Best Buy Financial Report Analysis - USF

1. Financial Report
Best Buy
TEAM 12 – 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)

3. 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

4. Five Ratio Analysis
Debit Management - 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)

5. Liquidity - Current Ratio
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

6. 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

7. Profitability - Margin on 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

8. Market Value Analysis
Market Value 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

9. 2015 2014 2013 2012 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

10. Best Buy Grade?
 B Grade, BBY total points is 82 (out of 100)
 Trending shows positive year over year (YoY)

11. 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

12. 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

13. Conclusion
 Best Buy compared 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

14. Thank You