Bbby Essay examples

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BED BATH & BEYOND
Suggested Study Questions

1. How would you characterize the business risk of Bed Bath & Beyond? Review their financial performance.

BBBY is special since they are selling products that are produced by name brand companies, and if any products needing repair could be sent directly back to the name brand company. Therefore, there are no switching costs for BBBY since they have no control on the quality of the products they sell. However, there fixed operating costs have been high and if management adds fixed operating costs to their business operations, without an increase in sales, the firm’s profit would decline and result in a loss, which is an indication of relatively high business risk. …show more content…
Repurchasing shares with a 40% debt to total capital ratio would increase shareholder value; however repurchasing shares with an 80% debt to total capital ratio would also increase shareholder value with higher level of risk. Increasing debt increases shareholder value to a certain point. As this pro forma shows, the point of diminishing return is somewhere between 40% and 80%.

Exhibit 8 Pro Forma 2003 Results for Alternative Capital Structures ($ in thousands) | | | | | | Actual 2003 | Pro Forma 2003 | | | 40% Debt To | 80% Debt to | | | Total Capital (d) | Total Capital | | | | | Sales | $4,477,981 | $4,477,981 | $4,477,981 | Operating Profit | 639,343 | 639,343 | 639,343 | Interest Income (a) | 10,202 | 5,493 | 5,493 | EBIT | 649,545 | 644,836 | 644,836 | Interest Expense (b) | - | 28,635 | 57,270 | Profit Before Taxes | 649,545 | 616,201 | 587,566 | Taxes (c) | 250,075 | 237,237 | 226,213 | Profit After Tax | 399,470 | 378,964 | 361,353 | | | | | EPS - Basic | $1.35 | $1.41 | $1.45 | EPS - Diluted | $1.31 | $1.37 | $1.40 | | | | | Average Shares Outstanding - Basic | 296,854 | 268,845 | 249,847 | Average Shares Outstanding - Diluted | 304,690 | 276,681 | 257,683 | | | |
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