I choose Question 3 because the financial manager or consultant places primary emphasis on decision making. It uses the financial statements pre pared by the accountants to make decisions about the firms financial condition. Ratios are guidelines to evaluate a companys financial position and the efficiency and effectiveness of its operations. It also enables firms to make comparisons with its competitors or the industry as a whole, or even with itself, i.e. with its own performances in the past. Ratios also act as an alarm or a siren indicating areas of concern for firms, i.e. areas requiring further investigation. Ratios are not only used by the managers that are internal members of the organisation, but creditors, investors, auditors, are common examples of outsiders or people external to the organisation who might be interested in closely examining a firms performance by monitoring its ratios.
INTRODUCTION
Whole Foods Market, Inc is a big name in the natural and organic food industry. Company currently operates in 11 different geographical locations along with 275 stores. Whole Foods Market offers different product lines to its valuable customers like meat, poultry, cereal, seafood, cheese, beers wines, household products, etc. In addition, company also provides catering services to the end users. In the current year, company expands its business operation in different segments and looking to explore more target market (Annual Report, 2009-2008). The financial performance from (2009-08) of Whole Foods Market Inc is stated below
WHOLE FOODS MARKET INC
FINANCIAL PERFORMANCE FROM (2009-2008)
RATIO20092008Liquidity RatiosCurrent Ratio1.540.93Quick Ratio1.090.34Working Capital371,356(43,571)Profitability RatiosReturn on Asset0.040.03Return on Equity0.090.08Gross Profit Margin3434Profit Margin21Asset Management RatiosAsset Turn Over2.122.35Inventory Turn over22 Days21DaysReceivable Turn over9 Days12DaysFixed Asset Turn over4.234.19Debt Management RatiosDebt to Equity1.071.24Debt to Asset0.460.55Interest Coverage Ratio7.816.67
LIQUIDITY RATIOS
CURRENT RATIO
Whole Foods Market, Inc current ratio is slightly lower in the year 2008 than the year 2009 and indicates a lower margin of safety with respect to meeting current obligations .Whole Foods Market, Inc current ratio will allow them to take more debt as compared to previous years. Although, Whole Foods Market, Inc has made short-term investments but still there is no significant impact on the current ratio. The overall condition of current ratio reveals the fact that the current ratio which is not pretty stable and healthy as compared to the previous years (Brigham, 2001).
QUICK RATIO
Whole Foods Market, Inc quick ratio is higher in the year 2009 as compare with the year 2008. The reason behind this is the proper working capital management which makes the quick ratio more attractive in the last two years. The overall signal of Whole Foods Market, Inc liquidity is fair and it sends a positive signal towards the debt holders and also on the debt market. Moreover, the slight liquidity crunch problem makes the performance of Whole Foods Market, Inc slightly vulnerable.
WORKING CAPITAL RATIO
The condition of Whole Foods Market, Inc working capital is awesome in the year 2009. The reason behind this the less dependency on the debt which makes the companys financial condition more stable. The pivotal reason behind the positive impact of the working capital is the proper cash, inventory and receivable management (Brigham, 2001). In the last few years, the company cant generate more current assets in comparison with its business operations the primary evidence of this improper working capital management is the year 2008.
PROFITABILITY RATIOS
RETURN ON ASSET (ROA)
The modest decrease in the ROA suggest that the firm uses its asset at its command and management uses its assets and resources in an appropriate manner in order to generate more profits in comparison with their asset acquisition. This is also gives the signal that proper asset management strategy is adopted in order to generate the maximum out put.
RETURN ON EQUITY (ROE)
The ROE of 9 in the year 2009 indicates that the Whole Foods Market, Inc is not dependent on equity financing, although it is better as compared to the year 2008. It also gives the impression that efficiency under which management has utilized the assets under its control, regardless of whether their assets were financed with debt or equity capital. Because of less dependency on equity financing ROE make a reflection on the stock holder equity and this will highlighted the image of the company and also uplift their stock prices (Myers, Brealey and Marcus, 2001).
GROSS PROFIT MARGIN
Efficient management strategy reflects in the gross profit sales with 34 both in the year 2009 and 2008 (Annual Report, 2009-2008). Whole Foods Market, Inc has focuses on reduces the cost of goods sold which gives a strong reflection on the gross profit. Gross profit margin is almost stagnant in both the years because of economic recession in the economy, High ratio of COGS in the shape of FOH, Purchases etc and also due to internal restructuring. On the whole the gross profit margin is fair enough and one should hope that the percentage of gross profit margin will decline in years to come.
PROFIT MARGIN
This ratio is also called the net profit margin. Net profit margin ratio shows the level of profits that the company is able to earn from every amount of sales. Net profit is the amount of profit left after all the expenses including taxes and interest have been deducted (Myers, Brealey and Marcus, 2001). Net percentage profit ratio acts in the same way as gross profit ratio i.e. it shows the efficiency in production by the company, whether the cost structure and price policy in place is able to generate enough profits (Brigham, 2001). Increment in the Whole Foods Market, Inc profit margin ratio year by year from (2009 to 2008) is a healthy sign from the companys prospective, as it makes a reflection on the stock price, its dividend policy etc. Net Income of Whole Foods Market, Inc shows that implementation of effective financial policies and a strong mechanism of internal control are factors that lead the net profit at its peak in the year 2009 as compare with the previous years.
ASSET MANAGEMENT RATIOS
TOTAL ASSET TURNOVER
Managing asset in an efficient manner is an art and the management of Whole Foods Market, Inc is an architect. They have utilized their asset in to its full capacity and managing assets in a fashion that every component of total asset utilizes its full capacity (Myers, Brealey and Marcus, 2001). Whole Foods Market, Inc has a slight edge in the year 2009 with respect to previous year practices and it is the prime evident that the component of asset has a made significant impact on the sales due to this the Whole Foods Market, Inc is doing a fine job and this practice also make an impression in the future.
INVENTORY TURNOVER
Whole Foods Market, Inc inventory management strategies make a strong reflection on this ratio and it is evident that in the year 2009 companys operating cycle is slightly high in comparison with the year 2008, which is very good going for the companys perspective .This ratio shows that Whole Foods Market, Inc is better at managing its inventory (Myers, Brealey and Marcus, 2001).
RECEIVABLE TURNOVER
Whole Foods Market, Inc management is working on managing working capital effectively and employed an effective credit policy for its customers .Whole Foods Market, Inc management has working on aggressive credit policies to collect their receivables and rotating its operating cycle effectively and smoothly. On the other hand, the year 2008 is very sluggish primarily due to recession in the economy.
FIXED ASSET TURNOVER
The Whole Foods Market, Inc fixed asset turn over is around 4.23 in the year 2009. The fixed asset turnover shows the consistency is reviewed from (2009-2008). This turn over shows that the company is working on sound practice with respect to managing the fixed assets. It gives a positive signal to investors, as it indicates that Whole Foods Market, Inc does utilize its assets efficiently, they either remain idle or arent utilized to their maximum capacity, in order to generate more sales (Myers, Brealey and Marcus, 2001). Although Whole Foods Market, Inc has made a large amount of capital expenditure and due to efficient management maintains the fixed asset turn over through out the from 2009-2008.
DEBT MANAGEMENT RATIOS
DEBT TO EQUITY
Dependency on debt financing is not a bad habit but it has consequences if you rely on more. Whole Foods Market, Inc debt to equity ratio is on the lower side in the year 2009 in comparison with the year 2008 due to the factors of business volume, increment in sales, fulfillment to pay the suppliers and acquisitions of fixed asset. Due to the expansion in business, Whole Foods Market, Inc has plenty of financial obligations, most of which has been acquired through debt. In 2008, Whole Foods Market, Inc reliance more on debt financing as compare to the year 2009.
DEBT TO ASSET
Whole Foods Market, Inc DA ratio, is around 46 in the year 2009 .In the year 2008 the debt to total assets is 55 which is not good as far as the performance is concerned. The year 2008 is worst for Whole Foods Market, Inc, the main reason behind is the improper utilization of debt in order to capitalize assets. Moreover, it also reveals the fact that the management of the company cant generate more assets in response with the debt. A higher DA ratio would place the company under increased amount of risk, especially if the interest rates are rising. Hence, a lower DA ratio would be more desirable (Brigham, 2001).
This ratio suggests the fact that TIE ratio is higher in comparison with the industry because of company entertain its business with high proportion of debt financing. Although the companys management runs business successfully and this is shown in the EBIT which suggest that the Company is keep improving in the EBIT year by year. In comparison with the ability of paying interest expense is fine in comparison with he industry practices. The year 2009 is the good year for the company as far as TIE ratio is concerned. On overall basis the densely populated debt financing and creates a doubt in the debt holders mind that the company is in tentative mode to pay its obligations (Myers, Brealey and Marcus, 2001).
According to my analysis and estimations, I summarize the following points regarding the financial condition of Whole Foods Market, Inc. The points are stated below
Whole Foods Market, Inc should opt for a strong strategy between the accounts payable and accounts receivable because in the end it makes an impression on the operating cycle.
Whole Foods Market, Inc. management also looks after the short term liquidity which is pointed out in the current ratio and makes necessary adjustments to finance the business with short and intermediate financing modes according to the business requirements.
Formulate strategies in order to reduce costs of production which resulted in capturing more market segments at competitive prices.
Sound working capital management policies in the year 2009 and I assume that this policy will continue in the future.
Cash reserve is increased primarily because of expansion in business volume and also the equity financing which really helps the companys perspective to hold the cash at the optimum level.
Whole Foods Market, Inc. portrays a very strong and positive position in the markets place and without doubt this company has an ability to challenge its rivals to have a girds to become the market leader. There are certain areas where Whole Foods Market, Inc should pay attention to like in the area of working capital, net profit margin, reduction in revenue expenditures on consistent basis and assist in increase its investors confidence towards the organization.
INTRODUCTION
Whole Foods Market, Inc is a big name in the natural and organic food industry. Company currently operates in 11 different geographical locations along with 275 stores. Whole Foods Market offers different product lines to its valuable customers like meat, poultry, cereal, seafood, cheese, beers wines, household products, etc. In addition, company also provides catering services to the end users. In the current year, company expands its business operation in different segments and looking to explore more target market (Annual Report, 2009-2008). The financial performance from (2009-08) of Whole Foods Market Inc is stated below
WHOLE FOODS MARKET INC
FINANCIAL PERFORMANCE FROM (2009-2008)
RATIO20092008Liquidity RatiosCurrent Ratio1.540.93Quick Ratio1.090.34Working Capital371,356(43,571)Profitability RatiosReturn on Asset0.040.03Return on Equity0.090.08Gross Profit Margin3434Profit Margin21Asset Management RatiosAsset Turn Over2.122.35Inventory Turn over22 Days21DaysReceivable Turn over9 Days12DaysFixed Asset Turn over4.234.19Debt Management RatiosDebt to Equity1.071.24Debt to Asset0.460.55Interest Coverage Ratio7.816.67
LIQUIDITY RATIOS
CURRENT RATIO
Whole Foods Market, Inc current ratio is slightly lower in the year 2008 than the year 2009 and indicates a lower margin of safety with respect to meeting current obligations .Whole Foods Market, Inc current ratio will allow them to take more debt as compared to previous years. Although, Whole Foods Market, Inc has made short-term investments but still there is no significant impact on the current ratio. The overall condition of current ratio reveals the fact that the current ratio which is not pretty stable and healthy as compared to the previous years (Brigham, 2001).
QUICK RATIO
Whole Foods Market, Inc quick ratio is higher in the year 2009 as compare with the year 2008. The reason behind this is the proper working capital management which makes the quick ratio more attractive in the last two years. The overall signal of Whole Foods Market, Inc liquidity is fair and it sends a positive signal towards the debt holders and also on the debt market. Moreover, the slight liquidity crunch problem makes the performance of Whole Foods Market, Inc slightly vulnerable.
WORKING CAPITAL RATIO
The condition of Whole Foods Market, Inc working capital is awesome in the year 2009. The reason behind this the less dependency on the debt which makes the companys financial condition more stable. The pivotal reason behind the positive impact of the working capital is the proper cash, inventory and receivable management (Brigham, 2001). In the last few years, the company cant generate more current assets in comparison with its business operations the primary evidence of this improper working capital management is the year 2008.
PROFITABILITY RATIOS
RETURN ON ASSET (ROA)
The modest decrease in the ROA suggest that the firm uses its asset at its command and management uses its assets and resources in an appropriate manner in order to generate more profits in comparison with their asset acquisition. This is also gives the signal that proper asset management strategy is adopted in order to generate the maximum out put.
RETURN ON EQUITY (ROE)
The ROE of 9 in the year 2009 indicates that the Whole Foods Market, Inc is not dependent on equity financing, although it is better as compared to the year 2008. It also gives the impression that efficiency under which management has utilized the assets under its control, regardless of whether their assets were financed with debt or equity capital. Because of less dependency on equity financing ROE make a reflection on the stock holder equity and this will highlighted the image of the company and also uplift their stock prices (Myers, Brealey and Marcus, 2001).
GROSS PROFIT MARGIN
Efficient management strategy reflects in the gross profit sales with 34 both in the year 2009 and 2008 (Annual Report, 2009-2008). Whole Foods Market, Inc has focuses on reduces the cost of goods sold which gives a strong reflection on the gross profit. Gross profit margin is almost stagnant in both the years because of economic recession in the economy, High ratio of COGS in the shape of FOH, Purchases etc and also due to internal restructuring. On the whole the gross profit margin is fair enough and one should hope that the percentage of gross profit margin will decline in years to come.
PROFIT MARGIN
This ratio is also called the net profit margin. Net profit margin ratio shows the level of profits that the company is able to earn from every amount of sales. Net profit is the amount of profit left after all the expenses including taxes and interest have been deducted (Myers, Brealey and Marcus, 2001). Net percentage profit ratio acts in the same way as gross profit ratio i.e. it shows the efficiency in production by the company, whether the cost structure and price policy in place is able to generate enough profits (Brigham, 2001). Increment in the Whole Foods Market, Inc profit margin ratio year by year from (2009 to 2008) is a healthy sign from the companys prospective, as it makes a reflection on the stock price, its dividend policy etc. Net Income of Whole Foods Market, Inc shows that implementation of effective financial policies and a strong mechanism of internal control are factors that lead the net profit at its peak in the year 2009 as compare with the previous years.
ASSET MANAGEMENT RATIOS
TOTAL ASSET TURNOVER
Managing asset in an efficient manner is an art and the management of Whole Foods Market, Inc is an architect. They have utilized their asset in to its full capacity and managing assets in a fashion that every component of total asset utilizes its full capacity (Myers, Brealey and Marcus, 2001). Whole Foods Market, Inc has a slight edge in the year 2009 with respect to previous year practices and it is the prime evident that the component of asset has a made significant impact on the sales due to this the Whole Foods Market, Inc is doing a fine job and this practice also make an impression in the future.
INVENTORY TURNOVER
Whole Foods Market, Inc inventory management strategies make a strong reflection on this ratio and it is evident that in the year 2009 companys operating cycle is slightly high in comparison with the year 2008, which is very good going for the companys perspective .This ratio shows that Whole Foods Market, Inc is better at managing its inventory (Myers, Brealey and Marcus, 2001).
RECEIVABLE TURNOVER
Whole Foods Market, Inc management is working on managing working capital effectively and employed an effective credit policy for its customers .Whole Foods Market, Inc management has working on aggressive credit policies to collect their receivables and rotating its operating cycle effectively and smoothly. On the other hand, the year 2008 is very sluggish primarily due to recession in the economy.
FIXED ASSET TURNOVER
The Whole Foods Market, Inc fixed asset turn over is around 4.23 in the year 2009. The fixed asset turnover shows the consistency is reviewed from (2009-2008). This turn over shows that the company is working on sound practice with respect to managing the fixed assets. It gives a positive signal to investors, as it indicates that Whole Foods Market, Inc does utilize its assets efficiently, they either remain idle or arent utilized to their maximum capacity, in order to generate more sales (Myers, Brealey and Marcus, 2001). Although Whole Foods Market, Inc has made a large amount of capital expenditure and due to efficient management maintains the fixed asset turn over through out the from 2009-2008.
DEBT MANAGEMENT RATIOS
DEBT TO EQUITY
Dependency on debt financing is not a bad habit but it has consequences if you rely on more. Whole Foods Market, Inc debt to equity ratio is on the lower side in the year 2009 in comparison with the year 2008 due to the factors of business volume, increment in sales, fulfillment to pay the suppliers and acquisitions of fixed asset. Due to the expansion in business, Whole Foods Market, Inc has plenty of financial obligations, most of which has been acquired through debt. In 2008, Whole Foods Market, Inc reliance more on debt financing as compare to the year 2009.
DEBT TO ASSET
Whole Foods Market, Inc DA ratio, is around 46 in the year 2009 .In the year 2008 the debt to total assets is 55 which is not good as far as the performance is concerned. The year 2008 is worst for Whole Foods Market, Inc, the main reason behind is the improper utilization of debt in order to capitalize assets. Moreover, it also reveals the fact that the management of the company cant generate more assets in response with the debt. A higher DA ratio would place the company under increased amount of risk, especially if the interest rates are rising. Hence, a lower DA ratio would be more desirable (Brigham, 2001).
This ratio suggests the fact that TIE ratio is higher in comparison with the industry because of company entertain its business with high proportion of debt financing. Although the companys management runs business successfully and this is shown in the EBIT which suggest that the Company is keep improving in the EBIT year by year. In comparison with the ability of paying interest expense is fine in comparison with he industry practices. The year 2009 is the good year for the company as far as TIE ratio is concerned. On overall basis the densely populated debt financing and creates a doubt in the debt holders mind that the company is in tentative mode to pay its obligations (Myers, Brealey and Marcus, 2001).
According to my analysis and estimations, I summarize the following points regarding the financial condition of Whole Foods Market, Inc. The points are stated below
Whole Foods Market, Inc should opt for a strong strategy between the accounts payable and accounts receivable because in the end it makes an impression on the operating cycle.
Whole Foods Market, Inc. management also looks after the short term liquidity which is pointed out in the current ratio and makes necessary adjustments to finance the business with short and intermediate financing modes according to the business requirements.
Formulate strategies in order to reduce costs of production which resulted in capturing more market segments at competitive prices.
Sound working capital management policies in the year 2009 and I assume that this policy will continue in the future.
Cash reserve is increased primarily because of expansion in business volume and also the equity financing which really helps the companys perspective to hold the cash at the optimum level.
Whole Foods Market, Inc. portrays a very strong and positive position in the markets place and without doubt this company has an ability to challenge its rivals to have a girds to become the market leader. There are certain areas where Whole Foods Market, Inc should pay attention to like in the area of working capital, net profit margin, reduction in revenue expenditures on consistent basis and assist in increase its investors confidence towards the organization.
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