Suraj Srinivasan, Penelope Rossano
Harvard Business School (113040-PDF-ENG)
September 18, 2012
The case involves understanding and comparing the performance of two leading retail companies, Ahold and Tesco. The case features the Dupont and Modified Dupont Decomposition tools. While the return in terms of return on equity was similar for the two companies, Ahold performs significantly better on the stock market compared to Tesco. Ahold also has a significant amount of cash on hand on its balance sheet, which translates into low net debt. In this case, students will need to analyze performance using modified Dupont decomposition techniques to assess whether business performance is the result of operating profitability or financial leverage and then suggest strategies to improve performance. To perform the modified Dupont decomposition, students will learn to reformat and abbreviate the balance sheet and income statement to measure the profitability of operating activities and financial activities separately. Students will also see how excess cash can affect profitability and what factors should determine the appropriate leverage for a business.
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