This document contains a financial analysis of Whole Foods Market, including a SWOT analysis identifying strengths such as its popular brand and large selection of organic foods, weaknesses such as higher prices, and opportunities and threats. It also provides details on Whole Foods' accounting practices, financial metrics like profit margins over time, and valuation models estimating the stock is undervalued. The conclusion is that Whole Foods is a recommended buy based on historical earnings growth and trading below projected price estimates.

1. +
Financial Analysis:
Whole Foods Market, Inc.
Team 2 –Alex, Betsy, Jean, Joceny & Nick

2. Strengths
•Popular brand that attracts younger, more
affluent shoppers
•Reputation for having the largest selection
of organic and locally sourced foods
•Expansive list of niche products
•Competitive pricing with private label, 365
•Square footage at Whole Foods vs. organic
section in other stores
•Ability to leverage relationship and
economies of scale with its suppliers
Opportunities
•Legislation targeting unhealthy food
options increase general market awareness
about health benefits
•Health and fitness apps
•Community events and sponsorships
•eCommerce
•Subscription-based revenue models
Threats
•Increased competition from grocery stores
rebranding themselves as organic providers
•Less government support for farmers due
to sequestration cuts
•Economic downturns impact consumer
spending
•Low spend per trips due to higher prices
•Local grocers and farmers markets growing
their own organic products
•Increased pressure from environmental
groups
Weaknesses
•Expansion nationwide vs. market
concentration
•Supply chain for organic groceries is
underdeveloped
•More expensive than non-organic food
items available at other grocery chains
•Pricing perception – “Whole Paycheck”
SWOT ANALYSIS

3. +Accounting Principles
• Whole Foods utilizes LIFO method of accounting but operationally
maintains its inventory using FIFO
• LIFO lowers profits and ultimately its tax liabilities
• Straight-line method of depreciation
• Maintenance costs and repairs are expensed in the same period in which
they incur
• Costs of goods sold includes cost of inventory sold during the
period (net of discounts and allowances), distribution and food
preparation costs
• This method of accounting highlights their volume discounts

4. +Financial Analysis
• Net Profit Margin
• Wal-Mart’s profit margin was stable throughout all nine years; Industry’s profit
margins took a dive during the financial crisis in 2008 and 2009
• In 2012,Whole Foods surpassed Wal-Mart’s net profit margin
• 55% of Wal-Mart’s revenues in 2012 were groceries
• Asset Turnover
• Whole Foods, Safeway and Kroger’s asset turnover ratio was similarly close due
to competitive pricing
• Whole Foods’ asset turnover peaked in 2006 at the height of the housing
boom
• Financial Leverage
• Debt-free since 2009 when it eliminated $748 million in long-term debt
• Debt-to-Equity
• .392 vs. 2.678 Industry Average

5. +Financial Analysis Continued…
• Return on Equity (ROE)
• Kroger’s boasts the industry’s highest ROE; $14.88 billion in net PPE for
3,574 stores
• Whole Foods is on par with an industry average ROE; $2.193 billion in net
PPE for 350+ stores
• Inventory Turnover Ratio
• Least efficient in managing its inventories taking 20 days versus Wal-
Mart’s 8.14 and Safeway’s 12.5 days.
• Gross Profit Margin
• Top profit margin in 2012 (.381) in response to consumer perception that
organic food is healthier and charging a premium for its products
• Wal-Mart (.264) is aggressively expanding its organic product selection
to charge consumers a premium but undercut Whole Foods’ pricing

6. +Forecasting
Beta Future Sales Growth 1% 10% 15%
Dicounted Cash Flow Model $91 $82 $69
Dicounted Abnormal Earnings Model $118 $143 $161
Discounted Abnormal ROE Model $170 $170 $170
Dicounted Cash Flow Model $147 $133 $112
Dicounted Abnormal Earnings Model $144 $187 $218
Discounted Abnormal ROE Model $279 $279 $279
Scenarios
1.00
0.60
% Change from Current Price
Beta Future Sales Growth 1% 10% 15%
Dicounted Cash Flow Model 2% -8% -22%
Dicounted Abnormal Earnings Model 32% 61% 81%
Discounted Abnormal ROE Model 91% 91% 91%
Dicounted Cash Flow Model 65% 49% 26%
Dicounted Abnormal Earnings Model 62% 110% 144%
Discounted Abnormal ROE Model 213% 213% 213%
Scenarios
1.00
0.60
Whole Foods continues to gain momentum and increasing its value in the next 5 year
window. At the current Beta (0.6), the stock price is estimated to change from 26% to
49% depending on the sales growth (10% to 15%).
89.19$Current Stock Price

7. +Forecasting - Assumptions
• Sales Growth
• Historic sales growth have averaged 14.1% during the last 7 years but a conservative 10%
threshold was used as expected (normal) growth.
• Between WFM’s average growth for the last 3 years (12%) and the average computed below
using growth from competitors.
• Based on economic uncertainties, 15% represents an aggressive scenario.
• Corporate Tax Rate
• 35.8%
• Balance Sheet Estimate Based on Asset Turnover Ratio
• Risk Free Rate
• 2.91% (30Yr Treasury)
• Market Risk
• 7.91%

8. +Forecasting – Income Statement
% 2012 2013 2014 2015 2016 2017
Sales (Net) 11,699 11,816 11,934 12,053 12,174 12,296
Cost of Goods Sold 61.9% 7,246 7,319 7,392 7,466 7,540 7,616
Gross Profit 4,453 4,497 4,542 4,587 4,633 4,680
Selling, General, & Admin Expenses 29.2% 3,412 3,446 3,481 3,516 3,551 3,586
Operating Income Before Depreciation 1,040 1,051 1,061 1,072 1,083 1,093
Depreciation, Depletion, & Amortiz 2.5% 297 300 303 306 309 312
Operating Income After Depreciation 744 751 758 766 774 781
Interest Expense 0.0% 0 0 0 0 0 0
Non-Operating Income/Expense 0.1% 9 6 6 6 6 6
Pretax Income 6.4% 752 760 767 775 783 790
Income Taxes - Total 2.4% 286 289 292 295 298 301
Minority Interest 0.0%
Income Before EI&DO 4.0% 466 470 475 480 484 489
Net Income (Loss) 466 470 475 480 484 489

9. +Forecasting – Balance Sheet
ASSETS % 2012 2013 2014 2015 2016 2017
Cash & Equivalents 25.0% 1,323.102 1,336.333 1,349.696 1,363.193 1,376.825 1,390.593
Receivables - Total (Net) 3.7% 196.503 198.468 200.453 202.457 204.482 206.527
Inventories - Total 7.1% 374.269 378.012 381.792 385.610 389.466 393.360
Current Assets - Other 3.9% 208.757 210.845 212.953 215.083 217.233 219.406
Current Assets - Total 2,102.631 2,123.657 2,144.894 2,166.343 2,188.006 2,209.886
Plant, Property & Equip (Gross) 76.5% 4,048.648 4,089.134 4,130.026 4,171.326 4,213.039 4,255.170
Accumulated Depreciation 35.1% 1,855.965 1,874.525 1,893.270 1,912.203 1,931.325 1,950.638
Plant, Property & Equip (Net) 41.4% 2,192.683 2,214.610 2,236.756 2,259.123 2,281.715 2,304.532
Investments and Advances - Other 4.2% 221.426 223.640 225.877 228.135 230.417 232.721
Intangibles 12.5% 662.938 669.567 676.263 683.026 689.856 696.755
Assets - Other 2.2% 114.538 115.683 116.840 118.009 119.189 120.381
TOTAL ASSETS 5,294.216 5,347.158 5,400.630 5,454.636 5,509.182 5,564.274
LIABILITIES
Accounts Payable 4.7% 247.089 249.560 252.055 254.576 257.122 259.693
Accrued Expenses 5.8% 307.164 310.236 313.338 316.471 319.636 322.832
Debt (Long-Term) Due In One Year 0.0% 1.012 1.022 1.032 1.043 1.053 1.064
Other Current Liabilities 8.0% 421.923 426.142 430.404 434.708 439.055 443.445
Total Current Liabilities 18.5% 977.188 986.960 996.829 1,006.798 1,016.866 1,027.034
Long Term Debt 0.4% 23.110 23.341 23.575 23.810 24.048 24.289
Liabilities - Other 9.3% 491.449 496.363 501.327 506.340 511.404 516.518
TOTAL LIABILITIES 28.2% 1,491.747 1,506.664 1,521.731 1,536.948 1,552.318 1,567.841
SHAREHOLDERS' EQUITY
Common Stock 49.0% 2,592.369 2,618.293 2,644.476 2,670.920 2,697.630 2,724.606
Retained Earnings (Net Other) 23.4% 1,238.699 1,251.086 1,263.597 1,276.233 1,288.995 1,301.885
Shareholders Equity - Parent 3,802.469 3,869.379 3,908.072 3,947.153 3,986.625 4,026.491
TOTAL SHAREHOLDERS EQUITY 3,802.469 3,869.379 3,908.072 3,947.153 3,986.625 4,026.491
TOTAL LIABILITIES AND EQUITY 5,294.216 5,376.043 5,429.804 5,484.102 5,538.943 5,594.332

10. +Discounted Cash Flow Model Results

11. +Discount Abnormal Earnings Results

12. +Discounted Abnormal ROE Results

13. +Valuation
Buffett Valuation Worksheet (January/February 1998, Computerized Investing, www.aaii.com)
Enter values into shaded cells
Date of Analysis: 4/21/2013
Current Stock Data Seven Year Averages
Company: Whole Foods Return on Equity: 10.6%
Ticker: WFM Payout Ratio: 51.0%
Price: $86.07 P/E Ratio-High: 43.0
EPS: $2.65 P/E Ratio-Low: 22.0
DPS: $0.80 P/E Ratio: 32.5
BVPS: $19.11 Sustainable Growth 5.2%
P/E: 32.5 (ROE * (1 - Payout Ratio))
Earnings Yield: 3.1%
Dividend Yield: 0.9%
P/BV: 4.5
Gv't Bond Yield: 1.7%

14. + Valuation
Projected Company Data Using Historical Earnings Growth Rate
Earnings After 10 Years 10.24
Sum of Dividends Paid Over 10
Years
31.94
Projected Price (Average P/E *
EPS)
$332.57
Total Gain (Projected Price +
Dividends)
$364.51
Projected Return Using
Historical EPS Growth Rate
15.5%

15. + Valuation
Projected Company Data Using Sustainable Growth Rate
Earnings After 10 Years (BVPS *
ROE)
3.35
Sum of Dividends Paid Over 10
Years
14.78
Projected Price $108.84
Total Gain $123.62
Projected Return Using
Sustainable Growth Rate
3.7%

16. +Assessment of Solvency
 Current Liabilities & Short-Term Liquidity
 Current Ratio: 2.152 vs. 1.152 industry average
 Quick Ratio: 1.555 vs. .561 industry average
 Cash Ratio: 1.354 vs. .414 industry average
 Debt and Long-Term Solvency
 Debt/Equity Ratio: .392 vs. 2.678 industry average
 Altman-Z Score
 4.228 – Safe Zone
 Actual Bond Rating:
 BBB-

17. +
Conclusion
Whole Foods Market (WFM) is a recommended BUY stock:
 Buffet Valuation Using Historical Earnings Growth Rate
 Undervalued
 Historical EPS
 >15% year over year
 Projected Stock Price $109
 Currently trading at $86
 Altman Z-score
 4.22 > 2.99 “Safe Zone”