Question

MACRO SUPERMARKETS PERFORMANCE METRICS

Macro Supermarkets is committed to helping customers save money and live better through everyday low prices, supported by everyday low costs. At times, it adjusts its business strategies to maintain and strengthen its competitive positions in the countries in which it operates.

Macro defines its financial strategy as:

• Strong, efficient growth;

•Consistent operating discipline;  

In executing this financial strategy, Macro believes their returns on capital will improve over time.

Strong, Efficient Growth

Macro’s objective of prioritizing strong, efficient growth means they will focus on the most productive growth opportunities, increasing comparable store sales, accelerating e-Commerce sales growth while slowing the rate of growth of new stores. At times, Macro makes strategic investments which are focused on the long term growth of the Company. Comparable sales for years 2020 and 2019, were as follows:

Years Ended January 31,

2020

2019

Macro Africa                                                                                    2.9%               3.7%

Consistent Operating Discipline

Macro operates with discipline by managing expenses, optimizing the efficiency of how they work and creating an environment in which they have sustainable lowest cost to serve. Macro invests in technology and process improvements to increase productivity, manage inventory and reduce costs. They measure operating discipline through expense leverage, which they define as net sales growing at a faster rate than operating, selling, general and administrative expenses.

Years Ended January 31,

(Amounts in millions, except unit counts)                                                 2020         2019

Net sales                                                                                                K 519,926    K 510,329

Percentage change from comparable period                                              1.9%         2.9%

Operating, selling, general and administrative expenses                 K 108,791    K 107,147

Percentage change from comparable period                                               1.5%           0.6%

Operating, selling, general and admin. expenses as a % of net sales      20.9%         21.0%

Returns

As Macro executes their financial framework, they believe their return on capital will improve over time. Macro measures Return on capital with their Return on assets, Return on investment and Free Cash Flow (FCF) metrics.

Years Ended January 31,
					2020	2019
Return on assets (ROA)					6.7%	3.4%
Return on investment (ROI) Years Ended January 31,					13.4%	14.2%
(Amounts in millions)					2020	2019

Free cash flow                                                                             K 14,550        K 17,409

Required:

1. Give detailed explanation of the type of analytical tools that are being employed by Macro Supermarkets to measure their performance.

1. marks]

2. Analyse Macro Supermarkets metrics and determine, as far as possible from the given metrics, whether their actual performance over the years 2020 and 2019 is in line with their stated financial strategy.

[10 marks]

1. Explain what is meant by Free Cash Flows (FCF) and the information it provides in comparison to the metrics provided in a Statement of Cash flows.

1. marks]