An analysis of financial statements to determine the primary purpose of JSE listed companies in the food and drug retail sector.

Abstract

The overall purpose of the study is to analyse financial statements to determine the primary purpose of JSE listed companies in the food and drug retail sector. There were three parts to the analyses. First, the study examines the literature on the three models, namely: neoclassical, conscious capitalism and entity maximization and sustainability in order to identify themes or major identifiers of each model. Second, it analyses the financial statements (over five years from 2010 to 2014) of JSE listed companies in the food and drug retail sector, in particular the non-financial information. The entire population was analysed as there were only four in the population, namely SPAR, Pick n Pay, Shoprite and Clicks. Annual integrated reports and sustainability reports (where separately published) were analysed using content analyses. Keywords and themes were used to link the attributes of the company to the attributes identified in the literature to determine the model the company used. Finally, ratio analyses are used to compare and contrast the results of these companies to observe which company produced the most profitable result over the five year period and to ascertain if a particular model is observed as being associated with a higher profitability than another. The content analyses showed that the dominant model was the entity maximisation and sustainability model, however, each company appears to have chosen to focus on a different stakeholder, SPAR on employees, Pick n Pay on customers (with a differentiation strategy), Shoprite on customers (with a low cost strategy) and Clicks on shareholders. The ratio analyses showed that Clicks performed the best and Pick n Pay the worst over the period from 2010 to 2014. Shoprite and SPAR alternated mostly between second and third position, however by looking at the ranking of each ratio, it appears that Shoprite was showing greater profitability than SPAR. Therefore it was concluded that, over the period from 2010 to 2014, an entity maximisation and sustainability model with a focus on shareholders was observed as being associated with higher profitability.