Student: Finance and Foods Market
FI-516 – WEEK 2 – MINI – CASE ASSIGNMENT Select a major industrial or commercial company based in the United States, and listed on one of the major stock exchanges in the United States. Each student should select a different company. Avoid selecting an insurance company or a bank, as the financial ratios for these financial businesses are different. Write a 7 – 8 page double spaced paper answering and demonstrating with calculations and financial data the following questions: 1. What is the name of the company? What is the industry sector? * The company name is Whole Foods Market Inc. Whole foods market, Inc. is the Food Retailers & Wholesalers industry. * The products include: grocery, seafood, bakery, prepared foods, meat and poultry, dietary and nutritional supplements, vitamins, specialty (beer, wine and cheese) body care products, floral and household products and pet products. 2. What are the operating risks of the company? * Organic foods market has several laws and regulations relating to health, sanitation and food labeling. * FDA, FTC, CPSC, USDA and EPA have set standards for the manufacture, packaging, and advertising of organic products. If failure to qualify these standards could result in the confiscation of marketing and sales licenses. 3. What is the financial risk of the company (the debt to total capitalization ratio)? Debt to total capitalization ratio = Debt / (Shareholder’s equity + Debt) ————————————————- 1,300,770 / 4,292,075 = 30. 31% 4. Does the company have any preferred stock? No, the Whole foods market, Inc. does not have any preferred stock. 5. What is the capital structure of the company? : Short term portion of Long Term Debt, Long Term Debt, Preferred Stock (if any), and market value f Common Stock issued and outstanding? * Capital structure: ————————————————- Total Debt to Total Equity: 0. 60 ————————————————- Total Debt to Total Capital: 0. 60 ————————————————- Total Debt to Total Assets: 0. 42 ————————————————- Long-Term Debt to Equity: 0. 58 ————————————————- Long-Term Debt to Total Capital: 0. 58 * The Whole foods market, Inc. does not have any short-term portion of long-term debt, and there is no preferred stock. Long-term debt: $17. 44 million * The Whole foods market, Inc. has 300,000 share authorized and $178. 89 million shares issued and outstanding at 2011. 6. What is the company’s current actual Beta? ————————————————- * The current actual Beta is 0. 66 7. What would the Beta of this company be if it had no Long Term Debt in its capital structure? (Apply the Hamada Formula. ) ————————————————- BL= B1 [1+(1-T) (D/E)] ————————————————- = 0. 66 / [1+(1-0. 35) (0. 43)] ————————————————- 0. 52 8. What is the company’s current Marginal Tax Rate? ————————————————- 35% 9. What is the Cost of Debt, before and after taxes? The cost of debt before taxes is 6. 7%, and after taxes is 4. 5%. 10. What is the Cost of Preferred Stock (if any)? The Whole foods market, Inc. does not have any preferred stock. 11. What is the Cost of Equity? ————————————————- Cost of Equity = (Dividends per share/current market value of stock)+Growth Rate of Dividends ————————————————- = (0. 40 / $86. 47) + 0. 56% ———————————————— = 0. 01 12. What is the cash dividend yield on the Common Stock? The cash dividend yield on the common stock is 0. 56 (0. 60%) 13. What is the Weighted Average Cost of Capital of the company? The Weighted Average Cost of Capital is 7% 14. What is the Price Earnings Multiple of the company? ————————————————- Current market value of stock / EPS ————————————————- = $86. 47 / 2. 21 ————————————————- = 39. 13 15. How has the company’s stock been performing in the last 5 years?
In May 2007, the price of common stock was $39. 74 per share, but it dropped to $8. 19 per share in 2009. Although after the recession of price drop, the price begins the raise up to $86. 47 per share now. 16. How would you assess the overall risk structure of the company in terms of its Operating Risks and Financial Risk (Debt to Capitalization Ratio)? Total debt/total equity| 0. 0063| Total debt/total capital| 0. 0063| 17. Would you invest in this company? Why? Or Why not? * Officially I would invest portion of my assets into the portfolio. Since the price has raise from the last two years in an even steady price.
Even though they have two small period of time that drop for about 15%. Overall the stock market seems to be passive about the movement of the behavior optimistically. Therefore be hold within the smaller beta that show less variable of the changes. I believe this could be a chance to be rich! 18. The last page of your paper should be a Bibliography of the sources you used to prepare this paper. Bibliography: * http://www. wikinvest. com/stock/Whole_Foods_Market_(WFM) * http://www. thestreet. com/quote/WFM/details/company-profile. html * http://yahoo. brand. edgar online. com/displayfilinginfo. spx? FilingID=8260392-165255- 169255&type=sect&TabIndex=2&companyid=10959&ppu=%252fdefault. aspx%253fcik%253d865436 * http://www. investopedia. com/terms/d/debt-to-capitalratio. asp#axzz1v5caUyeq * http://www. marketwatch. com/investing/stock/wfm/profile * http://finance. yahoo. com/q? s=WFM&ql=1 * http://www. investopedia. com/terms/c/costofequity. asp#axzz1v5caUyeq * http://www. thestreet. com/quote/WFM/details/growth-rates. html * http://www. wikiwealth. com/wacc-analysis:wfm * http://markets. ft. com/research/Markets/Tearsheets/Financials? s=WFM:NSQ