This report is the financial analysis of a EU-listed consolidated group, the Carrefour group. This company, operating on the retail sector, seemed to be an interesting company for us to analyze. Majority of the companies in this industry are characterized by a negative working capital requirement (WCR) due to cash payment from customers and deferred payment to its suppliers, which makes their financial structure particular. Other particularities of companies from the retail sector include:
- Nearly a third of the assets are tangible assets.
- Stocks: Given the area of hypermarkets, stocks are very significant
- Receivables: in the retail domain, customers are individuals, therefore they pay immediately in cash, check or credit card. Payment delays are kept to a minimum.
- Payables: Like any company, Carrefour pays its suppliers with a delay of 30, 60, 90 or 120 days; in other words it has already sold the property it purchased even before paying a penny.
- Net cash: It is largely positive.
In the first part of this report, we will present the activity and profitability of the group. In the second part, we will study the specific financial structure, the debt and the financing of the company.
[...] Net Present Value (NPV) Since 1999, Carrefour has been leading an offensive internationalization policy, especially in emerging countries (Brazil, China, etc). To apply the concept of NPV for Carrefour, we have taken the example where Carrefour would acquire a small retail chain in Argentina, for 100 million euros (randomly estimated value). Before investing in a project, companies need to know if the project will be profitable or not. The NPV measures the profitability of a project. The NPV is the difference between cash flows at discounted rate and the invested capital. [...]
[...] The average shareholders' participation is 22% which means that investing in Carrefour is relatively secure so shareholders trust the investment Debt Gearing ratio It is a measure of financial leverage, demonstrating the degree to which a firm's activities are funded by owner's funds versus creditor's funds. The observation of the financial market players is that Carrefour is heavily in debt and that this debt tends to increase. Solvency ratio term liabilities It indicates how likely a company is to continue meeting its debt obligations 3. [...]
[...] The income statement analysis EBIT The EBIT has been positive on the period 2004-2008 (and steadily increasing since 2005), therefore Carrefour has not made any loss during the five-year period we are studying. There has been an increase of since 2004; this increase is due to an increase of the net sales (even if the latter has been lowered by an increase of the depreciations and provisions as the group follows an intensive investment policy.), and a good cost control and management policy. [...]
[...] Therefore, the IRR is the rate for which the NPV equals zero. For a project to be accepted by the company, the IRR has to be superior to the Rate of Return which is initially required by the company. The higher the IRR is, the more profitable the project is for the company. The expected discount rate is given by the following calculation: NPV = 0 ( 30(1+ + 40(1+ 50(1+ 20(1+ 100 = 0 ( t = Conclusion The analysis of the financial statements shows the healthy situation [...]
[...] The main activities of the company are: - Hypermarkets of the total turnover) - Supermarket of the total turnover) - The hard discount - Other activities of the group : Proximity (small supermarkets and small shops often franchised and independent), Cash & Carry (selling directly to the wholesale market professionals), Services ( insurance, travel, financial products, entertainment, etc. ) and others (selling activities on the Internet) Part 1 : Financial statement analysis The activity and profitability analysis will enable us to determine if Carrefour has a good position on its market (retail industry) and if it creates value. Note: all the data in this report is in million euros 1. Activity analysis 1. [...]
using our reader.