Stock Project Finance

Semester Stock Project:
Analysis & Valuation of Whole Foods
Market
{WFM}
Duncan Alger & Lauren Bush
Report Date: October 1, 2015
As of Fiscal Year End: September 28th 2014

Analyst Stock Report as of September 28th
2014 Page 2
Table of Contents
Executive Summary ..........................................................................................................................3
Company Overview Section ................................................................................................................5
Analyst Purpose Statement:.............................................................................................................6
Company and Industry Research Section..............................................................................................7
Summary #1: Operations Overview:.................................................................................................7
Summary #2: Survey of the Industry and Competitors:....................................................................10
Summary #3: Composition of Revenue: .........................................................................................11
Summary #4: Other Pertinent Information for Investors:..................................................................12
Historic Stock Performance Section...................................................................................................13
Historical Stock Performance Commentary: ...................................................................................13
Short-Term Closing Price Graph – Daily Prices:.............................................................................14
Long-Term Closing Price Graph – Monthly Prices:.........................................................................14
Financial Analysis Section ................................................................................................................15
Historical Trends in the Financial Ratios: .......................................................................................15
Common-Size Statement Analysis: ................................................................................................18
Summary of Research and Fundamental Analysis ...............................................................................20
Cost of Equity Analysis Section.........................................................................................................23
Cross Sectional Analysis of Beta:...................................................................................................23
Cost Equity – Capital Asset Pricing Model (CAPM):......................................................................24
Company’s Equity Valuation Section.................................................................................................24
Pro Forma Statement Construction:................................................................................................24
Investment Recommendation Section.................................................................................................29

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Executive Summary
As number 214 on the Fortune 500 list in 2015, Whole Foods Market functions as a retailer of natural
and organic foods. The market store offers produce, floral, grocery, meat, seafood, bakery, beverages,
vitamins & supplements, body care and lifestyle products. Some notable core values of WFM are:,
satisfying and nourishing their customers,supporting team member excellence, supporting local and
global communities, and practicing environmental stewardship. WFM has about 420 markets in the
USA, Canada,and the UK.
At the current moment, it would be a bad idea for investors to purchase stock in Whole Foods
Market for the following reasons:
 WFM was blamed for mislabeled weights on packaged foods which created a large scandal.
Shareholders who purchases stock between August 8, 2013- July 2015 could potentially win a
lawsuit against WFM
 Since January 1, 2015 stock prices have dropped a dramatic 40%
 WFM executives announced they are cutting 1500 positions estimated to be costing them
between $15 and $22 million dollars. When this was announced, shares decreased 1.1%.
 Large competition of health stores entering the market.
In this moment of time, it is in investor’s best interest to not invest in this stock. The
company has taken some dramatic falls, the stock prices have dramatically and dropped and
our analysis raises some notable flags: stock prices have been decrease,WFM has met some
stiff competition, sales and revenues have decreased,and WFM has been involved with ethical
issues which might deter potential investors.

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Part One: Research and Fundamental
Analysis

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Company Overview Section
The company that this analysis is of is Whole Foods Market,which is traded on the NASDAQ. Whole
Foods became a publically traded company on January 23rd, 1992, with a ticker symbol of WFM.
Whole Foods Market Inc. functions as a retailer of natural and organic good as well as an in-store deli,
premade food and other grocery items. The market stores offer produce, floral, grocery, meat, seafood,
bakery, catering, coffee,tea,wine, beer, vitamins and supplements, body care and lifestyle products.
Whole Foods has a number of different competitors, their main competitors being; Sprouts, Trader
Joes, Costco Wholesale Corporation and Safeway Inc. Whole Foods Market was Founded on
September 20, 1980 in Austin, Texas by Mark Skiles, Renee Hardy,Craig Weller, and John Mackey.
The company’s headquarters are also located in Austin, Texas. This corporation promotes healthy
behavior and gives back to those in need, specifically organizations that provide to people in need.
Analysts noticed that the stock prices have been dropping recently, and as researchers we wanted to
figure out why this was the case. It has been an elite company for a number of years and continues to
do so, battling now with a number of very similar companies in the organic grocer industry.

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Analyst Purpose Statement:
The purpose of this analysis is to evaluate Whole Foods Market historical operating performance, and
to evaluate the company to form a buy/sell recommendation for interested investors.

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Company and Industry Research Section
Summary #1: Operations Overview:
Whole Foods Market is listed as number 214 on the Fortune 500 list as of 2015. The company also has
many core values: selling the highest quality natural and organic products, satisfying and nourishing
their customers,supporting team member excellence and happiness, creating wealth through profits
and growth, serve and support local and global communities, practicing environmental stewardship,
creating win-win partnership with suppliers, and promoting healthy eating education.
Company History
Whole Foods Market is an American supermarket chain that specializes in organic food and other
grocery items. It was founded on September 20, 1980 in Austin Texas by Mark Skiles, Renee Hardy,
Craig Weller, and John Mackey. It started expanding in major Texas cities such as Dallas, San Antonio
and Houston, eventually spreading the organization to approximately 420 markets in the US, Canada,
and the UK. Whole Foods Market was hoping to expand to various countries, although with the most
recent drop in stock prices these projects were pulled to a halt.
Current Company News
Whole Foods Market and organic farmers have had a long symbiotic relationship that is now fraying.
Whole Foods is facing increasing competition from mainstream grocery chains and organic farmers are
finding more outlets for their produce. Organic farmers who are supplying their produce are
complaining that the program Responsibly Grown can grant a farmer who isn’t meeting the
requirements for federalorganic certification the same rating as an organic farmer. Conventional
growers can receive rankings from organic farmers such as establishing a recycling program, using
alternative energy, eliminating pesticides, etc. A farmer who has been an organic farmer for 40+ years
states,“the program is a subtle way of shifting the costs of a marketing program onto growers.
Spending between $5,000-$20,000 to comply with the program.” Farmers,investors, and stockholders

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are concerned with competition because the stock trade for Whole Foods is at an all-time low. In 2015
the profit margin dipped below 36% which is considered a sign of damage. 2015 has brought some
tough times for WFM. With a scandal over mislabeled weights on packaged foods, flat-lining same
store sales, and most importantly the stock price has fallen 40% since January 1st
. There is hope for a
turn-around with an upcoming unveiling of the new cheaper chain, named 365 by Whole Foods. They
are planning to open give smaller markets in 2016 with a selection of valued-price products. With the
scandal of mislabeled weights on packaged foods, shareholders who purchased entities between August
9, 2013 and July 30, 2014 could potentially win a lawsuit. The complaint is alleging that Whole Foods
is failing to adequately disclose important information that is misleading. The Wall Street Journal
reported that they are cutting 1500 positions, which is 1.6% of the workforce as a whole. This is
costing them between $15-$22 million. The cutting of these employees is part of their overall strategy,
which is keeping costs low for their customers. After this was announced, shares were decreased by
11%. WFM reputations have also taken a recent hit because of the new health stores increasing their
competition.
Products and Services
Whole Foods Market sells products that are completely natural as well as many USDA-certified
organic foods and products that are environmentally friendly and ecologically responsible. The market
stores offer produce, floral, grocery, meat, seafood, bakery, catering, coffee,tea,wine, beer,vitamins
and supplements, body care and lifestyle products as well as household products. Another amenity
Whole Foods provides is an in store deli serving fresh made to order items.
Leadership & Strategy
Whole Foods Market has three main disciplines: all work is teamwork, anything worth doing is worth
measuring, and be your own toughest competitor. WFM also prides themselves on donating at least 5%
of its yearly net profits to charitable causes. Whole Foods is best explained as a ‘green company’. In

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1999 they joined the Marine Stewardship Council wish is a global non-profit that supports sustainable
fisheries and fishing practices. In 2005 Whole Foods created the Animal Compassion Foundation, a
nonprofit to help their producers raise animals naturally and humanely. In 2007, the EPA listed Whole
Foods Market as the second-highest purchaser of green power worldwide, with developing renewable
energy sources for the electricity generation. Although they have not ranked as high in recent years
they are still a leader in renewable energy sources. In 2008 Whole Foods was the first US market to
eliminate all disposable plastic grocery bags, since then many competitors have followed in their
footprints. They now offer a large colorful grocery bag made from recycles bottles. On July 29th
2015
Whole Foods announced the first five leases for its streamlined, value-oriented 365 by Whole Foods
Market brand, with store openings scheduled to start in the later part of 2016 all the way through 2017.
This will pave the way for value-oriented health and organic grocery stores.

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Summary #2: Survey of the Industry and Competitors:
The primary industry that Whole Foods Market competes in is the natural and organic food industry,
they are also involved in the retail of other natural or organic items. They are involved in the retail and
grocery of natural and organic items. “This means any product they serve is free of pesticides,
preservatives, sweeteners,and cruelty.” The NAICS code for organic food retailers is 445299 and the
NAICS code for supermarkets and other grocery is 445110. This is a very competitive industry and
Whole Foods has many competitors due to the fact that numerous retailers are selling organic foods
and similar products, Whole Foods is now facing a large pool of competition. In the supermarket and
organic food retailers industry their biggest competitors include Safeway Inc.,Costco Wholesale
Corporation, Sprouts Farmers Market and Trader Joes. This evidence is supported in the company’s’
most recent third quarter results and the cut to their annual forecast. Not only is Whole Foods taking a
hit from increased competition but also from self-inflicted variety. With overcharging customers and
mislabeling happening in stores across the country, their reputation has taken a plummet. To bolster
revenue, Whole Foods has to reconsider their overall mission statement, competitive landscape and
decide where they want to be positioned in the future. There has been many recent articles and news
stories about Whole Foods, and unfortunately they have been mostly negative involving situations such
as routinely overcharging customers and having mistaken pricing of their products. Other news
includes the slowing of growth for the company even after implementing price cuts and advertising. It
was stated in the New York Times that “Whole Foods Market is apologizing to its shoppers for
incorrect pricing, a week after an investigation by New York’s Department of Consumer Affairs found
that the grocer routinely overcharged for prepackaged foods.”

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Summary #3: Compositionof Revenue:
Whole Foods Market is one of the largest grossing markets in the USA. Hoovers D&B Company
states,“two-thirds of Whole Foods sales are accounted for by perishable and prepared products.” The
market offers 4,400 items in 4 different lines of private label products. WFM makes their biggest
portion of profit by selling organic and natural food as well as other grocery items in their supermarkets
across the country, Canada and The UK. They also have in store delis, bakeries and a floral area.
Whole Foods also have more than 2,600 natural and organic products under the Whole Foods Market,
365 Everyday Value and Whole Catch brands. That is where Whole Foods differs from other
supermarkets and organic grocery stores by providing their own brand of product in their delegated
stores. The company also prepares a large amount of their food in store and on location; they receive
their seafood from sustainable fisheries which rehearse proper fishing practices. All food that is sold at
Whole Foods has to meet all the quality standards that the company sets. Most products are grown
locally and have to obtain all natural and organic ingredients. There are now approximately 420 stores
located in three countries, those being the United States, Canada and the United Kingdom. They were
looking to expand to a number of different countries but the recent drop in stock prices and the
unpleasant news stories, these projects are being put on hold. As researchers stated previously there are
a massive amount of competitors in this market, however the main competitors with Whole Foods is
Sprouts and Trader Joes due to the emphasis on natural and organic products. They are also very
comparable when it comes to prices and items sold. After the recent bad press about overcharging
customers in stores in New York there has been a slash in prices for many particular products. As
stated before Whole Foods has had a number of bad reports in the press lately so in order to give back
to the customers and rebuild that bond with their clientele they are trying to take a number of initiatives
in order to give back to their customers. These are all factors which influence the overall revenue of the
company, most of them recently having a negative impact on Whole Foods total revenue.

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Summary #4: Other Pertinent Information for Investors:
As a potential investor there would be a number of different factors that individuals should take into
consideration in order to make an educated financial decision on purchasing or selling WFM stock and
not all these factors come from the balance sheet,income statement or statement of cash flows. Some
come from news and media reports about the company. For example “Whole Foods has been working
for more than two years to cut prices and repair its reputation for high prices, but tactics like more
deals, better advertising and price slashes have yet to boost sales to the extent hoped.” Also with the
recent 40% decline in WFM stock many shareholders are becoming concerned about the future of the
company. “Some investors and analysts have stressed Whole Foods to lower prices more aggressively
to improve its image, while others worry that doing so will grind down its relatively high profit
margins.” Whole Foods announced in July of 2015 new plans for a sister chain of stores called 365 by
Whole Foods. The chain is planning to open sometime next year and will offer lower prices and target
younger shoppers. As stated previously Whole Foods image problems were intensified by accusations
from New York City officials that it had mislabeled weights of freshly packaged foods like vegetable
platters, leading to overcharging customers. Whole Foods apologized and said the mistakes, which
involved nine of its 425 locations, were unintentional. But the company said the episode hurt sales
nationwide, which in turn lowered the stock prices dramatically. “For the three months ended July 5,
Whole Foods sales at established stores rose 1.3%, its worst performance since the 2009 economic
downturn. By comparison, Whole Foods' annual sales growth at such stores had averaged 8% for the
past 15 years through the fiscal year of 2014, which ended a year ago.”

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Historic Stock Performance Section
Historical StockPerformance Commentary:
As the short-term closing price graph shows, Whole Foods Market has had a steady decline in short-
term closing prices over the months recorded below due to a number of bad press releases recently and
the rise in the number of openings of competitors’ stores. It is estimated that the decline in closing
prices will continue into the next short term closing price graph and possibly continuing into the next
year. As for the long-term closing price graph, it shows more of a fluctuation. The Stock started low
and continued to rise over numerous months reaching its peak of 60 dollars a share in late 2013, then
plummeting to 40 dollars a share in mid-2014 due to the three months ending July 5, Whole Foods
sales at established stores rose only 1.3%, its worst performance since the 2009 economic downturn.
Another reason for the drop would be the release of bad press regarding routinely overcharging
customers and having mistaken pricing of their products on numerous occasions. After that decline in
stock prices, shares rose again at the start of 2015. The stock has since begun to decline steadily in the
current year. This has happened due to recent rise in competition of natural grocers such as Sprouts
Farmers Market and Trader Joes.

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Short-Term Closing Price Graph – Daily Prices:
Long-Term Closing Price Graph – Monthly Prices:

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Financial Analysis Section
Historical Trends in the Financial Ratios:
After researching and analyzing all the historical data and information from the income statement,
balance sheet and historical ratios it seems as though the historical trend of WFM stockholder shares
have varied over recent years. As shown below with the debt management ratios WFM debt has risen
over the past three years. However when looking at the profitability ratios ROA and ROE have
increased. WFM shares have increased by price slightly from 2012 to 2014 but with the recent decline
in WFM stock it looks as though the future will have a different outcome.
Liquidity Ratios
When it comes to the cash ratio there is a fairly large fluctuation in the numbers. The cash ratio started
somewhat low in 2012 then rising dramatically in 2013 and again decreasing in 2014. On the other
hand the quick ratio has steadily decreased over the past three years. The quick ratio is a measure of
how well a company can meet its short-term financial liabilities. As an analysis this suggests that
Whole Foods is over-leveraged, struggling to maintain or grow sales, paying bills too quickly or
collecting receivables too slowly. Current ratios are on a steady decline as well this raises cause for
concern that WFM is having some sort of liquidity issues or struggling with their financial strength.
This could cause even more problems in the future if it continues to decline. If the current ratio gets
below one, meaning the company would have a negative working capital then that means they would
definitely be having liquidity issues. After looking at NWC and NOWC it seems that the measurement
of the operating liquidity available for WFM to use in developing and growing its business is
decreasing at quite a large number. This could affect the company’s development and growth, which
could be a huge concern in the long run.

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Liquidity Ratios 2012 2013 2014
Cash Ratio 0.09 0.27 0.15
Quick Ratio (Acid Test) 1.77 1.44 1.05
Current Ratio 2.15 1.82 1.40
Net Working Capital $1,126 $892 $499
Net Operating Working Capital (NOWC) $1,126 $892 $499
Debt Management Ratios
After analyzing the debt management ratios, there were a couple aspects that really stood out to
analysts. The first being the rise in the debt ratio, which is implying that the company is more,
leveraged and has a greater financial risk. The next thing analysts noticed was the rise in debt-to-
equity, this simply indicates that Whole Foods Market may not be able to generate enough cash to
satisfy its debt obligations, which can cause worries for a shareholder. Although Whole Foods is in a
Capital-intensive industry the debt-to-equity seems to be increasing quite steadily. Next analysts
observed the equity multiplier which has also increased over the past three years. This is measuring the
extent to which Whole Foods finances its assets with debt, and is an important indicator of the financial
health WFM. In this particular case Whole Foods Market has more leverage in 2014 than the past two
years.
Debt Management (Leverage Ratios) 2012 2013 2014
Debt Ratio 28.18% 29.97% 33.62%
Debt-to-Equity 0.39 0.43 0.51
Times Interest Earned 0.00 0.00 0.00
Equity Multiplier 1.39 1.43 1.51

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Asset Management Ratios
As analysts examined the asset management ratios, it was clear that there were a mix of positive and
negative outcomes over the past three years. Inventory turnover has increased which shows progress
for the company. DSO has decreased which also shows progress for the company, and means Whole
Foods is ultimately taking fewer days to collect their account receivables. The operating cycle has
decreased as wellwhich means that investments that are locked up in production before turning into
cash are going through the cycle more quickly. The cash conversion cycle has also decreased. These
are all beneficial to the company and if continued could be important information for investors. The
fixed asset turnover and the total asset turnover caught the eyes of analysts because they were
abnormally low, this could be because of problems with excess production capacity, poor inventory
management, or lax collection methods.
Asset Management (Asset Utilization) 2012 2013 2014
Inventory Turnover 20.17x 20.02x 20.75x
Inventory Conversion Period (ICP) 18.10 days 18.23 days 17.59 days
Accounts Receivable Turnover 59.39x 68.71x 71.69x
Days Sales Outstanding (DSO) 6.15 days 5.31 days 5.09 days
Accounts Payable Turnover 30.54x 33.55x 33.15x
Payables DeferralPeriod (PDP) 11.95 days 10.88 days 11.01 days
Operating Cycle 24.24 days 23.54 days 22.68 days
Cash Conversion Cycle 12.29 days 12.67 days 11.67 days
Fixed Asset Turnover 5.33x 5.32x 4.86x
Total Asset Turnover 2.21x 2.33x 2.47x

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Profitability Ratios
The profitability ratios for Whole Foods are all progressive and optimistic. Every ratio has increased
from 2012 to 2014. This is a very positive sign for the company and its future, if it continues to follow
this pattern. The biggest increase noticed was BEP,ROA and ROE. This means that WFM is the front
runner and the lead in the industry.
Profitability Ratios 2012 2013 2014
Gross Margin 35.52% 35.84% 35.54%
Operating Profit Margin 6.36% 6.84% 6.58%
Net Profit Margin 3.98% 4.27% 4.08%
Return on Assets (ROA) 8.80% 9.95% 10.08%
Basic Earning Power (BEP) 14.05% 15.94% 16.26%
Return on Equity (ROE) 12.26% 14.21% 15.18%
Common-Size Statement Analysis:
The Common Size Income Statement and Balance Sheet show items as percentages from 2012-2014.
This type of analysis is used for time periods and to compare and contrast competitors. After using
research from a number of sources and analyzing the information from the balance sheet and the
income statement analysts a variation of fluctuation in the last three years on the income statement,
specifically in the gross profit, EBIT and tax expense. It is hard to see a specific trend over the past
years when there are variations in some categories. However some categories remain constant or have a
steady incline or decline. Some examples of those are other income expenses, and interest expense.

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Common-Size: Income Statement
The notable information in the common size income statement is the steady decrease in EBIT from
2012-2014. This is detrimental to the company and can ultimately decrease their total earnings. A
decrease in EBIT and decrease in operating expense can be because of a decrease in sales or because of
an increase in expenses.
Common-Size Income Statement
2012 2013 2014
Revenue 100 100 100
Cost of Goods Sold 64.5 64.2 64.5
Gross Profit 35.5 35.8 35.5
Operating Expenses 29.2 29 29
Earning Before Interest and Taxes (EBIT) 6.4 6.8 6.6
Other Income/(Expense) 0.1 0.1 0.1
Interest Expense 0 0 0
Earning Before Taxes (EBT) 6.4 6.9 6.7
Tax Expense 2.4 2.7 2.6
Net Income 4 4.3 4.1
Common-Size: Balance Sheet
From 2012-2014 numbers are fluctuating. In some areas they are increasing and in some others they are
decreasing. For example: Cash and cash equivalents increase from 2012 to 2013 then decrease in 2014.
Whereas,net property, plan & equipment for Whole Foods Market increases each year from 2012-
2014. Accounts receivable and inventory are appealingly steady, which means that sales are steady.
Common-Size Balance Sheet
2012 2013 2014
Cash & Cash Equivalents 1.7% 5.2% 3.3%
Accounts Receivable 3.7% 3.4% 3.4%
Inventory 7.1% 7.5% 7.7%
Other Current Assets 1.9% 2.0% 1.9%
Total Current Assets 39.7% 35.8% 30.6%
Gross Property, Plant & Equipment 76.5% 81.5% 92.4%
Accumulated Depreciation -35.1% -37.6% -41.5%
Net Property, Plant & Equipment 41.4% 43.8% 50.9%

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Other Long-Term Assets 0.2% 0.2% 0.4%
Total Assets 100.0% 100.0% 100.0%
Liabilities and Equity 2012 2013 2014
Accounts Payable 4.7% 4.5% 4.8%
Short-Term Notes Payable 0.0% 0.0% 0.0%
Other Current Liabilities 8.0% 8.5% 10.4%
Total Current Liabilities 18.5% 19.6% 21.9%
Long-Term Debt 0.0% 0.0% 0.0%
Other Long-Term Liabilities 9.3% 9.9% 10.7%
Total Liabilities 28.2% 30.0% 33.6%
Retained Earnings 23.3% 22.8% 29.0%
Other Equity 0.1% 0.0% -0.1%
Total Equity 71.8% 70.0% 66.4%
Total Liabilities & Equity 100.0% 100.0% 100.0%
Summary of Research and Fundamental Analysis
Whole Foods Market has been an exceptional company providing a very specific and
achievable product for its customers since 1980. The previous data shows that there are indeed
some major risks when investing in this company. The recent decline in stock prices has
caused a detrimental hit to Whole Foods Market image and reputation. Another triumph that
was difficult for Whole Foods were the accusations from NYC officials regarding the
mislabeled weights of freshly packaged foods, leading to overcharging customers. The
company did release a statement stating that this episode did hurt sales nationwide, which in
turn lowered the stock prices dramatically. Over the last years, there has been a large number
of competitors entering this type of market. Whole Foods Market largest competitors are
Sprouts Farmers Market and Trader Joes. On the other end of the spectrum there are also pros
to investing in this company. With Whole Foods Market planning on introducing their small

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chain, 365 by Whole Foods in 2016 this can bring in a whole new target market and market
share which can increase overall profits and earnings and hopefully raise stock prices. A
second reason to invest in this company is because we think that because stock prices have
been steadily declining, they will soon increase. Third, millennials are hoping on the healthy
food bandwagon. This means that there is a long time frame, for millennials, and much
opportunity exists. In 2014, organic food sales increase 11%, which generated $39 billion
(Organic Trade Association). By opening 365 by Whole foods, the business is catering to
millennials by providing to their budgets.

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Part Two: Company Valuation and Analyst
Recommendation

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Cost of Equity Analysis Section
Cross Sectional Analysis of Beta:
Whole Foods Market beta is 0.99. Sprouts beta is very high at 4.35 due to its recent large number of
store opening across the U.S. and increase in stock. Costco has a beta of (0.79) and is a major
competitor in this market, however Whole Foods Market does have a higher beta. Safeway Inc. has a
beta of (0.89) and is also a major competitor in this market as well. They also have a lower beta than
WFM but have been increasing over the years and could possibly overtake Whole Foods in the next
five years. These betas differ for many reasons. First, the target market for each of these 4 companies
differs in some minor and extreme ways, depending on the company. Whole Foods Market and Sprouts
Farmers market is the new age, healthy, “go green” shoppers. Whereas,Costco and Safeway Inc.,are
more of neighborhood grocery markets.
Whole Foods Market
Cross Sectional Analysis ofBeta
Risk-Free Rate (rf) 2.87%
Historical Return on Market (rm) 8.37%
Beta (β) 0.99
Cost of Equity (rs) 8.32%
Sprouts Farmers Market
Beta 4.35
Costco Wholesale Corporation
Beta 0.79
Safeway Inc
Beta 0.89

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Cost Equity – Capital Asset Pricing Model (CAPM):
A shown below, analysts figured out the cost of equity by taking the risk free rate, adding the
beta of WFM multiplying the historical return on market, then subtracting the risk free rate
again. This will give you the relative cost of equity for Whole Food Market.
Whole Foods Market
Cost ofEquity (Capital Asset Pricing Model)
Risk-Free Rate (rf) 2.87%
Historical Return on Market (rm) 8.37%
Beta (β) 0.99
Cost ofEquity (rs)
2.87+(0.99*(8.37-2.87)= 8.32%
Company’s Equity Valuation Section
Pro Forma Statement Construction:
The future growth of this particular industry is very strong, the health food market and natural grocers
industry is a rising business with nothing but growth coming in the future. Analysts indicate the
primary industry of the Health foods market with companies such as Trader Joes,Sprouts Farmers
Market and Whole Food Market will grow and show improvement, however with the opening of new
stores and a more competitive market there will be struggles for some companies. Researchers show
that Whole Foods Market specifically will continue to grow but with recent news released and the
current negative image of the company it might have a collapse in upcoming years but overall show
growth long-term.

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Pro Forma: Income Statement
As shown below, the pro forma income statement shows the steady increase in the revenue
growth of WFM over the past three years, as well as the steady profit increase showed by the
increasing COGS. The operating expense show the increase in costs and expenses for the
company and other income expenses also show the increase in total expenses for Whole
Foods. In most of the income statement there shows a steady increase in growth, however
there are fluctuations and movement in some areas such as interest and shares outstanding. The
dividend payout ratio shows an increase over the past three years and researchers show it will
continue that trend in upcoming years.
Whole Foods Market
(in millions of dollars, Expect of Share Price, EPS, and DPS)
Pro Forma Income
Statement
Assumptions
Actu
al
Project
ion
Project
ion
Project
ion
Project
ion
Project
ion
3
Year
Avg 2015 2016 2017 2018 2019
Revenue
Growth Rate
10.15
% 12.0% 12.0% 14.0% 15.0% 16.0%
A steady 1 to 2%
increase in rev
growth over the
past 3 years
COGS/Reven
ue
6440.
0% 60.0% 62.0% 64.0% 64.0% 64.0%
Due to a
steady profit
over the past 3
years
Operating
Expenses/Rev
enue
2906.
7% 29.4% 29.6% 30.0% 30.1% 30.3%
Steady increase in
costs or expenses
over the past 3
years
Other Income
(Expenses)/R
evenue
10.0
% 13.0% 14.0% 16.0% 18.0% 20.0%
Steady
increase in
other income

2014 Page 26
from past
years
Interest
Expense/(ST
Debt + LT
Debt)(t-1) 0.0% 0.0% 0.0% 2.0% 4.0% 0.0%
Fluctuation in
interest
expense over
the past years
Tax Rate
38.4
% 38.4% 38.4% 38.4% 38.4% 38.4%
Average
tax rate
over the
past years
Dividend
Payout Ratio
(Latest Year)
29.5
% 31.5% 33.5% 35.5% 37.5% 39.5%
Continuous increase
in dividend payout
ratio used from the
latest year
Latest Year
Shares
Outstanding 371 377 373 379 375 381
Continuous
fluctuation in
shares
outstanding
Pro Forma: Balance Sheet
The Whole Foods Market balance sheet provides important information about the company, their
growth, areas that they are struggling in and what the future could possibly hold. Areas that analysists
showed interest in were their negative accumulated depreciation net PP&E,as well as their long-term
debt. This could be an issue in the future for the growth of the company and their expenses. Other
important information contains their growth in cash and cash equivalent, accounts receivable and
assets. For the most part he balance sheet shows improvement of WFM’s growth as a company and
some variations over the years in some categories.
Pro Forma Balance Sheet Assumptions
Actual
Projecti
on
Projecti
on
Projecti
on
Projecti
on
Projecti
on
3-Year
Avg 2015 2016 2017 2018 2019
Average Cash Ratio 0.17 0.17 0.17 0.17 0.17 0.17
Average Days Sales Outstanding 5.5 5.2 5.1 5.0 4.8 4.5
Average Days of Inventory 18.0 17.9 17.6 17.4 17.0 16.9

2014 Page 27
Other Current Assets/Revenue 0.8% 0.8% 0.8% 0.8% 0.8% 0.8%
Fixed Asset Turnover 5.2 5.1 4.9 4.8 4.5 4.0
∆Accum. Depr. /Gross PPE t-1
(Latest Year) -6.7% -6.9% -7.2% -7.4% -7.7% -7.9%
Other Long-Term
Assets/Revenue 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%
Average Days Payable 11.3 11.3 11.3 11.3 11.3 11.3
Latest Year Notes Payable $0 $0 $0 $0 $0 $0
Average Other Current
Liabilities/Revenue 3.9% 3.9% 3.9% 3.9% 3.9% 3.9%
Average Other Current
Liabilities/Revenue 4.3% 4.3% 4.3% 4.3% 4.3% 4.3%
Pro Forma Balance Sheet
Actual
Projecti
on
Projecti
on
Projecti
on
Projecti
on
Projecti
on
Assets 2014 2015 2016 2017 2018 2019
Cash & Cash Equivalents 190 154 174 201 231 268
Accounts Receivable 198 227 248 278 307 334
Inventory 441 468 532 619 696 802
Other Current Assets 109 132 148 169 194 225
Total Current Assets $1,756 $981 $1,103 $1,267 $1,428 $1,629
Gross Property, Plant &
Equipment 5,309 1,105 1,726 2,416 3,561 5,424
Accumulated Depreciation (2,386) (2,020) (1,940) (1,812) (1,626) (1,345)
Net Property, Plant &
Equipment 2,923 3,124 3,667 4,229 5,187 6,769
Other Long-Term Assets 24 18 21 24 27 31
Total Assets $5,744 $4,124 $4,790 $5,519 $6,642 $8,430
Liabilities and Equity 2014 2015 2016 2017 2018 2019
Accounts Payable 276 295 341 401 462 536
Short-Term Notes Payable 0 0 0 0 0 0
Other Current Liabilities 600 612 686 782 899 1,043
Total Current Liabilities $1,257 $907 $1,027 $1,183 $1,361 $1,579
Long-Term Debt 0 (704) (1,873) (3,181) (4,513) (5,696)
Other Long-Term Liabilities 614 676 757 863 993 1,152
Total Liabilities $1,931 $879 -$88 -$1,134 -$2,159 -$2,965
Retained Earnings 1,668 3,251 4,885 6,660 8,808 11,402
Other Equity (7) ($7) ($7) ($7) ($7) ($7)
Total Equity $3,813 $3,244 $4,878 $6,653 $8,801 $11,395
Total Liabilities & Equity $5,744 $4,124 $4,790 $5,519 $6,642 $8,430

2014 Page 28
Company Equity Valuation
Analysts used a two-stage model in configuring the terminal value estimate for Whole Foods Market. Analysts
used a two-stage model for its simplicity and precise projections. This was calculated by using the risk-free rate,
historical return on market and the company’s beta. Then translated into PP dividends and calculated into the
terminal value over the next five years. Analysts assumed that the PP dividends would rise over the next five years
at a steady pace and the terminal value at the end of the five years would be approximately $89.64 using estimated
projections.
2015 2016 2017 2018 2019
PP
Dividends
$
1.93
$
2.21
$
2.58
$
3.44
$
4.44
Terminal
Value
$
89.64
$
1.93
$
2.21
$
2.58
$
3.44
$
4.44
$
1.78
$
1.88
$
2.03
$
2.50
$
2.98
P- Hat
$
11.16
Constant Growth Rate
(Assume) 3.2%

2014 Page 29
Investment Recommendation Section
The closing price of $11.16 was found by using the two stage model. With stock prices falling at
a dramatic 40% in 2015, this reflects the low closing price. It would be in investor’s best interest
to sell this stock. Although stock has plummeted recently, analysts advise investors to be
optimistic in future their investments due to the rise in the health food and grocery market. It is
assumed that Whole Foods Market will rise and grow in the long-term future. Research has
shown that WFM is at the top of their industry currently, although declining in recent years.
Analysts recommend to sell any stockholder shares in WFM. If long-term investments are made
analysts would counsel investors to purchase stock of WFM in future years when the price is low
and sell in the long-term future when the price will rise along with the market. Although WFM
is an industry leader, Costco and other competitors are on the rise as shown by the companies’
beta and other information.

2014 Page 30
Work Cited
Fishman, Charles. "Whole Foods Is All Teams."Fast Company. N.p., 30 Apr. 1996. Web. 13 Nov. 2015.
<http://www.fastcompany.com/26671/whole-foods-all-teams>."Friday, November 13, 2015."
Morningstar – Independent Investment Research. N.p.,n.d. Web. 1 Nov. 2015.
"Investopedia - Educating the World about Finance." Investopedia. N.p., n.d. Web. 1 Nov. 2015.
<http://www.investopedia.com/>.
Kennon, Joshua. "The New Investor's Guide to Current Ratio." About.com Money. N.p., n.d. Web. 26
Oct. 2015. <http://beginnersinvest.about.com/od/analyzingabalancesheet/a/current-ratio.htm>.
"MarketWatch - Stock Market Quotes, Business News,Financial News."MarketWatch - Stock Market
Quotes, Business News,Financial News. N.p.,n.d. Web. 1 Nov. 2015. <http://www.marketwatch.com/>
"Quick Ratio." Definition & Example. N.p., n.d. Web. 20 Oct. 2015.
<http://www.investinganswers.com/financial-dictionary/ratio-analysis/quick-ratio-924>.
"Sales Leads | Company Info | Industry Analysis | Hoovers." Sales Leads | Company Info | Industry
Analysis | Hoovers. N.p.,n.d. Web. Oct.-Nov. 2015.
"Value Line - The Most Trusted Name in Investment Research."Value Line - The Most Trusted Name in
Investment Research. N.p.,n.d. Web. 1 Nov. 2015. <http://www.valueline.com/>.
"Whole Foods Market." Whole Foods Market. N.p., n.d. Web. 13 Nov. 2015.
<http://www.wholefoodsmarket.com/>.
"Yahoo Finance." Yahoo Finance. N.p., n.d. Web. 20 Oct. 2015.

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