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…
Third, in several countries, Carrefour has to compete with other multinationals such as Tesco and Wal Mart, who are trying to gain a strong market position (mostly through severe price competition). In sum, Carrefour’s overseas operations tend to be in countries where consumers are likely more price sensitive, several multinationals engage in severe price competition, and the economy is less stable. Note, for example, that Carrefour

generated 10 percent of its fiscal 2005 profits (before interest and taxes) in South America and East Asia, although the company generated close to 15 percent of its fiscal 2005 sales in these areas. Question 2 In 2005, Carrefour changed its accounting policies from French GAAP to IFRS. This change affected the company’s financial statements and, consequently, could affect the analysis of Carrefour’s historical performance. More specifically, to improve comparability across years the analyst must assess how Carrefour’s pre-2004 performance and financial position would have been under the newly adopted accounting standards. When doing so, the following changes are important to consider: - Under French GAAP, Carrefour was required to amortize goodwill. IFRS does not allow goodwill amortization but requires companies to regularly test goodwill for impairment. The elimination of goodwill amortization increased Carrefour’s net profit in 2005 by close to 25 percent (and ROA by 0.8 percentage points). Pre-2004 earnings figures might be