Best Buy Financial Report Analysis

Best Buy Financial Report Analysis

• 1.
  Financial Report Best Buy TEAM12 – Spring 2016 University of South Florida Engineering Management - Ahmad Fatayer - Gurumoorthy Ramakrishnan - Hanisha Tatapudi - Veera Bahadur Aravind Reddy
• 2.
  About Best Buy An American multinational consumer electronics corporation headquartered in Richfield, Minnesota  Founded by Richard M. Schulze and Gary Smoliak in 1966 as an audio specialty store ’Sound of music’ and Best Buy Co. Superstores (1983)  Operating income of $1.450 billion, revenue of $40.339 billion and total assets and equity of $15.256 billion each  125,000 employees and 1050 stores (2015)  Slogan – Expert Service, Unbeatable Price  Key People – Hubert Jolly (CEO and Chairman)
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  Why Best Buy? Retail Company that sells consumer electronics products and provides good support services.  BBY Fiscal year is January 31, 2015 with SIC code 5731  BBY operates in the US and Internationally. Sales and revenues comes from the US sector
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  Five Ratio Analysis DebitManagement - Debit Ratio Debt Ratio is 0.61 • Best Buy debt ratio is in a good standing, 40% flexibility to get money from creditors • Competitor company HHGregg, Inc. (HGG) has debt ratio of 0.63 • Industry average ratio of 0.65 • (Weight: 12 points)
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  Liquidity - CurrentRatio Current Ratio is 1.51 • Healthy liquidity because it has 1.5 times of its assets to pay for current liabilities as they come due • The ratio of 1.5 is within industry standard of 2 to 1 • Competitor HGG with a ratio of 1.53 and industry average ratio of 1.46 • BBY liquidity is in a good overall standing compared to its competitor and industry average. • (Weight: 20 points) Five Ratio Analysis
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  Asset Management -Inventory Turnover Ratio Inventory Turnover Ratio is 7.65 • BBY re-stocks its inventories 7.65 times a year • Compared to its competitor HGG of 7.65 times • Industry average of 5.93 times ratio which is slower rate than BBY • BBY is in a very good standing with this ratio • (Weight: 20 points) Five Ratio Analysis
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  Profitability - Marginon Sales Margin on Sales ratio is 3.1% • BBY has 3 cents for each sales dollar generated • Compared to HGG of negative 6% ratio • Industry average of 2.15% ratio • BBY net margin is a bit low but surpasses competitor and better than the industry average • (Weight: 15 points) Five Ratio Analysis
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  Market Value Analysis MarketValue Analysis – Price to Earnings Ratio Price to Earnings Ratio • P/E ratio is 9.92 • BBY stock sells for ~10 times of its current Earning per Share of 3.53 • It stands with healthy market value compared to HGG of 5.33 and compared to industry average of 32. • BBY is lagging behind industry average • (Weight: 15 points) Five Ratio Analysis
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  2015 2014 20132012 2011 Debt Ratio 0.61 0.65 0.71 0.81 0.7 Inventry Turn Over Ratio 7.65 6.09 6.56 6.61 7.33 profit Margin on Sales(%) 3.1 1.25 -2.43 2.54 2.65 Current Ratio 1.51 1.4 1.1 1.2 1.2 -4 -2 0 2 4 6 8 10 Ratio BBY Trends Year Best Buy Trends
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  Best Buy Grade? B Grade, BBY total points is 82 (out of 100)  Trending shows positive year over year (YoY)
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  SWOT Analysis STRENGTHS • Multinational •Diverse product • Customer loyalty • Own brand products in the market • Large company • Trained Employees • Great customer service WEAKNESS • Insufficient inventory • Closed stores in Europe, Turkey and China • Slow growth • High competition • Not very competitive online marketing OPPORTUNITIES • Scope for more products • Ever growing industry • Online growth potential • Exclusive contracts • More stores THREATS • Wal-Mart, Target, Amazon etc. • Aggressive discounting by competitive brands • Decreases sales of older products • Unpredictable customer behavior
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  PEST Analysis POLITICAL FACTORS •Controversy surrounding political candidacy support ECONOMIC FACTORS • Losing money, lack of technological advances • Current American economic slowdown SOCIAL FACTORS • Participates in social and community related issues including • Associated with various NGOs TECHNOLOGICAL FACTORS • Switch to online shopping • Constant innovation • Demand foe newer products
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  Conclusion  Best Buycompared to Hhgregg  Five financial ratio analysis  Best Buy outperformed the competitor in all ratios  Within industry average ratios except for P/E Ratio  Graded B grade  Best Buy has shown improving results even when its competitors are struggling  The SWOT/PEST analysis shows BBY has strengths with customer services, trained employees  Has opportunities to improve in Online Sales Overall : It has a good business strategy which is keeping the company’s financial reports healthy
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  Thank You