Aboriginal Co-operatives in Canada - Centre for the Study of Co ...

~ C A S E S T U D I E STable 1: Financial Information for Ikaluktutiak Co-operative Limited1986 1987 1988 1989 1990Return on Equity (%) 83 40 44 42 30Sales/Assets (times) 1.97 1.85 1.94 2.14 1.41Wages ($000) 232 265 392 438 456Patronage Refunds ($000) 164 163 107 236 325Table 1 presents some consolidated financial information for the co-op’s businesses over thefive-year period from 1986 through 1990. The return on equity (ROE) ratio gives an indicationof the return from business profits on the shareholder investment by comparing profits withshareholder equity. As indicated in the table, the ROE for 1986 is very high at 83 percent.Revenues from the various businesses were very good, and the gross margin was reasonable,and these were reflected in the net profit. In fact, the net profit in 1986 is similar to the netprofit earned in 1990, but the shareholders’ equity was almost three times greater in 1990. Thisexplains the declining but still healthy ROE. The rate of growth in shareholders’ equity outstrippedthe steady but slower rate of growth in net pre-tax profit over the period. For everydollar invested by a co-op member, revenue earned ranged from 30¢ to 83¢. Even though ROEhas declined, a 30 percent ROE is an indication of a healthy business.The sales-to-asset ratio indicates how many times each dollar invested in company assetsgenerates revenue. If the ratio is low, then the company may need to invest in more assets tobuild the capacity to generate more revenue. The co-op businesses in aggregate generated closeto twice the revenue for every dollar invested in assets for the first four years recorded in thetable. This ratio dropped to 1.41 times in 1990, which reflects the increased investment inassets during the year. Increased revenues from this investment would not yet be recorded inthe financial statements.Salaries have grown steadily and peaked in 1990 to more than $456,000. This is a 180 percentincrease over 1986 salaries and reflects the increased business activity. Patronage dividendswere declared in each year of the five-year period and ranged from $107,000 in 1988 to$325,000 in 1990. Patronage refunds range from 36 percent to 92 percent of net profits aftertaxes. This is a healthy return on the investment made by co-op members.The next sections will identify a number of reasons for the success of the co-op and areas forimprovement.~ 299