An Analysis Of Bbby Business Risk

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1. An Analysis of BBBY business risk BBBY compared to other retail business in the same general market (asgiven in the case as reference) is probably less risky than most of itscompetition.First of all, if one considers that William Sonoma and Linen 'n Things arethe main players in BBBY's Category, it is obvious that BBBY is thelargest player, by far, from its competition. BBBY show a 5-yearcompounded annual growth (CAGR) exceeding that of all of itscompetitors. It outperforms all the rest in terms of EBIT margins and its return on equity is only outperformed by best-buy. On top of all that,BBBY has managed to create organic growth without outside capital –meaning, BBBY has not taken on any debt and uses internally generatedrevenues in order to expand its operations.BBBY demonstrates a relatively lean Capex structure – expending lessthan 12% of its revenues on PPE which is less than half of what itsclosest competitors are expending – 27% and 29% for William Sonomaand Linen 'n things.Having said that, BBBY operates in the retail business wherecompetition is fierce, margins are low and sales are highly sensitive toexternal shocks (such as financial lows).In general, we would rank BBBY very low in terms of business riskrelative to its competitors but somewhere in the mid-high risk area incomparison to the market as a whole. 2. An analysis of BBBY's problematic capital structure BBBY has and generates more cash than required by its business operations and branch expansion programs. Having too much cash and carrying on with its no dividend policy or putting the money into high yielding alternatives such as significant M&A activity may put off investors and cause a loss in share price, ultimately hurting shareholders value. We would argue that making use of the cash to repurchase programs and leveraging, may give the company an extra edge and degrees of freedom

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