Carrefour: Financial Ratios and Inventory Holding Period

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6N215 Corporate Financial Reporting

Professor Doug DeJong

Carrefour Group Assignment

Introduction
Company Overview
Carrefour was founded in 1959 in France. Marketing itself as a one-stop-shop providing a wide range of products at a low cost, it is now the second largest retailer in the world and the largest in Europe. In 2012, the company continued expanding their international footprint by adding an additional 283 retail points in France, Europe and Latin America. As of December 31, 2012, the Group was operating 9,994 retail outlets in 33 countries conducting all transactions in Euros. According to the Carrefour’s 2011 Annual Activity Report, the Group now features four major retail formats: Hypermarkets, Supermarkets, Convenience Stores and Cash & Carry Stores. Formerly, Carrefour also carried hard discount format stores but this was discontinued in 2010, on top of which Dia sub-group was also eliminated in 2011. Carrefour continues to expand their multi-channel retail forums (Carrefour Drive & e-commence) in certain strategic locations. The following highlights the breakdown of store formats used:

Above retail formats offer different and diversified product mix combining choices, quality and low prices to end-consumers – with product mainly categorized into: Daily Products, Fresh Products and Non-food Products. By end of 2011, nearly 50% of Carrefour retail outlets were located in France while the other 50% were operating in Europe, Latin America and Asia. Major markets for Carrefour in terms of strategising are France and Europe (Spain, Italy and Belgium). Despite attempts to lead in Asian markets, Carrefour is facing government and tax regulations. Globally speaking, 53% of stores were under the Convenience Store format in 2011.

Performance Overview (2009-2011)
In 2009, Carrefour introduced a new CEO and CFO while launching the ‘transformation plan’ in an attempt to improve business, brand image, business strategy etc. reducing costs by 590Mil Euros and improving inventory turnover by 2 days. Carrefour has wanted to overtake Wal-Mart as the leading retailer in Asia. There has been aggressive expansion into Chinese and Indian markets as well as shutting down the non-profit Russian operation. 80% of daily products are Carrefour owned brands offered at discount prices to improve margins and have a competitive differentiation within the market. In 2010 non-food sales in China were unsuccessful and resulted in income declining by 9.9%. The overall performance decreased from 6% to 1% in their major markets. The only success was seen in emerging markets like Latin America, Argentina and Asia. In 2011, Carrefour sold their Thailand operations to Big C supermarket under Casino group in France for 816Mil Euros. Furthermore, Carrefour Dia discount unit stores were dissolved and they began reformatting hypermarkets in Europe resulting in lowered cash flow compared to 2010. As a France-based Company, 43% of net sales are generated domestically; meanwhile other European regions contribute to nearly 30%. Hypermarkets represented their main retail format – which accounts for 63% of net sale:

Building Block Analysis
In the following Building Block analysis, we will study the key financial ratios and identify their core implications. In the summary, we will evaluate the overall performance of the Carrefour over a 3 year period and determine how symmetrical their current financial position is compared with their core business objectives.

1. Return on Asset
Return on asset (ROA) percentage indicates how profitable a company's assets are in generating revenue. The larger the ratio is, the more a company is utilizing their assets. Generally, companies that require huge initial investment, generate low ROA. Return on Assets (ROA) =

ROA (2009) = 276 + [(606) x (1-0.6)] / 51,818 = 0.010
ROA (2010) = 434 + [(648) x (1-0.58)] / 52,602 = 0.013
ROA (2011) = 371 + [(757) x (1-0.8)] / 50,791 = 0.010...
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