Whole Foods Market Inc. is a big name in the natural and organic food industry.
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Whole Foods Market Inc’s current ratio is slightly lower than the industry average and indicates a lower margin of safety with respect to meeting current obligations. Whole Foods Market Inc’s current ratio will not allow them to take more debt as compared to previous years. Although, Whole Foods Market Inc. has made short-term investments but still there is no significant impact on the current ratio. The overall condition of current ratio reveals the fact that the current ratio which is not pretty stable and healthy as compared to the industry practice.
Quick Ratio Whole Foods Market Inc’s quick ratio is lower than the industry average. The reason behind this is the improper working capital management which makes the quick ratio more tentative in the last three years. The overall signal of Whole Foods Market Inc. liquidity is not good and it sends a negative signal towards the debt holders and also on the debt market. Moreover, the liquidity crunch problem makes the performance of Whole Foods Market Inc. slightly vulnerable. Working Capital Ratio
The condition of Whole Foods Market Inc’s working capital is pathetic throughout last three years. The reason behind this the more dependency on the debt which makes the company’s financial condition more vulnerable. The pivotal reason behind the negative impact of the working capital is the improper cash, inventory and receivable management. In the last few years, the company can’t generate more current assets in comparison with its business operations. SOLVENCY RATIO Debt to Equity Dependency on debt financing is not a bad habit but it has consequences if you rely on more.
Whole Foods Market Inc. debt to equity ratio is lower in comparison with the industry practices due to the factors of business volume, increase in sales, fulfillment to pay the suppliers and acquisitions of fixed asset. Due to the expansion in business, Whole Foods Market Inc. has plenty of financial obligations, most of which has been acquired through debt. In 2008 and 2006, Whole Foods Market Inc. reliance more on debt financing as compare to the previous years. Debt to Asset Whole Foods Market Inc’s D/A ratio is around 55% in the year 2008 and 2007.
In the year 2006 the debt to total assets is 31 % which is good as far as the performance of 2007-08 is concerned. The year 2008-07 is worst for Whole Foods Market Inc. , the main reason behind is the improper utilization of debt in order to capitalize assets. Moreover, it also reveals the fact that the management of the company can’t generate more assets in response with the debt. A higher D/A ratio would place the company under increased amount of risk, especially if the interest rates are rising. Hence, a lower D/A ratio would be more desirable.
Interest Coverage Ratio (TIE) This ratio suggests the fact that TIE ratio is higher in comparison with the industry because of company entertain its business with high proportion of debt financing. Although the company’s management runs business successfully and this is shown in the EBIT which suggest that the Company is keep improving in the EBIT year by year. In comparison with the ability of paying interest expense is fine in comparison with he industry practices. In the year 2007 which is the good year for the company’s TIOE ratio is concerned.
On overall basis the densely populated debt financing and creates a doubt in the debt holder's mind that the company is in tentative mode to pay its obligations. ACTIVITY RATIO Total Asset Turnover Whole Foods Market Inc. have utilized their assets to full capacity and managing assets in a fashion that every component of total asset utilizes its full capacity. Whole Foods Market Inc. has a slight edge over the industry practices and it is the prime evident that the component of asset has a made significant impact on the sales due to this the Whole Foods Market Inc.
is doing a fine job and this practice also make an impression in the future. Inventory Turnover Whole Foods Market Inc’s inventory management strategies make a strong reflection on this ratio and it is evident that company's operating cycle is slightly high in comparison with the industry practices, which is very good going for the company's perspective . This ratio shows that Whole Foods Market Inc. is better at managing its inventory than the industry. Receivable Turnover Whole Foods Market Inc.
management is working on managing working capital effectively and employed an effective credit policy for its customers . Whole Foods Market Inc. management has working on aggressive credit policies to collect their receivables and rotating its operating cycle effectively and smoothly. Industry trend on the other hand is very sluggish primarily due to recession in the economy. Fixed Asset Turnover The Whole Foods Market Inc. fixed asset turn over is around 2. 5% through three years. The fixed asset turnover shows the consistency is reviewed from (2008-2006).
This turn over shows that the company is working on sound practice with respect to managing the fixed assets. It gives a positive signal to investors, as it indicates that Whole Foods Market Inc. does utilize its assets efficiently, they either remain idle or aren't utilized to their maximum capacity, in order to generate more sales. Although Whole Foods Market Inc. has made a large amount of capital expenditure and due to efficient management maintains the fixed asset turn over through out the from 2008-2006. PROFITABILITY RATIO Return on Asset
The modest decrease in the ROA suggest that the firm uses its asset not at its command and management is not uses its assets and resources in an appropriate manner in order to generate more profits in comparison with their asset acquisition. This is also gives the signal that proper asset management strategy is not adopted in order to generate the maximum out put. Return on Equity The ROE of 8% in the year 2008 indicates that the Whole Foods Market Inc. is not dependent on equity financing, although it is far low as compared to the industry.
It also gives the impression that efficiency under which management has utilized the assets under its control, regardless of whether their assets were financed with debt or equity capital. Because of less dependency on equity financing ROE make a reflection on the stock holder equity and this will highlighted the image of the company and also uplift their stock prices. Gross Profit Margin High proportion of COGS made an impression on the Whole Foods Market Inc. gross margin. High ratio of COGS in the shape of FOH, Purchases etc is the prime reasons behind 0.
34 from (2008-2006). Profit Margin Due high debt financing company is liable to pay the interest expense to its debt holders and would make a significant impression on Whole Foods Market Inc. net profit margin which is lower than the industry trend. Reference Whole Foods Market Inc. (2008). Annual Report. Whole Foods Market Inc. (2007). Annual Report. Whole Foods Market Inc. (2006). Annual Report Whole Foods Market Inc (Nasdaq). Retrieved April 16, 2009, from Reuters Web site:http://www. reuters. com/finance/stocks/incomeStatement? stmtType=INC&perType=ANN&symbol=WFMI
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