Best Buy Financial Annual Report Analysis

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Financial Annual Report Analysis for Best Buy Co. (NYSE: BBY)
TEAM 12: Ahmad Fatayer, Gurumoorthy Ramakrishnan, Shalome Hanisha Tatapudi, Veera Kothireddy
INTRODUCTION:
Best Buy Co. was chosen because it is a 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. Most of its sales and revenues comes from the US sector operations.
FIVE RATIO ANALYSIS:
Debit Management / Debt Ratio is 0.61 – Best Buy debt ratio is in a good standing because it has 40%
flexibility to get money from creditors. Its debt management is within its competitor company HHGregg,
Inc. (HGG) which has debt ratio of 0.63 and industry average ratio of 0.65. (Weight: 12 points)
Liquidity / Current Ratio is 1.51 – BBY has a 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. Compared
to its 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)
Asset Management / 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 ratio and 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)
Profitability / Margin on Sales ratio is 3.1% - BBY has 3 cents for each sales dollar generated. Compared
to HGG of negative 6% ratio and industry average of 2.15% ratio. BBY net margin is low but surpasses
competitor and better than the industry average. (Weight: 15 points)
Market Value Analysis – Price to Earnings ratio (P/E ratio) is 9.92 – this means 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

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5.33 and compared to industry average of 32. BBY is lagging behind industry average that could be due
to high Apple stock prices or other companies in same industry. (Weight: 15)
Grading of the company – B Grade: the methodology used to grade the BBY financial health was to use
the five ratios and give weight points to each. BBY total points is 82 (out of 100) which makes it a B
grade.
SWOT & PEST ANALYSIS:
The SWOT analysis for Best Buy explains that they are a primary retailer of electronic goods in America.
Its Strengths are a strong network relationship with popular electronic vendors and a large employee
base. Its Weaknesses are passive online sales and aggressive competitors, which led to decline of
business. Its Opportunities are to become a monopoly and increase potential of online sales. Its Threats
are giants like Wal-Mart, Target and Amazon, who offer convenience and cheaper prices.
The PEST analysis sheds light on the 2008 economic slowdown and an unpredictable customer demand
that factored the business of Best Buy.
SUMMARY:
Best Buy was compared to its competitor company HGG and against industry standards in order to
understand its financial health status. We used five financial ratios. Best Buy outperformed the
competitor in all ratios and outperformed or was within industry average ratios expect for P/E Ratio.
Thus, it was graded B grade. BBY profit has risen more than expected. This has come in the wake of new
health products that are provided by the company stores worldwide and amidst cost cuts and a slow
economy. It has shown improving results even when its competitors are struggling. The SWOT/PEST
analysis shows BBY has strengths with customer services, trained employees. However, it has
opportunities to improve its reach to online sales customers and expand its potential growth.

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APPENDIX: Ratio Calculations – from BBY Annual report pages 56, 57. HGG Annual report
Debt Ratio = Total Debt / Total Assets
Best Buy (BBY) = 9,357 (7777+1580)/15,256 = 0.61 or 61 %
HHGregg (HGG) = 294.04/467.63 = .628 or 62 %
Industry = 65.33 %
Current Ratio = Current Assets / Current Liabilities
Best Buy (BBY) = 11,729 / 7,777 = 1.51 times
HHGregg (HGG) = 328.39/214.10 =1.53 times
Industry = 1.46 times
Inventory Turnover Ratio = Sales (Total Revenues) / Avg. Inventory Balance
Best Buy (BBY) = 40,339 / 5,275 = 7.65, where 5,275 = (5174+5376)/2
HHGregg (HGG) = 2129.37/278.005=7.65 times
Industry = 5.93 times
Profit Margin on Sales = Net Income to Common Stakeholders / Sales
Best Buy (BBY) = 1,233 / 40,339 = 3.1%, means they make 3 cents per every dollar.
HHGregg (HGG) = - 132.75/2129.237 = - 6 % means they lose 6 cents per every dollar
Industry = 2.15 %
Price – to- Earnings Ratio = Price Per Share / Earnings per Share
Best Buy (BBY) = 35.02 / 3.53 = 9.92
HHGregg (HGG) = 5.33 times
Industry = 32.13 times
Price Per share for BBY at FY 2015, Jan. 31 value was $35.02. Earnings per share basic is 3.53
References / Sources:
https://en.wikipedia.org/wiki/Best_Buy
http://investors.bestbuy.com/investor-relations/financial-info/annual-reports-and-proxy-
statements/default.aspx
http://www.marketwatch.com/investing/stock/bby/financials
http://investors.bestbuy.com/investor-relations/financial-info/annual-reports-and-proxy-
statements/default.aspx
http://pestleanalysis.com/swot-analysis-of-best-buy/
http://uoinvestmentgroup.org/wp-content/uploads/2011/01/BBY.pdf
http://economics-files.pomona.edu/jlikens/SeniorSeminars/oasis/reports/BBY.pdf
http://www.reuters.com/finance/stocks/financialHighlights?symbol=BBY
http://files.shareholder.com/downloads/GREGG/1572023488x0x854739/C67B3CFF-46AF-4D80-A782-
1419C03FF072/024BYA_HHGreg_AR_6-16-2015.pdf
http://www.reuters.com/finance/stocks/financialHighlights?symbol=HGG

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Income statement for HHGregg Inc- 2015

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