ANALYSIS OF BBY CURRENT FINANCIAL POSITION
Best Buy (BBY) is a multinational company operates entertainment products, computing and mobile phone products and related services. Current financial position of the company, as at 30th April 2013, stands at: total assets-$14.3 billion, total liabilities-$11.4 billion and total equity of $2.92 billion. In addition to the total assets, liabilities and owners’ equity, the company has $ 160 million total cash flow and a working capital of $1.43 billion (Gowthorpe & Catherine, 298).
Best Buy has $2.92 Billion in total equity and $2.92 Billion in common stock equity as reported in the filings for their most recent quarter. Additionally, the company has $2.72 Billion in reserved earnings.
Assets
The total assets amounted to $14.3 billion. The current assets is at $10 Billion, a cash and equivalents of $908 Million, total receivables of $908 Million, total inventories of $5.46 Billion, a non-current asset of $4.33 Billion, intangible assets of $180 Million and net fixed assets of $2.83 Billion. This implies that the company has a satisfactory amount of assets that can adequately be used to finance its activities.
Liabilities
The $11.4 Billion in total liabilities is apparently a little bit too high. It included non-current liabilities of $2.85 Billion, accounts payable of $4.78 Billion, short-term debt of $544 Million and a long-term debt of $1.14 Billion.
current ratio= current assets(CA) current liabilities
=108.55
= 1.17
This implies that the company is not in a good position to meet its short term maturity obligations. The recommended current ratio is 2:1.
Acid test ratio=C.A-total inventoryC.L
=10-5.468.55
= 0.53
This is far from the recommended ratio of 1:1. Its implication is that the company may find it really hard to meet its short term obligations.
COMPARISON OF BBY'S PERFORMANCE TO PAST PERIODS
The sales for the company for 2011, 2012 and 2013 were $49747 million, $50705 million and 49183 million. The gross profits were $12550 million, $12592 million and 11618 million.
Gross profit margin (2011) = G.P/Sales x 100% = 12550/49747 x 100% = 25.23%
Gross profit margin (2012) = 12592/50705 x 100% = 24.83%
Gross profit margin (2013) = 11618/49183 x 100% = 23.62%
This indicates a decrease in gross profit margin of the company. This may ultimately indicate a poor performance. Its ability to derive profits from its sales is continuously decreasing.
The profit after tax for the three years are $1494 000, $ 1552000 and $ 334000.
Net profit margin (NPM) = profit after tax/sales x 100%
(NPM 2011) = 1.494/49747 x 100%= 0.003%
(NPM 2012) = 1.552/50705 x 100% = 0.00306%
(NPM 2013) = 0.334/11618 x 100% = 0.0029%
COMPARISON OF BBY’S PERFORMANCE TO ITS MAJOR COMPETITORS AND INDUSTRY
BBY operates in an industry that is considerably competitive. The industry has witnessed the incoming of new service providers. Due to the increase in demand, changes in consumer tastes, needs and preferences, some players in the electronic industry have benefited while others actually loose. Below is a comparison of BBY’s performance as compared to competitors and the industry.
These factors might greatly have contributed to BBY’s growth of -0.01 which is far as compared to its competitors who have a positive growth of up to 0.24. In future, the company has to maneuver on how to improve its performance lest it will be out of the market due to the highly competitive nature of the electronics industry (Gowthorpe & Catherine, 98). It has to immensely increase its market capital which is considerably low as compared to its competitors.
LONG TERM OBJECTIVES
Best Buy Company has set a number of long-term objectives that will ensure security and avoid the risk of its down fall. Through a Renew Blue program, Best Buy Company intends to set up a program that will accelerate the growth focusing in deep detail the online sector. The company plans to increase the conversion rate among the companions through online services by providing a more social environment in the shopping malls that deals with the distribution of Best Buy company products (Bragg & Steven, 24). This objective would aid in keeping the record and customer’s preferences based on their history of browsing. In addition, recommendations can be generated in response to the browsing history of the customer.
The second long-term objective of this company is to set an initiative that will target the customer’s experience across the numerous channels. Furthermore, Best Buy Company aims at generating high margins by focusing on the stock markets. In parallel to that, the company targets on reducing the cost by augmenting and other methods such as brainy inventory supervision methods. Best Buy Company focuses on the basis of increasing the flexibility in the cost structure. Increase in the quality of the company’s creative output is also an added long-term objective of Best Buy Company.
STRATEGY RECOMMENDATION-STATE
Among the many strategic recommendations in Best Buy Company that will gain a competitive advantage in their business sector are discussed in deep detail. First, the company has taken an added advantage of the barriers to dissuade their close competitors to defy their stocks. Best Buy company has a well-established ability that are used to manipulate footraces and hence effective to fight on the sales of shares to the public (Gowthorpe & Catherine, 129). This enables the company to entrench the business and in the process the profit potential of the said company is secured from the unseen future treats.
In addition, Best Buy Company has learned the interest of its customers and competitors and the kind of products they produce. It has used the competition from its competitors’ as a learning tool and thus this has led to the recognition of their business model structure. The strengths and weaknesses of the opposing company have been learned and analyzed by this company. The utilization of Business Information Resources by the Best Buy Company has created a competitive advantage by providing it with new methodology to defeat their competitors. Furthermore, this company has maintained its competitive advantage by future observation of their trends (Valentine & James, 78).
THE ANNUAL OBJECTIVES
The company aims at placing the order requested by the customer as first as possible to reduce the inconveniences. This will enable the maximization of customer’s satisfaction. The company will also set an accurate efficient methodology with quite effective procedural to conduct. The second objective set by the company is to ensure that the company rises to be among the best company in the electronic sector. This will be attained by setting up the control analysis (Valentine & James, 68).
BEST BUY COMPANY’S POLICIES
Corporate policies are systems by which corporations are directed and controlled. It is a formal declaration that guides principles and procedure that Best Buy Company operates typically established by its board of directors. Best Buy Company’s mission statement, principles and objectives are imbedded by which strategic decisions are to be made. The policy that Best Buy Company forms basis for measuring performance as well as ensuring accountability at all levels of the company (Gibson, Elizabeth, and Andrew, 254).
CONTINGENCY PLAN WITH DECISION TRIGGER IN BEST BUY COMPANY
Best Buy Company uses contingency plan as a secondary plan to implement it at any time first plan fails. The plan helps the company to avoid the shock of complete surprise. According to company performance contingency planning is able to respond quickly when unexpected events that have occurred in this year. The positive and negative factors that have been affecting the business are included in the contingency
BEST BUY CO. INC
PROJECTED BALANCE SHEETS
($ In millions)
2013 2015 2016 2017
ASSESTS $ $ $ $
Current Assets
Cash and cash equivalents 1184 615 275 1665
Receivable 749 898 1067 1075
Merchandise inventories 5628 5836 7656 6042
Other current assets 895 913 987 821
Current assets held for sale 1860 1922 1903 2444
TOTAL CURRENT ASSETS 10316 10184 11888 12O37
Net property and equipment 3015 3023 3018 2918
Goodwill 1244 6755 1283 3541
Trade terms 104 104 105 105
Equity and other investments 234 97 98 267
Additional assets 254 0809 225 249
Assets held for sale 178 087 1000 1804
TOTAL ASSETS 15345 15345 17617 20921
LIABILITIES & EQUITY
Current liabilities
Accounts payable 5041 5330 7060 5680
Unconverted gift card liabilities 412 380 388 424
Accumulated compensation 528 381 354 425
Grown liabilities 1229 1205 1350 1316
Increased income taxes 252 2 - 121
Current long-term debt 40 539 541 544
Current liabilities sales 1499 1611 1555 2047
Total current liabilities 24346 24793 28865 31478
Long-term liabilities 971 042 1036 11234
Long-term debt 1673 1161 1154 20065
Liabilities held for sale 59 87 90 83
Equity 14309 14112 9460 3894
TOTAL LIABLITIES & EQUITY 41358 40195 40605 66754
BEST BUY CO., INC.
PROJECTED STATEMENTS OF CASH FLOWS
($ in millions)
2013 2014
OPERATING ACTIVITIES
Net earnings including no controlling interests $ 175 $ 145
Repayment of definite-lived immaterial assets 12 20
Restructuring charges 113 223
Loss on sale of business 123 -
Stock-based compensation 45 64
Deferred income taxes (3) (88)
Other, net 15 21
Variations in functioning liabilities and assets
Receivables 145 300
Merchandise inventories 569 512
Other assets (59) (139)
Accounts payable (1,114) (834)
Other liabilities (392) (575)
Income taxes 15 (316)
Total cash provided by (used in) operating activities 19 (222)
INVESTING ACTIVITIES
Additions to property and equipment (301) (316)
Sales of investments, net 33 53
Proceeds from sale of business, net of cash transferred upon sale 67 25
Acquisition of business, net of cash acquired (30) -
Change in restricted assets 73 -
Other, net (2) -
Total cash used in investing activities (203) (195)
FINANCING ACTIVITIES
Repurchase of common stock - (255)
Borrowings of debt, net 393 23
Dividends paid (116) (109)
Issuance of common stock 22 15
Other, net (7) (8)
Total cash provided by (used in) financing activities 292 (334)
CONCLUSION
The performance of Best Buy Company has not been impressive for the past years and therefor there are some positive recommendations to be outlined as a concluding remark. The independent authorization of shipping procedures should be improved. This will enable dualism in the shipping control permission sector. Secondly, there should be an implementation of corrective control process in the business (Gibson, Elizabeth, and Andrew Billings, 167). This will ensure the performance of the company has improved to a great extent. In a concluding remark, the inventory chains created by the Best Buy Company will eventually improve the organization’s ability and therefore would create a link to correlate the underlying tradition of the company. In addition, this will lead to an automatic rise in the company’s performance.
Works Cited
Bragg, Steven M. The New Cfo Financial Leadership Manual. Hoboken, N.J: Wiley, 2011. Print.
Dess, Gregory G. Strategic Management: Text and Cases. New York: McGraw-Hill/Irwin, 2012. Print.
Gibson, Elizabeth, and Andrew Billings. Big Change at Best Buy: One Company's Wild Ride Through Hypergrowth to Sustained Excellence. Palo Alto, Calif: Davies-Black Pub, 2003. Print.
Gowthorpe, Catherine. Financial Analysis. Oxford: CIMA, 2008. Print.
Kolar, Iztok, and Franc Koletnik. "Dugoročno Upravljanje Troškovima Poduzeća. Računovodstvo, Revizija I Financije. (2005) N.p., 5-54. Print.
Pt & Dsd Best Buy News. Schenectady, N.Y.?: Power Transmission and Distribution Sales Div., General Electric Co, 1900. Print.
Valentine, James J. Best Practices for Equity Research Analysts: Essentials for Buy-Side and Sell-Side Analysts. New York: McGraw-Hill, 2011. Print.
