Profitability and risk analysis in a cross-section setting This problem compares the profitability and risk ratios of

Question:

Profitability and risk analysis in a cross-section setting This problem compares the profitability and risk ratios of three leading discount chains: Carrefour, Target, and Wal-Mart. Carrefour, headquartered in France, is Europe's largest retailer and the second largest retailer in the world. Sales in 2008 totaled â‚¬820,149 million ($112,461). It segments its activities into four groups (2008 sales mix percentages in parentheses:

(1) Hypermarkets (62%): offer a wide variety of household and food products at competitively k prices under the Carrefour store brand.

(2) Supermarkets (22%): sell traditional grocery products under the Champion, Norte, GS and GB supermarkets, and other store brands.

(3) Hard Discount (10%): offer a limited variety of food products in smaller stores than those of hypermarkets and supermarkets at aggressively low prices under the Dia. Ed. and Minipreco store brands.

(4) Other (6%): includes convenience stores and wholesale stores, the latter targeted at business customers, under the SHOPI. Marche Plus. 8 A Huit. Express, Contact, and Proxi store brands.

Carrefour derived approximately 46% of its 2008 sales within France, 38% within Europe excluding France, 9% in Latin America, and 7% in Asia. In addition to owning most of its stores, Carrefour Licenses the rights to other firms to own and operate stores using some of the Carrefour store brand names, for which Carrefour receives license fees. The chapter describes Wal-Mart's strategy and operations. Problem 27 describes Target's strategy and operations. Exhibits 6.27 and 6.28 present profitability ratios for Carrefour. Target and Wal-Mart for fiscal years 2006, 2007, and 2008) Exhibits 6.29 presents risk ratios for the three firms. Exhibits 6.30 presents selected other data for these firms. Exhibit 6.30 expresses amounts for Carrefour in U.S. dollars to enhance comparability with Target and Wal-Mart. The first item in Exhibits 6.30 shows both the increase in total sales and. in brackets, the increase in sales of stores that have been open for at least two full years. The increase in total sales equals the sum of increases in same store sales and increases in sales due to opening new stores and acquiring new stores through corporate acquisitions. The financial statements include the present value of commitments under all leases in property, plant, and equipment and in long-term debt. Study these financial ratios and respond to the following questions:

a. Wal-Mart and Target follow somewhat different strategies. Wal-Mart consistently has a higher rate of return on assets (ROA) than Target. Using Information in Exhibits 6.27 and 6.30, suggest reasons for these differences in operating profitability.

b. Wal-Mart and Carrefour follow similar strategies. Wal-Mart consistently outperforms Carrefour on ROA. Using information in Exhibits 6.27 and 6.30, suggest reasons for these differences in operating profitability.

c. Refer to Exhibit 6.28. Which firm appears to have used financial leverage most effectively in enhancing the rate of return on common shareholders' equity (ROCE)? Explain your reasoning.

d. Refer to Exhibit 6.29. Do any of these firms appear unduly risky as of the end of2008?

Carrefour, Target, and Wal-Mart EXHIBIT 6.27 Cross-Section ROA Profitability Analysis (Problem 28) ROA 2008 2006 2007 Ca

Profitability and risk analysis in a cross-section setting This

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Financial Ratios
The term is enough to curl one's hair, conjuring up those complex problems we encountered in high school math that left many of us babbling and frustrated. But when it comes to investing, that need not be the case. In fact, there are ratios that,...