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Financial Analysis of Carrefour Essay

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Chapter 5 Carrefour S.A. Teaching Note Version: March 2007

Introduction The Carrefour case is a financial analysis case. Carrefour S.A. is one of the world’s largest retailers. During the first half of the 2000s, the company’s share prices steadily declined, despite the fact that the company reported above-average returns on equity. Students are asked to analyze Carrefour’s financial statements and segment data to find explanations for the company’s poor share price performance and to make recommendations for the future. The discussion of the financial analysis is preceded by a discussion of Carrefour’s strategy and accounting. Both the accounting analysis and the financial analysis are affected by Carrefour’s switch from French GAAP …show more content…

International growth. When large companies such as Carrefour start to obtain a dominant position in their domestic markets, they may be “forced” to expand overseas or enter other industries. Carrefour’s corporate strategy is to expand overseas rather than diversify. More importantly, as indicated above, achieving growth is an essential part of Carrefour’s strategy because (international) growth helps the company to obtain economies of scale in purchasing, logistics and the development of Carrefourbranded products. For example, Carrefour sells its own branded products in the same packaging worldwide (of course printed in different languages). The company’s overseas retailing operations are, however, more risky than its domestic operations. First, to some extent retailing remains a local business because consumers’ tastes differ substantially across countries. Profitable expansion outside Carrefour’s domestic market is only possible if the company has good knowledge about local customers’ preferences and tastes. Consequently, a slightly safer way to expand abroad is to acquire local supermarket chains. A disadvantage of this strategy is, however, that acquisition premiums have to be paid, which can also drive down profits. Second, many of Carrefour’s “intercontinental” hypermarkets are located in countries where the economic environment is risky: consumers in economically less developed countries are likely to be more price sensitive; East Asian

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