Running Head: Dollar General 1
Dollar General – Analysis
Eric Blair
Wilmington University
Financial Management
MBA 7200
Dollar General – Analysis 2
Company Overview
Dollar General is a convenience store that was launched in 1939 in Springfield,
Kentucky, and today 78 years later, is known as the largest small-box retailer in the United
States. (DG History, 2017) Dollar General has 13,320 stores in 43 states with net sales of $22
billion in 2016.
Dollar General is a small box convenience store that uses the low-cost provider model
selling “products that are frequently used and replenished, such as food, snacks, health and
beauty aids, cleaning supplies, clothing for the family, housewares and seasonal items at low
everyday prices in convenient neighborhood location.” (“Dollar General 2016 Annual Report”,
2016). Dollar General sells products from well-known brands such as “Procter & Gamble,
Kimberly Clark, Unilever, Kellogg’s, General Mills, Nabisco, Hanes, PepsiCo and Coca-Cola.”
(“Dollar General 2016 Annual Report”, 2016).
Highlights & Risk Factors
One of the key risks for Dollar General revolves around their customer base, being that
they are the industry leader at the low end of the economy any economic changes that impact
their core customers can have a drastic impact on sales. As noted in their Q4 commentary Dollar
General stated in regards to the rising costs faced by consumers: “the rise in healthcare costs that
they are facing. I don’t believe any of our core customers realized what they were up against on
those rising cost. And then rental costs continue and they called that out second on paying rent
because most of our — again, core customers rent don’t own and those rents are going up across
the nation at a pretty high rate. And they have to continue to allocate their spending, so anywhere
they are saving, they are doing some things a little differently than they’ve done before. She [is]
Dollar General – Analysis 3
maybe a little worse off today economically than she was even earlier in the year.” (“Dollar
General: Hold Rating, Risk Still Ahead”, 2017)
Financial Statement Assessment
To preface, the debt to equity ratio is used to quantify a company’s debt to the total value
of its stock as a way to gauge the amount of debt a company is using, or leveraging, to fund
operations. As of February 3, 2017, Dollar General had total liabilities on the books of
$6,266,004, with total equity of $5,406,294. The Debt to equity ratio for Dollar General is 1.159
or 115.9%. This may look high at first glance, as it shows that Dollar General carries more debt
than shareholder value, however by looking at the average debt to equity ratio of companies in
the retail sector of 100% (CSI Corp, 2017) the D/E ratio of 115.9% is actually standard, if not
only slightly high. This should not be of a great concern to an investor, as overall Dollar General
is using debt to fund operations comparable to other retailers.
Interesting items that arose from my review of the financial reports on the balance sheet
is that the current portion of long-term obligations in current liabilities rose by 36000% in 2017
to $500,950 from $1,379. (“Dollar General 2016 Annual Report”, 2016) This increase shows that
a larger portion of debt will be due to be paid within one year. Retained earnings also decreased
in 2017 as additional paid in capital grew, which is shown in the financial highlights as $1.3
billion dollars were distributed to shareholders through share repurchases and cash dividends.
Dollar General seems to be at a point where it is inclined to distribute to shareholders, rather than
add to retained earnings.
Some highlights about the company as noted in the financial highlights in the annual
report are that the net sales increased in 2016 by 7.9%, same store sales grew 0.9% for the 27th
Dollar General – Analysis 4
year in a row, with an increase of 15% in cash flow operations to $1.6 billion dollars. Dollar
General also opened 900 new stores and remodeled or relocated an additional 906 locations in
2016, which shows that the company was not afraid to invest for the long term even in a tepid
economic environment. (“Dollar General 2016 Annual Report”, 2016).
Cash Flows
The Dollar General cash flow statement from 2013-2016 provides some interesting
insight into the performance, and direction, of Dollar General as a whole. Operating cash flow is
possible for all years and is trending positive. This means that Dollar Generals operations are
producing cash flow for the company. In 2015 Cash Flows from Operations amount to 1.63
billion, and from 2013 to 2016 grew by an average rate of 9% annually. This shows that Dollar
