Financial consideration of Hypermarkets in Spain
Hypermarkets enjoy the “large scale” economy or bulk economy: as they invest a lot of money in huge purchases they can keep the prices low as they achieve better conditions with suppliers. Such purchase power is reflected also in efficiency ratios as account collection period and account payable period where figures show how hypermarkets in Spain receive cash quickly while they can afford to pay back later. Such characteristic is beneficial for them as practically the achieve a surplus of cash (at a certain time) which compensates bigger liabilities and allows current liquidity. At the same time it rises some doubt about ethical and Corporate Responsibility issues (which they claim to fully satisfy) as the supplier has little choice: low prices and deficit on the balance of payment, situation they accept usually thanks to the stability of the relationship.
Another interesting characteristic is that hypermarkets in Spain tend to have low risk appetite: They tend to avoid to leverage the company increasing liability and decreasing equity, while, when liabilities increase, they are financed in a way which doesn’t raise financial expenses (Interest) as for example the explained mechanism of surplus in the balance of payments. In addition equity also tend to increase proportionally with liabilities thanks to reinvestment of retained earnings (self financing).
Consequently while the return on Equity has not such big margin, investments are safer and they enable to overcome the financial crisis situation with less difficulties even if net profits eventually drop.
Comments Off on Financial consideration of Hypermarkets in Spain /
27 Nov 2011
por
Francesco Mazzeo
IMSD /
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