Case: Despite increasing revenues over the past three years Whole Foods Market (WFM) has experienced disappointing profits during the same interval. While WFM’s overall revenues increased by approximately 8% in 2015, and by 10% in 2014, its net income (profit) declined by about 7% in 2015 and increased by only 5% in 2014, indicating higher costs of operating their businesses. The size of the WFM balance sheet stayed relatively stable; however, the WFM common stock experienced very high volatility and posted a devastating loss to its value from a high of $65/share in October 2013 to about $30/share in December 2015. This performance was more distressing to investors as the S&P 500 index experienced gains during the same interval. The decision to open the lower-cost 365 supermarkets has been made against this financial background, in addition to other concerns relating to the long-term healthiness and growth of its core upscale supermarket business.
Question 1. Opening a series of new supermarkets is a major capital budgeting project for the company. Describe and discuss the main items on the income statement and balance sheet that you think will be impacted by this new undertaking. Explain why you chose those particular balance sheet and income statement items.
Question 2. Please also explain how the financial decisions regarding this capital budgeting project are related to management, marketing or operations decisions that the company must make (or has made) in light of the plans to open the new line of stores, i.e., how are they influenced by or do they influence those decisions?
Question 3. Choose and calculate five ratios for this company for the last two years. Make sure to select ratios that you think would be impacted by the opening of the new 365 stores, and explain your reasoning. Identify two competitors of WFM and contrast the ratios. Explain why you selected those competitors.
Question 4. Calculate the annualized stock price performance of WFM over the last 3, 5, and 10 years? How does it compare to the performance of the competitors you selected in question 3 and the S&P 500 index?