STORES Global Powers of Retailing 2009 - (Page 37) 2009 global powers of retailing In order to provide a common base from which to rank companies by their Retail Sales results, fiscal year 2007 sales (and profits) for non-U.S. companies were converted to U.S. dollars. Exchange rates, therefore, have an impact on the results. OANDA.com is the source for the exchange rates. The average daily exchange rate corresponding to each company’s fiscal year was used to convert that company’s results to U.S. dollars. The 2002-2007 compound annual growth rate (CAGR) for Retail Sales, however, was calculated in each company’s local currency. Yet it would be useful to use financial information to draw inferences about future performance. To a limited extent we can – although there are limitations to such analysis. Past readers of this report will recall that, each year, we analyze the Q ratio of retail companies in order to understand how financial markets are evaluating the future prospects of the world’s biggest publicly traded retailers. In particular, the Q ratio enables us to infer whether retailers are strong in such areas as brand, differentiation, innovation, and customer experience. Q ratio and future prospects This report focuses on ranking the world’s largest retailers by retail sales. 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 and has achieved critical scale. The market capitalization of a publicly traded retailer, examined alone, also says something about past performance – even if quite recent – but not necessarily about the future. What is the Q ratio? 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, customer experience, market dominance, customer loyalty, and skillful execution. 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. It indicates that the financial markets view a retailer’s strategy as unable to generate a sufficient return on physical assets. Indeed it suggests an arbitrage opportunity. That is, if a company’s Q ratio is less than one, theoretically a company could be purchased through equity markets and the tangible assets could then be sold at a profit. Q Ratio Composites By country Q ratio Australia Canada France Germany Japan Mexico South Africa UK U.S. 0.591 0.834 0.419 0.206 0.542 0.578 1.225 0.426 0.952 Assets in U.S. dollars $47,493 39,152 151,995 84,517 191,529 13,900 5,739 191,388 806,068 Market cap 28,064 32,671 63,611 17,386 103,842 8,030 7,029 81,522 767,457 Apparel specialty Cash & carry Convenience Diversified Fashion FDM Hardlines By merchandise category Q ratio 0.207 0.643 0.830 0.924 Assets in U.S. dollars $173,203 319,719 880,716 289,476 Market cap 35,870 205,453 730,889 267,483 By format Q ratio 0.930 1.104 0.486 0.317 1.133 0.341 0.741 1.181 0.721 0.396 1.073 0.639 1.018 Assets in U.S. dollars $162,286 21,653 71,794 168,823 222,586 271,389 107,716 107,790 115,410 83,894 19,010 75,660 235,103 Market cap 150,920 23,905 34,862 53,572 252,252 92,632 79,800 127,315 83,254 33,214 20,392 48,339 239,238 By region Q ratio Africa/Middle East Asia/Pacific Europe Latin America North America 1.225 0.579 0.503 0.595 0.947 Assets in U.S. dollars $5,739 274,953 502,561 34,642 845,220 Market cap 7,029 159,126 252,782 20,629 800,128 Department Discount Diversified Drugstore Electronics Home improvement Hypermarket Non-store Other specialty Supermarket www.deloitte.com/consumerbusiness STORES / January 2009 G3 http://www.OANDA.com http://www.deloitte.com/consumerbusiness
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