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Transcript of Financial Analysis Project
Investment Prospectus for Chihuahua, Inc.
A Comparative Financial Analysis of Whole Foods Market, Inc. vs Safeway Inc.and Investment Recommendation
March 20, 2009
Prepared by:Francis Tao, Leah Lundy and Qian Ye
Table of Contents
Table of Contents---------------------------------------------------------------------------------------------1 i1.0 Executive Summary ------------------------------------------------------------------------------------ 12.0 General Information ------------------------------------------------------------------------------------
2.1 Whole Foods Market, Inc. ------------------------------------------------------------------------2.2 Safeway Inc. ----------------------------------------------------------------------------------------
3.0 Industry Information ------------------------------------------------------------------------------------4.0 Company Information and Financial Highlights ----------------------------------------------------5.0 Comparative Financial Statement Analysis ----------------------------------------------------------
5.1 Trend Analysis (Horizontal Analysis) ----------------------------------------------------------- 5.1.1 Whole Foods Market, Inc. ----------------------------------------------------------------- 5.1.2 Safeway Inc. --------------------------------------------------------------------------------- 5.1.3 Conclusion from Trend Analysis (Horizontal Analysis) -------------------------------5.2 Common-Sized Analysis (Vertical Analysis) -------------------------------------------------- 5.2.1 Whole Foods Market, Inc. ----------------------------------------------------------------- 5.2.2 Safeway Inc. --------------------------------------------------------------------------------- 5.2.3Conclusion from Common-Sized Analysis (Vertical Analysis)------------------------
6.0 Analytical Measures – Solvency and Profitability Analysis --------------------------------------6.1 Solvency Measures -------------------------------------------------------------------------------
6.1.1 Working Capital -------------------------------------------------------------------------6.1.2 Current Ratio -----------------------------------------------------------------------------6.1.3 Quick Ratio -------------------------------------------------------------------------------6.1.4 Accounts Receivable Turnover --------------------------------------------------------6.1.5 Number of Days’ in Receivables ------------------------------------------------------6.1.6 Inventory Turnover ----------------------------------------------------------------------6.1.7 Number of Days Sales in Inventory ---------------------------------------------------6.1.8 Ratio of Fixed Assets to Long-term Liabilities ---------------------------------------6.1.9 Ration of Liabilities to Stockholders’ Equity -----------------------------------------6.1.10 Number of Times Interest Charges Earned -------------------------------------------
6.2 Profitability Measures -----------------------------------------------------------------------------6.2.1 Ratio of Net Sales to Assets -------------------------------------------------------------6.2.2 Rate Earned on Total Assets ------------------------------------------------------------6.2.3 Rate Earned on Stockholders’ Equity --------------------------------------------------6.2.4 Rate earned on Common Stockholders’ Equity --------------------------------------6.2.5 Earnings per Share on Common Stock ------------------------------------------------6.2.6 Price-Earnings Ratio ---------------------------------------------------------------------6.2.7 Dividend Yield ----------------------------------------------------------------------------6.2.8 Dividend Yield ----------------------------------------------------------------------------
7.0 Conclusion and Recommendation ---------------------------------------------------------------------Appnedix A – Description of Analytical Measures Used -----------------------------------------------Appendix B – Whole Foods Market, Inc., Comparative Balance Sheet, Horizontal Analysis -----Appendix C – Whole Foods Market, Inc., Comparative Balance Sheet, Vertical Analysis ---------Appendix D – Whole Foods Market, Inc., Comparative Income Statement, Horizontal Analysis –Appendix E – Whole Foods Market, Inc., Comparative Income Statement, Vertical Analysis -----Appendix F – Safeway, Inc., Comparative Balance Sheet, Horizontal Analysis ---------------------
1
Appendix G – Safeway, Inc., Comparative Balance Sheet, Vertical Analysis ------------------------Appendix H – Safeway, Inc., Comparative Income Statement, Horizontal Analysis –---------------Appendix I – Safeway, Inc., Comparative Income Statement, Vertical Analysis -------------------Appendix J – Common-Sized Balance Sheet Horizontal Analysis -----------------------------------Appendix K – Common-Sized Balance Sheet Vertical Analysis --------------------------------------Appendix L – Common-Sized Income Statement Horizontal Analysis -------------------------------Appendix M – Common-Sized Income Statement Vertical Analysis ---------------------------------References ---------------------------------------------------------------------------------------------------
6.0 Analytical Measures – Solvency and Profitability Analysis
Analytical Measures Whole Foods Market, Inc. (WFMI)
Safeway Inc.(SWY)
WFMI/SWY Ratios, 2007
2007 2006 2005 2007 2006 2005
Sol
venc
y M
easu
res
Working capital -116,530 114,211 254,146 -1128.9 -1035.7 -561.5 103.22Current ratio 0.85 1.22 1.61 0.78 0.77 0.87 1.09Quick ratio 0.13 0.17 0.90 0.17 0.15 0.17 0.76Accounts Receivable turnover
70.37 18.84 17.85 81.39 99.0 111.42 0.86
Number of days’ sales in Receivables
20.90 4.84 5.11 4.48 3.69 3.28 4.67
Inventory turnover 17.47 19.27 16.12 11.08 10.58 9.92 1.58Number of days’ in inventory
20.90 18.94 22.64 32.95 34.51 36.81 0.63
Ratio of fixed assets to long-term liabilities
2.26 143.64 81.55 2.28 1.94 1.62 0.99
Ratio of liabilities to stockholders’ equity
1.20 0.45 0.38 1.63 1.87 2.20 0.74
Number of times interest charges are earned
73.38 10,617.03 107.67 4.61 4.13 3.11 15.92
Pro
fita
bili
ty M
easu
res
Ratio of net sales to assets
2.51 6.83 6.34 6.25 6.11 5.76 0.40
Rate earned on total assets
0.07 0.10 2.76 0.08 0.08 0.06 0.88
Rate earned on stockholders’ equity
0.13 0.15 4.06 0.14 0.16 0.13 0.93
Rate earned on common stockholders’ equity
0.15 0.20 6.67 151.79 150.17 96.72 0.00
Earnings per share on common stock
1.29 1.41 0.99 1.99 1.94 1.25 0.65
Price-earnings ratio 37.1 40.55 63.12 16.98 17.46 18.41 2.18Dividends per share 0.68 2.47 0.39 0.25 0.22 0.10 2.72Dividend yield 0.01 0.04 0.01 0.01 0.01 0.00 1.00
Appendix A – Description of Analytical Measures Used
Method of Computation UseSolvency measures:
Working Capital Current Assets – Current Liabilities To indicate the ability to meet
currently maturing obligationsCurrent Ratio Current Assets / Current Liabilities
Quick Ratio Quick Assets / Current Liabilities To indicate instant debt-paying
Accounts Receivable
Turnover
Net Sales / Average Accounts Receivable To assess the efficiency in
collecting receivables and in the
management of creditNumbers of Days’ Sales
in Receivables
Average Accounts Receivable / Average Daily
Sales
Inventory Turnover Cost of Goods Sold / Average Inventory To assess the efficiency in the
management of inventoryNumber of Days’ Sales in
Inventory
Average Inventory / Average Daily Cost of
Goods Sold
Ratio of Fixed Assets to
Long-Term Liabilities
Fixed Assets (net) / Long-Term Liabilities To indicate the margin of safety
to long-term creditors
Ratio of Liabilities to
Stockholders’ Equity
Total Liabilities / Total Stockholders’ Equity To indicate the margin of safety
to creditors
Number of Times Interest
Charges are Earned
(Income Before Income Tax + Interest Expense)
/ Interest Expense
To assess the risk to debtholders
in terms of number of times
interest charges were earned
Profitability measures:
Ratio of Net Sales to
Assets
Net Sales / Average Total Assets (excluding
long-term investments)
To assess the effectiveness in
the use of assets
Rate Earned on Total
Assets
(Net Income + Interest Expense) / Average Total
Assets
To assess the profitability of the
assets
Rate Earned on
Stockholders’ Equity
Net Income / Average Total Stockholders’
Equity
To assess the profitability of the
investment by stockholders
Rate Earned on Common
Stockholders’ Equity
(Net Income – Preferred Dividends) / Average
Common Stockholders’ Equity
To assess the profitability of the
investment by common
stockholdersEarnings per Share on
Common Stock
(Net Income – Preferred Dividends) / Shares of
Common Stock Outstanding
Price-Earnings Ratio Market Price per Share of Common Stock /
Earnings per Share on Common Stock
To indicate future earnings
prospects, based on the
relationship between market
value of common stock and
earnings
Dividends per Share Dividends / Shares of Common Outstanding To indicate the extent to which
earnings are being distributed to
common stockholders
Dividend Yield Dividends per Share of Common Stock /
Market Price per Share of Common Stock
To indicate the rate of return to
common stockholders in terms
of dividends
Appendix B - Whole Foods Market, Inc., Comparative Balance Sheet, Horizontal Analysis
Appendix C - Whole Foods Market, Inc., Comparative Balance Sheet, Vertical Analysis
Appendix D - Whole Foods Market, Inc., Comparative Income Statement, Horizontal Analysis
Appendix E - Whole Foods Market, Inc., Comparative Income Statement, Vertical Analysis
Appendix F - Safeway, Inc., Comparative Balance Sheet, Horizontal Analysis
Appendix G - Safeway, Inc., Comparative Balance Sheet, Vertical Analysis
Appendix H - Safeway, Inc., Comparative Income Statement, Horizontal Analysis
Appendix I - Safeway, Inc., Comparative Income Statement, Vertical Analysis
Appendix J - Common-Sized Balance Sheet Horizontal Analysis
Appendix K - Common-Sized Balance Sheet Vertical Analysis
Appendix L - Common-Sized Income Statement, Horizontal Analysis
Appendix M - Common-Sized Income Statement Vertical Analysis