Accounting and Finance. Situation of hypermarkets in Spain

Nowadays, the world (with the exception of few countries such as China, Brazil and India) is immersed in a deep financial crisis. Focusing on Spain, it is remarkable the debt crisis and the not overly optimistic forecasts for 2011 with a growth of 0.8% and 1.1% for 2012 (IMF, 2011).

The food distribution sector is no stranger to the crisis in which we are immersed hence the turnover in 2009 was reduced by 4% (DBK, 2010). This is due to the high competition in the sector and the need to reduce prices in order to try to maintain and retain customers as well as attract new customers. However, this trend is reflected in their accounts?

According to a study carried out by the Organization of Consumers and Users (OCU), over 70% of household purchases are made in just 7 hypermarkets. The hypermarkets chains are Auchan, Carrefour, S.A., Mercadona, S.A., El Corte Ingles S.A., Lidl Supermercados S.A., Eroski and Dia S.A. (OCU. 2010). Of the total of Spanish hypermarkets, it is important to note the results of Mercadona, S.A. with a revenue growth of 6% in 2010, reaching 16.485 million euros (Mercadona, S.A., 2010) and Carrefour, S.A. sales with a growth of 5% reaching 90.099 million euros (Carrefour, S.A., 2010).

In this blog, I will make a small financial comparison between both supermarkets because both aret he most representative supermarkets (representing the 40% of the sector). The goal of the analysis is to establish which is the general financial situation of Spain and if this is consistent with data obtained in 2009 on reducing turnover.(Lasmejoresempresasynegocios, 2011)

According to its financial statements (Carrefour, S.A., 2010 and Mercadona, S.A. 2010), and Profit and Loss sheet Statement, different conclusions can be draw.

It is important to point out that the comparability of both companies is not done in absolute terms but is done in qualitative terms because Mercadona, S.A., is a national company whereas Carrefour, S.A. has an international focus. In fact, the sells for Carrefour, S.A. are 6 times bigger than Mercadona, S.A.

First, according to the statement balance, the Mercadona, S.A. current assets are approximately 51% whereas the non current assets are 49%. On the other hand, in Carrefour, S.A. the currents assets represent about 38% whereas the non current assets are 62%. From this point, it can be inferred that Mercadona, S.A. has more liquid money (21%) than Carrefour, S.A. (6%). We also note that the payable assets represents for Mercadona, S.A. only a 1% while for Carrefour, S.A. are 11%. It can denote that the providers, perhaps because the market size, pay more quickly to Carrefour, S.A.. It is also significant that while for Mercadona, S.A. the investment in tangible assets is an important basis for their investment with 46%, for Carrefour, S.A. is only 28%.

Respect to financial liabilities, we see that the main difference between both supermarkets is the relationship between permanent funding resources-short term and long-term funding. While Mercadona, S.A. barely has long-term debt with a 0.39% in Carrefour, S.A. represents almost 27%. This indicates a difference in the management model in which Carrefour, S.A., perhaps because of its brand, banks let allows it to have financial debt for longer periods. Furthermore, one conclusion is that, Carrefour, S.A. pays later to its suppliers while the suppliers pay to it faster.

Finally, according to economic structure analysis of both companies, it can be inferred that the profit margins are similar in both companies (22% for Carrefour, S.A. and 25% Mercadona, S.A.). That is, both companies have a similar strategy regarding to the prices set in their products. Meanwhile, concerning to the employee costs per sales, expenditure on Mercadona, S.A. are higher (12.31%) than in Carrefour, S.A. (9.42%). It also important to point out that the expenditure because of the interest of the financial debts is greater in Carrefour, S.A. (9%) than in Mercadona, S.A. (0.15%).

In the following days, I will update my blog in order to go deeper in this comparison applying different indicators of accounting analysis.

Resources:

(DBk, 2010). DBK, 2010. Distribución Alimentaria (Mercado Ibérico).

(OCU, 2010). Organización de Consumidores y Usuarios. El Consumo Responsable en Supermercados

(Lasmejoresempresasynegocios, 2011). Retrieved: 26-11-2011 from: http://www.lasmejoresempresasynegocios.com/supermercadoshipertiendas.html)

(Carrefour, S.A., 2010). Carrefour, S.A.. Financial Report 2010

(Mercadona, S.A., 2010). Memoria Anual Mercadota 2010.

(IMF, 2011). Internacional Monetary Found, 2011. Retrieved: 26/11/2011 from http://www.imf.org/external/pubs/ft/weo/2011/02/index.htm

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