Question: Recently, it was announced that two giant
Recently, it was announced that two giant French retailers, Carrefour SA and Promodes SA, would merge. A headline in the Wall Street Journal blared, “French Retailers Create New Wal-Mart Rival.†While Wal-Mart’s total sales would still exceed those of the combined company, Wal-Mart’s international sales are far less than those of the combined company. This is a serious concern for Wal-Mart, since its primary opportunity for future growth lies outside of the United States. Below are basic financial data for the combined corporation (in euros) and Wal-Mart (in U.S. dollars). Even though their results are presented in different currencies, by employing ratios we can make some basic comparisons.
Instructions
Compare the two companies by answering the following.
(a) Calculate the gross profit rate for each of the companies, and discuss their relative abilities to control cost of goods sold.
(b) Calculate the profit margin, and discuss the companies’ relative profitability.
(c) Calculate the current ratio and debt to assets ratio for each of the two companies, and discuss their relative liquidity and solvency.
(d) What concerns might you have in relying on this comparison?
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Carrefour Wal-Mart (in millions) (in millions) Sales revenue €70,486 54,630 1,738 39,063 14,521 13,660 29,434 $256,329 198,747 9,054 104,912 34,421 37,418 61,289 Cost of goods sold Net income Total assets Current assets Current liabilities Total liabilities
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