Stores 2008 Global Powers of Retailing - (Page 37) 2008 global powers of retailing Market value and Q ratio This report primarily focuses on ranking the world’s largest retailers by revenue. Yet the size of a retailer, useful information that it is, doesn’t tell us anything about future prospects. Large size merely demonstrates that a retailer has performed well in the past. The market capitalization of a publicly traded retailer, examined alone, says something about past performance — even if quite recent — but not necessarily about the future. The question therefore arises as to whether financial information can be used to draw inferences about future performance. To a limited degree this is possible. Past readers of this report will recall that each year’s edition provides an analysis of the Q ratio of retail companies in order to understand how financial markets are evaluating the future prospects of the world’s leading retailers. In particular, the Q ratio can suggest whether retailers are strong in such areas as brand, differentiation, innovation, and first mover advantage. What is the Q ratio? Developed by the great economist James Tobin, the Q ratio is the ratio of a publicly traded company’s market capitalization to the value of its tangible assets. If this ratio is greater than one, it means that the financial markets are valuing a company’s non-tangible assets such as brand equity, differentiation, innovation, first mover advantage, market dominance, customer loyalty, execution, and customer experience. The higher the Q ratio, the greater the share of a company’s value that stems from such non-tangibles. A Q ratio of less than one, on the other hand, indicates failure to generate value on the basis of non-tangible assets. Indeed it indicates that the financial markets view a retailer’s strategy as unable to generate a sufficient return on physical assets. Indeed it may suggest an arbitrage opportunity. That is, Q Ratio Composites By country Q ratio Australia Canada China France Germany Japan Mexico South Africa South Korea UK USA 2.458 1.391 4.982 0.995 0.753 0.586 1.479 2.029 1.369 1.256 1.421 Assets in US dollars 27,651 35,695 3,771 120,704 66,407 149,308 13,136 2,787 20,556 143,160 674,573 Market cap 67,969 49,646 18,786 120,158 50,029 87,435 19,434 5,655 28,143 179,806 958,451 Top 50 Bottom 50 By revenue Q ratio 1.308 1.298 Assets in US dollars 1,011,649 141,737 Market cap 1,323,611 183,998 By dominant merchandise range Q ratio Diversified Fast moving consumer goods Hardgoods Softgoods 1.062 1.284 1.406 1.576 Assets in US dollars 136,005 737,245 258,216 216,985 Market cap 144,466 946,881 363,170 341,991 By dominant format Q ratio Assets in US dollars 94,651 21,000 15,545 134,591 43,466 247,250 64,742 52,664 116,465 286,179 147,434 Market cap 233,545 33,172 10,277 117,853 57,745 189,963 131,597 69,343 123,575 338,484 261,092 Apparel specialty 2.467 1.580 0.661 0.876 1.329 0.768 2.033 1.317 1.061 1.183 1.771 By region/category Q ratio Emerging Europe (excluding Russia) Latin America Asia less Japan/China 1.740 1.290 1.564 1.539 Assets in US dollars 38,944 392,800 29,106 24,196 Market cap 67,768 506,799 45,508 37,246 Cash & Carry Convenience Department Discount Diversified Drug Electronics By market cap Q ratio Top 50 Top 50 1.494 0.592 Assets in US dollars 980,870 132,081 Market cap 1,465,315 78,229 Home improvement Hypermarket Supermarket www.deloitte.com/consumerbusiness STORES / January 2008 G37 http://www.deloitte.com/consumerbusiness
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