Ratio Analysis:

Profitability ratio:
Particulars AHOLD (MM EUR) TESCO (MM GBP)
Years 2009 2010 2011 2009 2010 2011
Gross Margin 7.52% 7.47% 7.50% 8.28 8.48% 8.15%
%
Net Interest Expense (Income) / Sales 1.03% 0.91% 0.74% 0.73 0.55% 0.47%
%
Net Income Margin 3.20% 2.89% 3.36% 4.09 4.39% 4.35%
%

Ahold and Tesco both have maintained average gross margin from 2009 to 2011. Notably,
Tesco has higher Gross margin than Ahold, as the later has higher proportion occupied in
COGS. Net interest expense over sales is higher for Ahold, which indicates that Tesco is in
better position in paying off interests. Net income margin is an important ratio to showcase
profitability. NIM is higher for Tesco. It is noteworthy that the difference in NIM is not much
between the both companies.
Investment Management:
Particulars AHOLD (MM EUR) TESCO (MM GBP)
Years 2009 2010 2011 2009 2010 2011
Days' Receivables 10.59 8.81 9.44 31.23 23.96 25.23
Days' Inventory 18.64 16.15 17.35 18.66 18 19.47
Days' Payables 32.28 28.55 30.28 34.33 33.54 35.6

Days receivables are much higher for Tesco. i.e. Ahold take on an average 10 days to collect
money from debtors and the same is being done in 25 days in case of Tesco. Days’ payables
are also high for Tesco. Both these ratios suggest that credit terms are better in Ahold. For
Days’ inventory, even though Tesco takes more number of days to convert inventories into
sales, the difference between both the companies is quite negligible.
Long term asset management
Particulars AHOLD (MM EUR) TESCO (MM GBP)
Years 2009 2010 2011 2009 2010 2011
Net Long-Term Assets Turnover 3.74 3.88 3.67 1.93 1.97 2.02

Net long term asset turnover ratio reveals the efficiency of a company’s long term assets to
generate sales. The stated ratio is consistently higher for Ahold over three years. Which says
that Ahold’s assets are put for better use in order to generate high revenue.
Evaluating Financial Management
Particulars AHOLD (MM EUR) TESCO (MM GBP)
Years 2009 2010 2011 2009 2010 2011
 Current Ratio 1.24 1.27 1.27 0.77 0.73 0.68
Quick Ratio 0.89 0.85 0.83 0.55 0.51 0.45

The current ratio of Ahold has increased from 2009 to 2010 but then it is stable as we can
infer from the case that, they are having more cash compared to that of Tesco, while for
Tesco the ratio is decreasing right from 2009 to 2011. The quick ratio is decreasing for both
Ahold and Tesco, but the rate of decrement is relatively more in Ahold than that of Tesco and
one reason could be that Ahold is planning for geographical outreach and in order to meet the
demands of that geographical needs, Ahold is stock investing in huge inventory also.
Debt and Long-term solvency
Particulars AHOLD (MM EUR) TESCO (MM GBP)
Years 2009 2010 2011 2009 2010 2011
Debt to Equity 0.71 0.52 0.46 1.24 0.92 0.68
Interest Coverage 5.52 5.91 6.96 6.96 8.57 9.84

The debt to equity ratio has decreased in both Ahold and Tesco, but the decrement is
relatively more in Tesco compared to that of Ahold and we can say that, both the company
are favourable on the terms that their risk has reduced and they are reducing their financing
activities through debt. The interest coverage ratio is increasing in both Ahold and Tesco, but
the increment is relatively high in Tesco as compared to that of Ahold and it shows that the
company’s ability to pay interest on outstanding debt has improved and it also helps investor
to justify their investing decisions.
Particulars AHOLD (MM EUR) TESCO (MM GBP)
Years 2009 2010 2011 2009 2010 2011
Dividend Pay-out Ratio 23.71% 31.88% 32.25% 41.60% 40.72% 42.05%
Sustainable Growth Rate 14.55% 10.68% 11.66% 10.53% 10.72% 9.78%

Dividend Pay-out Ratio of both the company is increasing but here we can infer that Ahold is
paying more to its shareholders compare to that of Tesco, while we can think over the
strategy which Ahold have defined for their future business and they can keep more retained
earnings but still Ahold's increment in dividend pay-out has increased more that of Tesco
relatively. Sustainable Growth Rate for both the company has reduced but for Ahold it is
decreasing relatively more than that of Tesco and it indicated that Ahold ability to maximize
sales and revenue without increasing financial leverage is weaker than that of Tesco, though
the SGR for Tesco has reduced but not much compared to that of Ahold.