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Micro-Exercise 3: High Retail Leverage & Breaking the Silver Rule
Micro-Exercise 3: High Retail Leverage & Breaking the Silver Rule
🧨 THE STORY BEHIND THE NUMBERS: Breaking Both the Golden AND Silver Rules — How Biedronka Finances Its Empire with 79.3% Liabilities!
🧨 THE STORY BEHIND THE NUMBERS: Breaking Both the Golden AND Silver Rules — How Biedronka Finances Its Empire with 79.3% Liabilities!
THE STORY BEHIND THE NUMBERS: Supplier-Financed Retail Leverage (Page 78 of Report)
Welcome to the most shocking Balance Sheet of Module 4! When you open Page 78 of the Jeronimo Martins 2025 Annual Report PDF (CONSOLIDATED BALANCE SHEET), you will see a capital structure that would terrify a traditional manufacturing banker:
- Out of EUR 17,058 million in Total Equity and Liabilities, Total Shareholders' Equity (KW) is only EUR 3,529 million (20.7% -> 21% of the Balance Sheet, up by +8.5% / +8% YoY from EUR 3,253M in 2024!).
- Meanwhile, Total Liabilities (KO = Non-current + Current) reach EUR 13,529 million -- meaning 79.3% (79%) of the entire group is financed with external Liabilities!
Why Does Jeronimo Martins Break Both the Golden & Silver Rules of Financing -- And Why Is That Its Superpower?
Let's test the capital structure ratios on the Right Side of Jeronimo Martins' Balance Sheet:
1. Golden Rule (1:1, KW/KO >= 100%) & Silver Rule of Financing (1:2, KW/KO >= 50%): When we divide Shareholders' Equity (EUR 3,529 million) by Total Debt (EUR 13,529 million), the Equity-to-Debt ratio (KW / KO) is only 26.1% (26%)! Because Equity is well below the 33.3% (1/3) minimum Silver Rule buffer, Jeronimo Martins fails both rules!
2. Permanent Capital Share (KS = KW + ZD = 47%): Even when we add Total non-current liabilities (EUR 4,520 million) to Total shareholders' equity (EUR 3,529 million), Permanent Capital is EUR 8,049 million -- just 47.2% (47%) of total funding!
- Why is 52.8% (53%) of the Balance Sheet in Current Liabilities (EUR 9,009 million)?! Inside Current liabilities sits EUR 7,590 million of Trade creditors, accrued costs and deferred income (interest-free supplier payables, Note 20 on Page 119!). Because millions of shoppers pay cash at Biedronka every single day while supplier invoices are paid 30 to 60 days later, Jeronimo Martins uses an endless, interest-free river of supplier credit to fund its operations! And what makes up the rest of Liabilities? IFRS 16 Lease liabilities for store rentals (EUR 3,652M non-current + EUR 670M current = EUR 4,322M, Note 10.2 on Page 110), while actual bank Borrowings are tiny (EUR 519M + EUR 731M = EUR 1,250M, Note 18 on Page 116 -- far smaller than its EUR 2,268M cash pile!).
📋 WORKFLOW FOR TEAMS 1–5: Paper First, Screen Second!
Use your printed paper worksheet as a scratchpad to extract the Y2024 figures from the PDF report and calculate your ratios. Once you have written down and rounded your answers on paper (whole numbers only, no decimals!), transfer them into the interactive online form below and click Check until every box turns 100% Green! Keep your paper worksheet ready for our live classroom comparison!
Guided Exercise (Team 3 - JERONIMO MARTINS): 4 Key Capital Structure Ratios & Financing Rules
Guided Exercise (Team 3 - JERONIMO MARTINS): 4 Key Capital Structure Ratios & Financing Rules
Goal: Analyze the right-hand side of Jeronimo Martins' Balance Sheet (Equity & Liabilities): check horizontal equity growth YoY, vertical capital structure, and discover why a fast-turning food retailer operates with 79% debt (mainly supplier trade credit) and breaks both the Golden Rule (>=100%) and Silver Rule of Financing (>=50%).
Worked Example: Step-by-Step for 2024 (Page 78 of the PDF)
STEP 0: OBTAIN THE ANNUAL REPORT HERE
STEP 1: Find 4 numbers on the Equity & Liabilities side in 2024 (in EUR million, 2024 column on Page 78):
[A] TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES (Page 78, bottom row): 15,295
[B] TOTAL SHAREHOLDERS' EQUITY - KW (Page 78, middle subtotal): 3,253
[C] TOTAL LIABILITIES / DEBT - KO (Page 78, lower subtotal: 4,126 + 7,916): 12,042
[D] TOTAL NON-CURRENT LIABILITIES - ZD (Page 78, lower-middle subtotal): 4,126
STEP 2: How the 4 Key Capital Ratios are calculated (2024 Example):
1. Equity Growth YoY (%): Base Year (In 2025, you will compare 2025 Equity against 3,253).
2. Equity Share in Balance Sheet (%): ([B] / [A]) * 100% = (3,253 / 15,295) * 100% = 21.3% -> 21% (Debt Share = 79%).
3. Permanent Capital Share - KS (%): (([B] + [D]) / [A]) * 100% = ((3,253 + 4,126) / 15,295) * 100% = 48.2% -> 48% (52% of funding is short-term supplier payables ZK!).
4. Golden (>=100%) & Silver (>=50%) Rule of Financing (KW / KO): ([B] / [C]) * 100% = (3,253 / 12,042) * 100% = 27.0% -> 27% -> FAILS BOTH RULES (< 50% threshold)!
Your Turn: Task for Team 3 (Calculate 2025!)
Look at the 2025 column on Page 78 and complete the exact same steps for 2025 (round percentages to whole numbers, no decimals):
STEP 1: Find the 4 numbers for 2025 (in EUR million):
[A] TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES (Page 78, bottom row) = ....................
[B] TOTAL SHAREHOLDERS' EQUITY - KW (Page 78) = ....................
[C] TOTAL LIABILITIES / DEBT - KO (Page 78, Total liabilities) = ....................
[D] TOTAL NON-CURRENT LIABILITIES - ZD (Page 78) = ....................
STEP 2: Calculate the 4 Key Ratios for 2025 (whole %, no decimals):
1. Equity Growth YoY (%) = (([B]_2025 - 3,253) / 3,253) * 100% = .......... %
2. Equity Share in Balance Sheet (%) = ([B]_2025 / [A]_2025) * 100% = .......... %
3. Permanent Capital Share - KS (%) = (([B]_2025 + [D]_2025) / [A]_2025) * 100% = .......... %
4. Equity-to-Debt Ratio (KW / KO %) = ([B]_2025 / [C]_2025) * 100% = .......... % (Passes Golden >=100% or Silver >=50%?)
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