In August 1999 it was announced that two giant French retailers, Carrefour SA and Promodes SA, would merge. A headline in The Wall Street Journal blared, “French Retailers Create New Wal-Mart Rival.” While Wal-Mart's total sales would still exceed those of the combined company, Wal-Mart's international sales are far less than those of the combined company. This is a serious concern for Wal-Mart, since its primary opportunity for future growth lies outside of the United States.

Below are basic financial data for the combined corporation (in French francs) and Wal-Mart (in U.S. dollars). Even though their results are presented in different currencies, by employing ratios we can make some basic comparisons.

Instructions Compare the two companies by answering the following:

(a) Calculate the gross profit rate and operating expense to sales ratio for each of the companies, and discuss their relative abilities to control cost of goods sold and operating expenses.

(b) Calculate the return on assets ratio and profit margin ratio, and discuss their relative profitability.

(c) Calculate the current ratio and debt to total assets ratios for the two companies, and discuss their relative liquidity and solvency.

(d) What concerns might you have in relying on this comparison?
FINANCIAL ANALYSIS ON THE WEB

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Sales Cost of goods sold Operating expenses Net income Carrefour/ Promodes (in billions) Fr 298.0 274.0 Wal-Mart (in billions) $137.6 108.7 9.6 22.4 5.5 4.4 Total assets 155.0 50.0 Average total assets 140.4 47.7 Current assets 63.5 21.1 Current liabilities 85.8 16.8 Total liabilities 114.2 28.9