Whole Food’s Strategy, Past Performances, And Financial Assumptions

Whole Foods’ Core Values and Strategy

The core values of Whole Foods markets are established keeping in mind most of the individuals. Definitely the customers would like to know that the food and supporting goods they are purchasing are from legal and ethical business. If the company does not take into consideration these values lot of negative publicity will be there that will have great impact on the profitability and growth of the company (Barron). Further, the company will require lot of energy and time to provide training to their employees and managers for regaining the values. The company makes the ‘feel good’ regarding the business and its influence can enhance the society at the time of pursuing the profit. Further, the company is dedicated to the mission of “whole foods, whole planet and whole people’. Other strategies of the company are –

• The growth strategy of the company shifted from acquisitions and the management has experienced the improvements in the same store sales that continued the new openings to fulfil its primary opportunities for growth.
• The company has the vision for the future and the comprehensive strategy for implementing those visions. The company is further proud for their efforts in long-term concrete changes with regard to the business as the usual approach to environment, health and foods (Schniederjans et al.).
• The company supports and advocates naturally raised poultry and meat. Apart from this the consumers are informed regarding their concerns about the added antibiotics and hormones and give their consumers an option to purchase the hormone free and antibiotic free foods.
• It encourages using of products that is less toxic and educates the customers regarding positive impact of improvement in water and air quality through usages of the alternative products.
• Apart from leading in the retail sector of the organic foods, it helps in formulation of organic standards through the participation as sole retail representative under the National Organic Standards Boards. This strategy leads to sustainable future to represent in construction, enforcement and definition of sustainable regulation and legislation (Kafetzopoulos et al.). It has the desire for straightforward and clear regulatory transparency and answers to assist in gaining sustainability.

Exhibit 4 stated the data regarding the average sales growth and average margins for earnings before interest, tax and depreciation.  The data is given for past 11 years that is from the year 2003 to 2013. Sales growth and EBITDA margin both are presented for 4 sectors that is the Whole Foods market, Supercentres and wholesalers, Conventional grocer and Other natural and organic (Alghifari, Sigit Triharjono, and Juhaeni). From the sales growth it has been identified that the sales for whole foods market grown positively. However, till the year 2008 the growth was in positive trend and from 21% growth in 2008 it fell to 1% growth only in 2009. The sales then significantly grown by 12% in the next year.  Other natural and growth sector started sales in the year 2008. For the rest period under consideration that is till the year 2013 it experienced positive growth in sales. For Conventional grocers the sales in 2009, 2012 and 2013 have been negatively increased as compared to their previous years. The Supercentres has positive growth for entire period. On the other hand, the EBITDA margins that express the profit after paying off the operating expenses are stated in percentage form. The EBITDA for all the 4 sectors for entire period under consideration are in positive and ranged between 3% and 9%.  

The ratios provide an idea regarding the sales growth and EBITDA. From the given ratios of the company that states the results of last 11 years, future growth of the company can be estimated. The financial statement and related ratios are used for reviewing and evaluating the past as well as future expected performances. The EBITDA can give an idea regarding the earning available with the company after paying off the operating expenses (Heikal et al.). Therefore, it will also assist the management to cut-off the operating expenses, wherever possible to increase the EBITDA which in turn, will increase the net income. Therefore, the ratios are important and informative to assess the future performances.

Sales Growth and EBITDA Margin: Review of Past Performances

ROA or return on assets indicates the profitability of the company as against the total assets. ROA provides the idea regarding efficiency of management with regard to usage of the asset for generation of earnings. ROA of the company is calculated through dividing the annual earnings of the company by the total asset. ROA further gives the indication of capital intensity of company that is dependent the industry (Wang, Zhihong, and Joseph Sarkis). Generally, the company with higher initial investment have lower ROA. It is stated in percentage form. The formula for ROA = net income / total asset.

The ROA of the company as per calculation are as follows –

It can be observed from the above table that actual ROA for the year 2011, 2012 and 2013 and forecasted ROA for 2014 and 2015 are in increasing trend. Generally the ROA of more than 5% are considered as goods. Therefore, the returns on asset position of the company for all the 5 years are good. ROA states what is possible for the company to do with available assets that is the dollar they can earn with each dollar of the asset they have under their control. ROA plays important role in comparing the peer companies under same industry. It reveals how the company can opt for any one of two options for improving the efficiency. It can increase the prices that can generate high margins or can move the assets rapidly through company. Under both the ways the ROA can be improved (Libby, Robert, and Kristina).

Assumptions those play biggest role for improving the ROA is that if the sales growth is improved and the operating expenses do not increase proportionately that is the sales growth is higher as compared to increase in expenses then the net margin of the company will increase. As the ROA = net income / total assets, the increase in net income will improve the ROA (Saeidi et al.). However, if the total assets increase proportionately with the net income then the ROA will not increase. Therefore, to improve the ROA the company must try to increase its net margins.

The issue that has been presented in the question is that the existing financial assumptions of Whole Foods’ in regards to forecast has been asked to analyze and evaluate. In order to determine the fact whether the financial assumptions that have been included in the forecasts can be agreed or disagreed to by identifying the certain financial assumptions (Ciftci et al.). These are in the major categories of growth of the stores, growth of sales, EBITDA margin and the current assets and liabilities turnover. Moreover, the beta of the whole foods market reveals a value of 0.70. This reflects the fact that this particular market is exposed to less risk in comparison to sprouts farmer market and the fresh market. The financial assumptions that have been undertaken in regards to the growth in the number of stores have essentially revealed an upward rising trend. However, the store growth has shown an unprecedented rise in the financial year of 2012 that is the percentage has increased from 4.0% to 7.7% and then again, the particular rate has stabilized in the financial year of 2013. Therefore, such fluctuations in the rate of growth in the stores make the particular forecasts pertaining to the financial years of 2014 and 2015 disagreeable. The case is similar in regards to the sales growth. This is because this particular rate increases from 12.2% to 15.7% and then again falls in the particular financial year of 10.4%. However, there may be several reasons due to which the growth in sales or revenue have declined like increase in the general price level, market fluctuations and other associated factors (Chen et al.). In case of the EBITDA Margin this particular percentage has not fluctuated and reflects a stable margin. Therefore, this particular forecast in regards to the financial years of 2014 and 2015 can be agreed to. In the similar way the forecast of the financial components can be trusted and agreed to, as there have been no major fluctuations in the rates for the financial years of 2011, 2012 and 2013 for the respective financial components. However, it should be noted here that the financial component of return on capital reflects a certain degree of fluctuation in the respective rates.

Reference

Alghifari, S., Sigit Triharjono, and Y. Juhaeni. “Effect of return on assets (ROA) against Tobin’s Q: Studies in food and beverage company in Indonesia stock exchange years 2007-2011.” International Journal Of Science and Research (IJSR)2 (2013): 108-116.

Barron, Orie E. “Commentary On: Do Analyst Forecasts Vary Too Much?.” Journal of Financial Reporting 1.1 (2015): 125-126.

Chen, Clara Xiaoling, Kristina M. Rennekamp, and Flora H. Zhou. “The effects of forecast type and performance-based incentives on the quality of management forecasts.” Accounting, Organizations and Society 46 (2015): 8-18.

Ciftci, Mustafa, Raj Mashruwala, and Dan Weiss. “Implications of cost behavior for analysts’ earnings forecasts.” Journal of Management Accounting Research 28.1 (2015): 57-80.

Heikal, Mohd, Muammar Khaddafi, and Ainatul Ummah. “Influence analysis of return on assets (ROA), return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and current ratio (CR), against corporate profit growth in automotive in Indonesia Stock Exchange.” International Journal of Academic Research in Business and Social Sciences 4.12 (2014): 101.

Kafetzopoulos, Dimitrios, Katerina Gotzamani, and Evangelos Psomas. “Quality systems and competitive performance of food companies.” Benchmarking: An International Journal20.4 (2013): 463-483.

Libby, Robert, and Kristina M. Rennekamp. “Experienced financial managers’ views of the relationships among self-serving attribution bias, overconfidence, and the issuance of management forecasts: A replication.” Journal of Financial Reporting 1.1 (2016): 131-136.

Saeidi, Sayedeh Parastoo, et al. “How does corporate social responsibility contribute to firm financial performance? The mediating role of competitive advantage, reputation, and customer satisfaction.” Journal of Business Research 68.2 (2015): 341-350.

Schniederjans, Dara, Edita S. Cao, and Marc Schniederjans. “Enhancing financial performance with social media: An impression management perspective.” Decision Support Systems 55.4 (2013): 911-918.

Wang, Zhihong, and Joseph Sarkis. “Investigating the relationship of sustainable supply chain management with corporate financial performance.” International Journal of Productivity and Performance Management 62.8 (2013): 871-888.

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