971,000
Canadian dollars (Indigo, 2017). Indigo has created an employee stock option
plan for major employees (Indigo, 2017). Indigo has 3,452,723 common shares
reserved for issuance under the stock option plan as of April 1, 2017 (Indigo,
2017). Indigo has also created a Directors’ Deferred Share Unit Plan (Indigo,
2017). There are 500,000 shares reserved for this plan (Indigo, 2017). Indigo
has three main objectives when managing capital (Indigo, 2017). The first being
that they ensure enough liquidity to support economic agreements and to achieve
operating and strategic goals (Indigo, 2017). Second is controlling economic
quantity and flexibility through connections to capital to help future
advancement of the business (Indigo, 2017). The third being lowering the cost
of capital while acknowledging current and future industry, market, and
economic opportunities and situations (Indigo, 2017). The company developed
enticing returns for shareholders by changing physical and digital platforms
and maintain productivity development through funding in information technology
and handling to help the company’s sales structure (Indigo, 2017). Indigo’s
main sources of capital are its present cash amount, short-term investments,
and cash flows arising from operations (Indigo, 2017). Cash flow is used to
finance working capital requirements and capital expenditures (Indigo, 2017).
According to Indigo, they manage their capital structure in unison with changes
in financial conditions (2017).

Most
of the ratios of Indigo Books & Music Inc. have slightly changed but some
ratios have changed by a significant amount. The gross profit margin was 44.6
percent in 2016 and 44.5 percent in 2017. Even though the ratio has fallen, the
change is so little that it has no effect on Indigo and they are still
reporting around merchandising profit as the previous year. The bookstore
industry standard for gross profit margin is 43.9 percent according to The
Retail Owners Institute (“ROI”) (2017), which indicates that Indigo is doing a
little better than the standard. The inventory turnover ratio was 2.59 times in
2016 and 2.52 times in 2017. Again, another ratio has dropped by a small amount
which means that the Indigo is in the same the position as last year. The ROI
reports that the industry standard for inventory turnover is 3.3 times in 2016.
Indigo’s inventory turnover ratio is under 3.3. which indicates that Indigo’s
inventory is sold less times on average when compared to other bookstores.
Indigo’s current ratio was 1.93:1 in 2016 and 2.06:1 in 2017. The industry
standard is 1.7:1 as of 2016, ROI reports. Indigo has better liquidity than
other bookstore companies. On the cash flow statement, Indigo’s net cash provided
by operating activities has decreased by $2,940,000 Canadian dollars (Indigo,
2017). The difference seems to have come from the decrease in the net change in
non-cash working capital balances by $12,094,000 and net income decreasing by
$7,663,000 Canadian dollars (Indigo, 2017). Net cash used by investing
activities has decreased by $100,422,000 to become $(127,435,000) Canadian
dollars (Indigo, 2017). This substantial amount of decrease has come from
short-term investments (Indigo, 2017). It is reported that in 2016 there was no
short-term investments and in 2017 there was $100,000,000 Canadian dollars in
short-term investments (Indigo, 2017). According to Indigo, short-term
investments includes investment securities that are non-redeemable before the
maturity date (2017). Net cash provided by

financing
activities has increased by $3,383,000 Canadian dollars (Indigo, 2017). This
was caused by issuing 554,133 shares, amounting to $5,983,670 Canadian dollars
(Indigo, 2017). In total there was a net decrease in cash by $86,050,000
Canadian dollars (Indigo, 2017). Some significant changes over a few years is
that Indigo has increased sales over the years with Indigo reaching one billion
in sales in 2017 (Indigo, 2017). Also, net cash provided by operating
activities has decreased steadily over a few years while net cash used by
investing activities has decreased by a large amount (Indigo, 2017). Indigo can
issue more shares if they need to raise capital (Indigo, 2017). Indigo should
keep its 50% ownership in the Calendar Club as this raises income for the
company (Indigo, 2017). Indigo should continue to use their three main
objectives when managing capital to ensure that the company will grow each year
(Indigo, 2017). Overall, Indigo Books & Music continues to grow each year
with increasing sales, producing net incomes, increasing some ratios, and
having been awarded for the, “top retail employer brand and fourth for the most
favoured brand overall to work for in Canada” (Indigo, 2017, p. 4), in 2017 by the
Randstad Corporation (Indigo, 2017).