Financial Analysis of Ahold and Tesco Essay

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Executive summary This report provides an analysis and evaluation of the profitability and liquidity of Ahold and Tesco. Methods of analysis include using Porter’s five forces to identify economic characteristics of retail industry, identifying strategies of two companies, assessing the quality of the balance sheets and income statements and analyzing profitability and risk ratios. Results of data analyzed show that the ROA, ROCE, asset turnover, current ratio, liabilities to shareholder’s equity ratio and inventory turnover of Ahold performed better than those of Tesco during 2009 to 2011. The report finds that compared to Tesco, Ahold has a better ability to earn profits and a lower probability to face risk with a stronger solvency…show more content…
Also, one trend that started over a decade ago showed that there were a decreasing number of independent retailer, chain stores have taken over the retail industry. It is hard for new entrants to establish their market value as independent retailers and it will be very difficult for them to find cheap and reliable suppliers. * Threat of substitutes. The threat of substitutes in the grocery retail industry is considerably low for food and relatively high for non-food items. In the food retail market, the substitutes of major food retailers are small chains convenience stores. Consumers still tend to choose major food retailers to buy products with little difference because of the low cost. However, the threat of substitutes for non-food items is relatively high. Consumers will compare prices among those different items and choose ones with high quality and reasonable price. * Buyer power. The bargaining power of buyers is high. When consumers buy products with little difference, the switching cost is low and buyers can easily switch from one brand to another. Buyers are price sensitive and can easily compare prices of different retailers online nowadays, if one store offers high prices, buyers can move to another retailer. Also, if consumers demand large quantity of products, they can get products at bargain prices from retailers. * Supply power. The bargaining power of suppliers is low. A contract with a large retailer can make or break a

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