7-ELEVEN IN THAILAND

1. Why had the ROE declined in 2011 even though the EPS had increased?

EBIT
EPS
Equity
Number of
share
% change
In number
of share
In EBIT
In equity

2011
10995
1.78
21699
6176.96
6

2010
9157
1.48
17958
6187.16
2

2009
6787
1.11
18937
6114.41
4

0.99835
2
1.20072
1
1.20831
9

1.01189
8
1.34919
7
0.94830
2

1.29461
1
1.94191
7
1.12053
3

2008
3495
0.74
16900
4722.97
3

Base on the above table, we can realize that the number of share reduced from 2010 to
2011. Meanwhile EBIT increased 20%, so EPS increased around 20%. About the ROE,
we have equity increased nearly 21% with EBIT only grow up with 20%, leads to ROE
reduced. This is the reason why ROE declined in 2011 even though the EPS had risen.

2. Highly liquid assets are idle assets that earn very low returns. What proportion of the
company's assets are in highly liquid form? What are the possible reasons for the
company to have these in such a high proportion in its balance sheet? Hypothetically, if
the company reduces them to zero, what would be its ROE?
The proportion of the companys assets are in highly liquid form as below table:

Cash and cash equivalents

Current Investments
Trade Accounts
Receivables

2011 2010 2009 2008

14202 15716 12682 11897
9893 4436 1196
750
477

474

439

545

% of each quick Asset

over Total Assets
2011 2010 2009 2008
25.66 32.81 28.54 29.62
17.88
9.26
2.69
1.87
0.86

0.99

0.99

1.36

Other Accounts
Receivables
Inventories
Other Current Assets
Total current assets
Total assets

500
8642
2690

752
6518
2818

486
5900
2422

528
5444
1743

36404

30713

23125

20907

0.90
15.62
4.86
65.78

1.57
13.61
5.88
64.11

1.09
13.28
5.45
52.04

1.31
13.56
4.34
52.06

55341 47904 44441 40159

There are 3 main reasons for the company to have a high proportion in its balance
sheet:
Firstly, its account receivables is very small because its distinctive business as
buying on cash.
Secondly, its inventory is also very low with efficient inventory management.
Thirdly, the reason belongs to long credit periods from its suppliers so its account
payables is very large.
So with the three main reasons above, 7-Eleven has very small working capital or even
negative as a dream of many other companies.
If the company reduces them to zero, what would be its ROE?
As we know: Net income = Financial income + Operating income
While operating income is still remaining as usual, we will use liquid assets into financial
activities such as opening stores. In case we can get positive profit from these stores, we
can increase ROE, and in reverse, the ROE will reduce.
3. Approximately how many stores does the company open in a year. What is the
approximate investment in each store? If the company opens stores at the current rate
how much cash would it need per year? Would that help reduce liquid assets
substantially?
The company open 500 stores in a year.
The approximate investment in each store is property, plant, equipment, corporate
capital expenditures, other expenditures.
If the company opens stores at the current rate it would need 4000 million bath per
year with 8 million bath per each store.
That would help company reduce liquid assets substantially because of long-term
investments on stores.
4. Given the companys growth so far and the competitive landscape in Thailand, what do
you think are some of the ways that it can deploy its highly liquid assets? You should also
explain how your proposal will improve the companys ROE.

 In Thailand, the retail industry increases 3-5% per year on average. Meanwhile the
income of 7-Eleven grew by 19.5% in 2010 and 15% in 2011.
To improve the companys ROE, the company has to grow net income or reduce
shareholders equity. There are some ways:
Opening new stores and expanding stores size
Offering promotion and conducting effective marketing strategies to attract
new customers
Increasing price of products to gain profit