Best Buy Executive Summary
Introduction Corporations that have the privilege to earn a position on the Fortune 500 means that you are one of the most powerful companies in America. If a company has the ability to hang around for over 40 years that means they have withstood the changes most industries will endure. Since the popularity of electronics began in the late 20th century, many corporations like Sony and Apple has tried to fill consumers wants and needs. Trying to meet these goals has created opportunities for many big box retailers to leverage their ability to reach a national audience. This type of power has given retailers such as Apple, Sony, Target, Walmart, Radio Shack and Best Buy tremendous revenues that will influence potential shareholders. When
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a business analysis is looking at a company to recommend to his clients, he or she will review a company’s financial statement to see how they are performing. The area of the financial statement a business analysis will focus on is a company’s cash flow, their operational cost, balance sheet and their position in the industry. These positions could be their supply chain, the advantage they have over their competition and their vision for long-term success. In this paper, I am going to continue analyzing Best Buy and it’s competition by conducting a benchmark analysis, their financial health and their utilization of technology and their global business strategies. Best Buy is in a unique position because they have withstood the downturn in the economy where their national competition like Circuit City has faltered and closed their doors permanently.
FINANCIAL HEALTH After looking at Best Buy’s financial statement compared to their closest competition that sells electronic items, which is Target and Radio Shack, their total equity on their balance sheet has varied in the last five years (MSN/money, 2012).
The balance sheet will outline what the company owes compared to what they own on a certain day (Nickels, McHugh, & McHugh, 2010). Best Buy has seen their equity grow in each of the last five years from $4,484 million to $6,602 million last year. Last year, they reduced their long term debt however the amount of investors increased resulting in their total liabilities staying consist over the last few years. In comparison, Target has increasing deferred taxes that is increased year over …show more content…
year. When looking at the income statement, there was a consistent fluctuation for their net income over the last five years (MSN/money, 2012). In 2011, Best Buy saw it’s highest net income at $2,920 million however in the previous two years, their net income was a lot lower falling below $2,488 and $2,214 million (MSN/money, 2012). The income statement will show what the company has earned selling it’s products compared to its selling cost compared to a specific date in a certain time period (Nickels, McHugh, & McHugh, 2010). In the cash flow statements, all three companies paid out more cash in 2011 compared to what they had coming in. The cash flow will track and highlight the differences between cash incoming compared to what is outgoing for the business. Both Radio Shack and Best Buy reported paying their deferred taxes on their cash flow statement compared to Target reporting it on their balance sheet. All three companies will report some of their items in different areas of their annual report however they will have to provide a detail for each line item. As an analysis, the area I would be concerned with the greatest is Best Buys total liabilities on their balance sheet. In 2011, their total liabilities increased from around $12,500 million in the previous three years to over $17,000 million. That variance is not a gradual increase compared to the previous years and I would have to research what caused such a significant increase. In contrast, their competition had gradual increases over the same time period. That would be a concern if I were thinking about making a stock investment in Best Buy. This report could also be useful to management because it can help to determine and manage both short-term and long-term investments. In the case of Best Buy, their liabilities include land, merchandise and salaries that might not be worth the investment. Since the closure of Circuit City, they began to expand and might not have been worth the investment. Financially, Best Buy has stayed consistent in their total revenue at $8.4 billion in comparison to the last few years and their online activity has increased to 26%. Although many consumers has made the shift to shopping online, they still have the opportunity to go to a retailer that has a variety of electronics they can choose from in person. This is an advantage Best Buy has over its competition. Through these years, they have reinvested in their company and also maintained a consistent yield in the dividends to their shareholders. This shows a commitment that investors should look at (MSN/money, 2012).
The closure of the other big box electronic retailer saw an increase in the investment Best Buy made to build more stores however that investment has not paid off the way they expected. Their competition did not try to increase their market share through expansion but through staying the course of their identity. In the same period of time, Radio Shack has also seen a sharp decline in their stock prices (MSN/money, 2012). Target is not known as a premier electronic retailer however in the last four to five years, they have increased their electronic merchandise selection to give customers a one stop shopping experience for everything they will need for their home. The ability to one stop shop for everything will give consumers a viable option especially with rising fuel prices. Consumers will consider that cost in their equation instead of driving to multiple locations to purchase products for their home. During this period of economic downturn, both Best Buy and Radio Shack have experienced financial losses compared to when the economy was vibrant however through being diversified, Target has maintained their financial gains.
TECHNOLOGY
As the biggest big box electronic retailer, Best Buys business is based on technology.
All three companies utilize technology to make their processes more efficient and customer friendly. Although they use technology different their business practices for their consumers, they use technological processes for their operations to streamline ordering and to fulfill orders made by customers purchasing products online. Another benefit of technology for all three is social media. Through social media, companies like Best Buy can interact instantly with their customers and gain greater insight to what people are thinking (Nickels, McHugh, & McHugh, 2010). The competitive advantage Best Buy will have technologically is their ability to conduct business through their other brands internationally. Having a presence in the international market gives them an advantage in their purchasing power and the ability to fulfill orders in more areas than their
competition.
GLOBLIZATION
As one of the cornerstones to their company, Best Buy has incorporated a global philosophy to their business. In 2010, Best Buy opened it first store under the brand name in London. Their focus is to connect the world through technology and compete in the global market for customers that have greater buying power with the emergence of their economies (BestBuy, 2012). Two of the largest trading partners with the United States are China and the United Kingdom (Nickels, McHugh, & McHugh, 2010). In both countries, Best Buy has already begun to establish their brand and they are hoping the investment will pay off. Besides trying to increase their revenue through increasing their consumer base, they also have the ability to get licensing rights to manufacture products in a country like China. Being able to control the manufacturing, could result in lower the cost to produce the products by Best Buys private labels. This would be a huge advantage in Best Buys bottom line that investors would look at. There is a downside for doing business in the global market and it could be very costly to the company. Those downsides include investing a considerable amount of money in a country like China that has different laws from the United States. As a result, your partners or licensees could break a contract agreement a lot easier and your options would be limited in the actions you could take (Nickels, McHugh, & McHugh, 2010). By taking a chance in the global market, Best Buy is leveraging their company to cash in on the economic downturn in the United States and the upswing in developing countries like China.
BENCHMARK ANALYSIS
In the big box electronic retail industry, Best Buy is the biggest company however with companies like Amazon, Target and Radio Shack could be doing certain things better they can learn from. It is very important to always measure your company to other companies in the industry to understand what you are doing the best and what you can improve on (Nickels, McHugh, & McHugh, 2010). One of the ways many consumers research a product they are considering purchasing, is to go online and look at different websites that will give them information they would find helpful. There are multiple factors that will determine which website a customer uses for this research. Some of these factors will include upload speed of the information about a product like the features, reviews, prices and pictures, which could take a while if the internet connection is slow. In the e-commerce industry, Best Buy has one of the best websites for customers to use in their research.
One of Best Buys mottos is “Learning from challenge and change” (BestBuy, 2012). They have been creative in some of their products and services they have offered their customers. Understanding the urge from consumers to have the latest and greatest, Best Buy started a buy back program that would allow customers to trade in their electronics they purchased from Best Buy in order to put the depreciated value towards another item (Brandchannel, 2012). In the industry, none of their competitors has offered a program like this to consumers. They are leading the way in this program and it has resulted in mixed reviews. The one area Target is beating Best Buy in is the lower end brands that have higher margins for the company. Both Best Buy and Radio Shack has seen their stock prices negatively impacted recently due to variable factors. One of the biggest factor for this downward spiral is consumers not being able to afford higher end brands like Sony and Apple while retailers like Target offers low to mid level brands like Visio that consumers can afford. This example of looking at what your competition is doing better than you can help Best Buy to make adjustments in their practices to maintain their status as the best electronic retailer in the country.
Conclusion
Although Best Buy has survived through the years of changes in the economy, they will have to live up to their motto of “learning from challenge and change”. Their ability to go against the grain has helped them to lead the industry in new directions. Investors will look to see what Best Buy will do next however everything will always come back to their financial health as a company.
a business analysis is looking at a company to recommend to his clients, he or she will review a company’s financial statement to see how they are performing. The area of the financial statement a business analysis will focus on is a company’s cash flow, their operational cost, balance sheet and their position in the industry. These positions could be their supply chain, the advantage they have over their competition and their vision for long-term success. In this paper, I am going to continue analyzing Best Buy and it’s competition by conducting a benchmark analysis, their financial health and their utilization of technology and their global business strategies. Best Buy is in a unique position because they have withstood the downturn in the economy where their national competition like Circuit City has faltered and closed their doors permanently.
FINANCIAL HEALTH After looking at Best Buy’s financial statement compared to their closest competition that sells electronic items, which is Target and Radio Shack, their total equity on their balance sheet has varied in the last five years (MSN/money, 2012).
The balance sheet will outline what the company owes compared to what they own on a certain day (Nickels, McHugh, & McHugh, 2010). Best Buy has seen their equity grow in each of the last five years from $4,484 million to $6,602 million last year. Last year, they reduced their long term debt however the amount of investors increased resulting in their total liabilities staying consist over the last few years. In comparison, Target has increasing deferred taxes that is increased year over …show more content…
year. When looking at the income statement, there was a consistent fluctuation for their net income over the last five years (MSN/money, 2012). In 2011, Best Buy saw it’s highest net income at $2,920 million however in the previous two years, their net income was a lot lower falling below $2,488 and $2,214 million (MSN/money, 2012). The income statement will show what the company has earned selling it’s products compared to its selling cost compared to a specific date in a certain time period (Nickels, McHugh, & McHugh, 2010). In the cash flow statements, all three companies paid out more cash in 2011 compared to what they had coming in. The cash flow will track and highlight the differences between cash incoming compared to what is outgoing for the business. Both Radio Shack and Best Buy reported paying their deferred taxes on their cash flow statement compared to Target reporting it on their balance sheet. All three companies will report some of their items in different areas of their annual report however they will have to provide a detail for each line item. As an analysis, the area I would be concerned with the greatest is Best Buys total liabilities on their balance sheet. In 2011, their total liabilities increased from around $12,500 million in the previous three years to over $17,000 million. That variance is not a gradual increase compared to the previous years and I would have to research what caused such a significant increase. In contrast, their competition had gradual increases over the same time period. That would be a concern if I were thinking about making a stock investment in Best Buy. This report could also be useful to management because it can help to determine and manage both short-term and long-term investments. In the case of Best Buy, their liabilities include land, merchandise and salaries that might not be worth the investment. Since the closure of Circuit City, they began to expand and might not have been worth the investment. Financially, Best Buy has stayed consistent in their total revenue at $8.4 billion in comparison to the last few years and their online activity has increased to 26%. Although many consumers has made the shift to shopping online, they still have the opportunity to go to a retailer that has a variety of electronics they can choose from in person. This is an advantage Best Buy has over its competition. Through these years, they have reinvested in their company and also maintained a consistent yield in the dividends to their shareholders. This shows a commitment that investors should look at (MSN/money, 2012).
The closure of the other big box electronic retailer saw an increase in the investment Best Buy made to build more stores however that investment has not paid off the way they expected. Their competition did not try to increase their market share through expansion but through staying the course of their identity. In the same period of time, Radio Shack has also seen a sharp decline in their stock prices (MSN/money, 2012). Target is not known as a premier electronic retailer however in the last four to five years, they have increased their electronic merchandise selection to give customers a one stop shopping experience for everything they will need for their home. The ability to one stop shop for everything will give consumers a viable option especially with rising fuel prices. Consumers will consider that cost in their equation instead of driving to multiple locations to purchase products for their home. During this period of economic downturn, both Best Buy and Radio Shack have experienced financial losses compared to when the economy was vibrant however through being diversified, Target has maintained their financial gains.
TECHNOLOGY
As the biggest big box electronic retailer, Best Buys business is based on technology.
All three companies utilize technology to make their processes more efficient and customer friendly. Although they use technology different their business practices for their consumers, they use technological processes for their operations to streamline ordering and to fulfill orders made by customers purchasing products online. Another benefit of technology for all three is social media. Through social media, companies like Best Buy can interact instantly with their customers and gain greater insight to what people are thinking (Nickels, McHugh, & McHugh, 2010). The competitive advantage Best Buy will have technologically is their ability to conduct business through their other brands internationally. Having a presence in the international market gives them an advantage in their purchasing power and the ability to fulfill orders in more areas than their
competition.
GLOBLIZATION
As one of the cornerstones to their company, Best Buy has incorporated a global philosophy to their business. In 2010, Best Buy opened it first store under the brand name in London. Their focus is to connect the world through technology and compete in the global market for customers that have greater buying power with the emergence of their economies (BestBuy, 2012). Two of the largest trading partners with the United States are China and the United Kingdom (Nickels, McHugh, & McHugh, 2010). In both countries, Best Buy has already begun to establish their brand and they are hoping the investment will pay off. Besides trying to increase their revenue through increasing their consumer base, they also have the ability to get licensing rights to manufacture products in a country like China. Being able to control the manufacturing, could result in lower the cost to produce the products by Best Buys private labels. This would be a huge advantage in Best Buys bottom line that investors would look at. There is a downside for doing business in the global market and it could be very costly to the company. Those downsides include investing a considerable amount of money in a country like China that has different laws from the United States. As a result, your partners or licensees could break a contract agreement a lot easier and your options would be limited in the actions you could take (Nickels, McHugh, & McHugh, 2010). By taking a chance in the global market, Best Buy is leveraging their company to cash in on the economic downturn in the United States and the upswing in developing countries like China.
BENCHMARK ANALYSIS
In the big box electronic retail industry, Best Buy is the biggest company however with companies like Amazon, Target and Radio Shack could be doing certain things better they can learn from. It is very important to always measure your company to other companies in the industry to understand what you are doing the best and what you can improve on (Nickels, McHugh, & McHugh, 2010). One of the ways many consumers research a product they are considering purchasing, is to go online and look at different websites that will give them information they would find helpful. There are multiple factors that will determine which website a customer uses for this research. Some of these factors will include upload speed of the information about a product like the features, reviews, prices and pictures, which could take a while if the internet connection is slow. In the e-commerce industry, Best Buy has one of the best websites for customers to use in their research.
One of Best Buys mottos is “Learning from challenge and change” (BestBuy, 2012). They have been creative in some of their products and services they have offered their customers. Understanding the urge from consumers to have the latest and greatest, Best Buy started a buy back program that would allow customers to trade in their electronics they purchased from Best Buy in order to put the depreciated value towards another item (Brandchannel, 2012). In the industry, none of their competitors has offered a program like this to consumers. They are leading the way in this program and it has resulted in mixed reviews. The one area Target is beating Best Buy in is the lower end brands that have higher margins for the company. Both Best Buy and Radio Shack has seen their stock prices negatively impacted recently due to variable factors. One of the biggest factor for this downward spiral is consumers not being able to afford higher end brands like Sony and Apple while retailers like Target offers low to mid level brands like Visio that consumers can afford. This example of looking at what your competition is doing better than you can help Best Buy to make adjustments in their practices to maintain their status as the best electronic retailer in the country.
Conclusion
Although Best Buy has survived through the years of changes in the economy, they will have to live up to their motto of “learning from challenge and change”. Their ability to go against the grain has helped them to lead the industry in new directions. Investors will look to see what Best Buy will do next however everything will always come back to their financial health as a company.