Hypermarkets: A Financial Approach

To understand what the unique characteristics of Hypermarkets are, we need to take a look and analyze how they operate. Hypermarkets are commercial superstores which offer a very wide range of products all in the same place. This involves a huge inventory of products, which clearly lets the market to buy in very high volumes at smaller prices and at the same time allows the superstore to be very price-competitive among regular supermarkets or department stores.

They are usually characterized for having very low profit margins for the products they sale but rather use the high volumes to compensate this. Also the inventory turnover is very rapid so it allows these type of companies to operate efficiently. This particular fact is very common in this type of companies and leads us to other very interesting treats.

Current ratio and Acid Test ratio are two ways in which a company can be analyzed in order to determine its capacity to meet short term obligations, the first one being the ration between current assets and current liabilities, and latter its practically the same, but with the exception on taking away the inventory off the assets. On these kind of ratios it is said that for a company to have good numbers these ratios have to be above the unit. The peculiarity of organizations like hypermarkets is that they commonly perform below the unit. So how they manage to do it? Well, like McDonalds or some other companies who have relatively high or fast inventory turnover, the hypermarkets turn over their inventory much more rapidly than the accounts payable become due(which is commonly a 90 days period). So, in this way they can finance themselves and they are able to meet their obligations timely.

Current Ratio and Acid Test in Hypermarkets

The previous graph shows the comparison of CR and AT for a specific hypermarket in two different years. It is noticeable the great participation that inventory has on the assets by looking at the difference between CR and AT; this is very common for these companies. At the same time we can see that they operate well below the unit in both ratios.

Other important detail is that oftenly they do not operate with a high financial leverage, which has different arguments in favour and against, but the truth is that this fact could have helped them to overcome the crisis in not such a bad way. Although leveraging the companies is certainly good for companies, we don´t have to forget that execesive leverage was the cause for the economic crisis.

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