Analyzing Financial Statements & Reports: Whole Foods Market, Inc. - Overview & Performance

1. Financial Statements and the Annual Report Financial Accounting 4e by Porter and Norton

2. Current liabilities + Noncurrent (long-term) liabilities + Stockholders’ equity Total liabilities and stockholders’ equity Basic Structure of a Classified Balance Sheet Current assets + Noncurrent (long-term) assets Total assets

3. Current Assets Cash Receivables Inventories Prepayments Current Assets Will be converted to cash or consumed within one year or the operating cycle, whichever is longer.

4. Non-Current Assets Investments and Funds Property, Plant, & Equipment Intangibles Other Noncurrent Assets Not expected to be converted to cash or consumed within one year or the operating cycle, whichever is longer

5. Current Liabilities Accounts Payable Notes Payable Accrued Liabilities Current Maturities of Long-Term Debt Current Liabilities Obligations expected to be satisfied through current assets or creation of other current liabilities

6. Non-Current Liabilities Capital Leases Bonds Payable Long-Term Notes Payable Pension Liabilities Long-Term Liabilities Obligations that will not be satisfied within one year or operating cycle, whichever is longer

7. Realized, sold or consumed in one year or operating cycle A = L + SE Whole Foods Market, Inc.Balance SheetAt September 30 (in millions) A Assets 20172016 Current assets: Cash and cash equivalents $ 446 $ 351 Marketable Securities 504 501 Accounts receivable, net 366 242 Inventory 471 517 Other 358 364 Total current assets 2,145 1,975 Property, plant and equipment, net 3,514 3,442 Goodwill 710 710 Other long-term assets 307 214 Total Assets $ __6,676 $ _6,341

8. Satisfied within one year or operating cycle A = L + SE Whole Foods Market, Inc.Balance SheetAt September 30 Liabilities and Stockholders' Equity (in millions) 20172016 Current liabilities: Accounts payable $ 351 $ 307 Accrued liabilities 982 1,031 Other current liabilities 2 3 Total current liabilities 1,355 1,341 Long-term liabilities 1,891 1,776 Total liabilities 3,246 3,117 = L Stockholders' equity: Common stock 2,972 2,933 Additional Paid-In-Capital 0 0 Retained earnings 496 2,349 Treasury stock 0 (2,026) Accumulated other comprehensive loss (38) (32) Total stockholders' equity 3,430 3,224 + SE $__6,676 $ ___6,341

9. Analysis of Liquidity Ability of company to pay debts as they become due Of particular interest to bankers and other creditors Working Capital Current Ratio

10. Current assets $ 2,145 $ 1,975 Current liabilities 1,3551,341 Working Capital = C.A. less C.L. $ 790 $ 634 Whole Foods Market, Inc. Liquidity (in millions) 20172016 What's the trend?? Current = Current Assets 1.58 1.47 Ratio Current Liabilities

11. Can you compare the ratios? Comparison of Liquidity Some 2017 current ratios: • Apple Inc. 1.28 • Albertson’s Inc 1.22 • Fed Ex Inc. 1.59 Consider composition of current assets and frequency of turnover

12. Income Statement Single Step Revenues $$$ Less: expenses($$) Net income $$

13. Multi-Step Income Statement Sales – Cost of goods sold =Gross profit Operating expenses: – Selling expenses – General and administrative expenses =Income from operations +/– Other revenues and expenses =Income before taxes – Income tax expense =Net income Four important subtotals

14. Whole Foods Market, Inc.Income StatementFor the Years Ended September 30 (in millions) 20172016 Net Sales $ 16,030 $ 15,724 Cost of goods sold 10,633 10,313 Gross profit 5,397 5,411 Selling, general and administrative expenses 4,938 4,554 Operating income (loss) 459 857 Other income (loss), net (42) (30) Income (loss) before income taxes 417 827 Provision (benefit) for income taxes 172 320 Net income (loss) $ 245 $ 507

15. Analysis of Profitability Of particular interest to current and potential investors Gross Profit % Profit Margin %

16. Gross Profit (Margin) % = Gross Profit Sales (How many cents on every $ of sales are left over after covering the cost of the product) Whole Foods Inc. Profitability (in millions) 2017 2016 2015 Net sales $ 16,030 $ 15,724 $ 15,389 Cost of sales 10,633 10,313 9,973 Gross profit $ 5,397 $ 5,411 $ 5,416 Gross profit % = 33% 34% 35%

17. Profit Margin % = Net Income Sales (How many cents on every $ of sales are left over after covering all expenses) Whole Foods Inc. Profitability (in millions) 2017 2016 2015 Net sales $ 16,030 $ 15,724 $ 15,389 Net income $ 245 $ 507 $ 536 Profit margin % = 1.5% 3.2% 3.5%

18. Includes: Statement of Retained Earnings Beginning retained earnings Add: net income Deduct: dividends = Ending retained earnings Statement of Stockholders’ Equity • Shows changes in all equity accounts including: • Sales and purchases of capital stock

19. Basic Format of the Statement of Cash Flows Cash flows from operating activities: $$ Cash flows from investing activities: $$ Cash flows from financing activities: $$ Net increase in cash $$ Cash at beginning of year $$ Cash at end of year $$ Reconciles change in cash for the period

20. Basic Format for the Statement of Cash Flows Cash flows from operating activities: $$ Cash flows from investing activities: $$ Cash flows from financing activities: $$ Net increase in cash $$ Cash at beginning of year $$ Cash at end of year $$ Involve the purchase and sale of products or services Involve the acquisition and sale of long-term assets Involve the issuance and payment of long-term liabilities and stock