1. Financial Statement Analysis Best Buy Co. Inc.
Team # 2 By
Sunil George Abraham
Pin-Ying Chiang
Instructor:
Prof. Brian Leventhal

2. Income Statement Analysis Best Buy Co. Inc.
Our Main Objectives:
To study the trends for the Sale Revenue, Cost of Good
Sold, Operating Expenses, and Net Income, and derive
conclusions.
To review the Common Sized Income Statement and
make intuitive observations.
Observe the various ratios associated with the Income
Statement and study their impact on decision making.

3. Income Statement Best Buy Co. Inc.
Trend Analysis: Revenue and COGS
Best Buy increase about 20 % of their revenues each year, and almost doubled their sales since 1998
Their COGS is in
a slower increasing trend
80% of sales
81% of sales
82% of sales
84%of sales

4. Income Statement Best Buy Co. Inc.
Trend Analysis: Gross Profit
According to data, their Gross profit was 16% of sales in 1998, and increase 1% to 2% each year!
Does Best Buy earning money? Yap~
Due to a lesser increasing in COGS, and favorable increasing in sales, and their 2001’s Gross Profit is almost twice as 1998’s.

5. Income Statement Best Buy Co. Inc.
Trend Analysis: Operating Expenses
16% of sale
15% of sale
15% of sale
14% of sale
As the increase of sales, operating expenses would be expected to increase.
Best Buy control its expenses well because percentage of operation expenses were slightly increased each year.

6. Income Statement Best Buy Co. Inc.
Trend Analysis: Operating Income & Net Income
ROS=2.58%
ROS= 2.15%
ROS= 1.13%
ROS= 2.78%
Both of operating income and net income are in the positive increasing trends
An increase trend of the return on sale is favorable and indicates Best Buy increasing its profitability

7. Income Statement Best Buy Co. Inc.
Ratio Comparison: Return on Asset & Return on Equity
Best Buy’s Return on Equity was lower than average 98,& 99, which means their assets are rely on debt. But in 00’ & 01 they issue more stocks, and get more finance from Stockholders.
Best Buy’s Return on Asset Ratio generally above the industry average, which means they are out performance for years.

8. Balance Sheet Analysis Best Buy Co. Inc.
Our Main Objectives:
To study the trends for the assets , liabilities and
Owners equity and derive conclusions.
To review the Common Sized Balance sheets and
make intuitive observations.
Observe the various ratios associated with the balance
sheet and study their impact on decision making.

9. Balance Sheet Analysis Best Buy Co. Inc.
TREND ANALYSIS ( Assets )
Other assets too show an increasing trend.
Increasing trend for
Property plant and Equipment!!
Increasing trend for
Current Assets and this is favorable!!

10. Balance Sheet Analysis Best Buy Co. Inc.
TREND ANALYSIS ( Assets )
In this chart we can analyze the rate at which each of the assets have increased. This also displays the trend analysis for assets.
The other assets have increased at a greater rate when compared to PPE and CA.Mainly goodwill and other assets.
The rate of increase for the property plant and equipment is an indicator of the #of new retail stores opening up at various regions

11. Balance Sheet Analysis Best Buy Co. Inc.
TREND ANALYSIS ( Liabilities & Owners Equity )
Increasing trend for
Retained Earnings !!
Both long Term and short term liabilities are increasing.
Contributed capital goes down in 2000.

12. Balance Sheet Analysis Best Buy Co. Inc.
TREND ANALYSIS ( Liabilities & Owners Equity )
Both long Term and short term liabilities are increasing.
Increasing trend for
Retained Earnings !!
Contributed capital goes down in 2000.

13. Balance Sheet Analysis Best Buy Co. Inc.
TREND ANALYSIS : Conclusions
The Assets of Best Buy Increased by
135%
All this growth makes me so happy!!!
The retained earnings for
Best buy Increased by 326%
and that’s a Comforting trend
for any investor.
The current Liabilities have grown by 163% and the long
term borrowing have also grown but the rise but the major
source of the financing is from short term borrowing.
There is no denying to the fact that best buy is indeed a
growing company.

14. Balance Sheet Analysis Best Buy Co. Inc.
Hmm..!! This Current Ratio trend need some investigation!
Common sized Balance sheet ( assets)
The decrease in current assets is compensated by rise in Property plant and equipment and other
Assets.
That’s because Best buy’s Current Liabilities have increased at a greater rate as compared to their current assets!!
Current Assets decreasing over the years!!
That explains the
trend in the
Current ratio
Going down!!!

15. Balance Sheet Analysis Best Buy Co. Inc.
Best buy seems to be moving towards long-term Borrowings since 2000 which can be shown
In the following chart. That also explains their declining Current
Ratio.
Common Sized Balance Sheet ( Liabilities & SE)

16. Balance Sheet Analysis Best Buy Co. Inc.
Ratio analysis
Current Ratio
Acid Test Ratio
Debt to Equity ratio
ALL THESE RATIOS ARE PERTINENT TO THE BALANCE SHEET
AND HIGLY ESSENTIAL FOR DECISION MAKING !!

17. Balance Sheet Analysis Best Buy Co. Inc.
Ratio analysis
For a company which relies on borrowing more in the form of current liability this is not a favorable graph.
Best buy is at a higher risk as far as its liquidity is concerned when compared to its industry competitors.
ALL THESE RATIOS ARE PERTINENT TO THE BALANCE SHEET
AND HIGLY ESSENTIAL FOR DECISION MAKING !!

18. Balance Sheet Analysis Best Buy Co. Inc.
Ratio analysis
Maximum amount of Best buys sales are on credit and that explains the poor acid test ratio!
ALL THESE RATIOS ARE PERTINENT TO THE BALANCE SHEET
AND HIGLY ESSENTIAL FOR DECISION MAKING !!

19. Balance Sheet Analysis Best Buy Co. Inc.
Ratio analysis
Best buys Debt to equity ratio is well above the industry average It is obvious from the Balance sheet that equity financing is not the major source of financing for Best Buy
ALL THESE RATIOS ARE PERTINENT TO THE BALANCE SHEET
AND HIGLY ESSENTIAL FOR DECISION MAKING !!

20. Balance Sheet Analysis Best Buy Co. Inc.
Common Sized Balance Sheet
Best Buys assets are most heavily financed with Borrowed amounts especially Current liabilities!!
Best Buy is exploring Long term financing in exchange for short term borrowing.
The current ratio , debt to equity ratio and the acid test ratio give an insight into the fact that best buy operates under higher risk as compared to its competitors!!
Time to draw Conclusions from the
common sized balance sheet

21. Statement of Cash Flow Best Buy Co. Inc.
Our Main Objectives:
To study the trends for the Operating Activity, Investing
Activity, and Financing Activity, and derive conclusions.
Observe the various ratios associated with the Statement
of Cash Flow and study their impact on decision making.

22. Statement of Cash Flow Best Buy Co. Inc.
Trend Analysis: Operating Activity
Due to the positive Net Income, Best Buy has an increasing growth for Operating Activity

23. Statement of Cash Flow Best Buy Co. Inc.
Trend Analysis: Investing Activity
Best Buy expended their facilities each year, and in 2001, they inquire other company, and increase outflow dramatically!
Note: All number are negative

24. Statement of Cash Flow Best Buy Co. Inc.
Trend Analysis: Comparison of Operating & Investing Activity
Only 2001’s operating cash can’t cover the investing outflow, otherwise, the investing outflows are less then operating inflows!
Cash flow from operations to capital expenditures= 2.48
From the SCF, we can find out that Best Buy acquire the firm- Musicland, and it is the reason their investment outflow increase a lot in 2001.
According to the cash from operation to capital expenditures ratio, Best Buy still has ability to pay their capital expenditures form operations.

25. Statement of Cash Flow Best Buy Co. Inc.
Due to the Acquisition, Best Buy issue new stocks as a source for financing activity.
Trend Analysis: Financing Activity
Because of $165 million long term debt due in this year, Best Buy had a outflow for financing activity
A great amount of outflow because Best Buy repurchase their outstanding stocks

26. Statement of Cash Flow Best Buy Co. Inc.
Summary
$600,000
$400,000
$200,000
Cash from Financing
Activity $-
Cash from Investing
1998
1999
2000
2001
Activity
$(200,000)
Cash from Operating
$(400,000)
Activity
$(600,000)
$(800,000)

27. Significant other Items Best Buy Co. Inc.
Some Important Ratios
Cost Of Goods Sold
Average Inventory
Inventory Turnover
360 days
Accounts Receivables Turnover
Days Sales in Receivables
Market Price per share of Common Stock
Earnings Per share
Price per Earning Ratio

28. Significant other Items Best Buy Co. Inc.
Measures how quickly Inventory is sold on Average. Measure of short term liquidity!!
Inventory Turnover
Best buy has a very promising Inventory turnover ratio when compared to the industry average and which is a very good measure of best buy’s liquidity

29. Significant other Items Best Buy Co. Inc.
Measures how Quickly accounts Receivables are collected .
Day’s Sale in Receivables
Best Buy is well below the industry average of days and this is definitely a favorable liquidity measure!!!

30. Significant other Items Best Buy Co. Inc.
Price/Earning Ratio
Indicates the market
Price of one dollar of
Earnings.
Best buy’s P/E ratio increased in 1999 but since then has gone down; this can either mean that the market price for the share has gone down or the earnings per share has increased.
This can be easily determined by
Viewing the company’s stock prices
Over the 4 Year period.

31. Significant other Items Best Buy Co. Inc.
Best Buy Recorded no interest Expense
No dividends Paid

32. Significant other Items Best Buy Co. Inc.
The Chart displays the stock performance of best buy in comparison to Circuit city and Dow Jones as the industry average
Significant other Items Best Buy Co. Inc.
Comparison of Stock Performance
Slump in the stock prices during Jan 2001

33. Significant other Items Best Buy Co. Inc.
Income from operations Vs Stock performance
Income from operations has an increasing trend and that in turn would mean a higher EPS.
The Market price goes down
We Know that EPS=Net income/# of shares outstanding
The market price and EPS are related by the Price/earning ratio
This explains the slump in P/E ratio for 2000 and 2001 as the market prices went down and the
EPS went up

34. Final Analysis Best Buy Co. Inc.
Current Value: $ 65.4
Intrinsic Stock Value: 42.09
Final Recommendation
Based on our analysis of best buys financial statements we determined that
best buy is indeed a Best Buy.
Their Assets and Retained earnings have increased at a steady rate( refer
Balance sheet analysis).
Their Net income and has been increasing steadily too .
From investors standpoint Best Buy has an above average performance as far
as the return on stockholders equity and return on Assets are concerned. Both
of these ratios have an increasing trend