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Evaluating Whole Foods’ Healthy Balance Sheet in 2015

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Balance sheet position after fiscal 2015

Whole Foods Market (WFM) has a healthy balance sheet with low debt levels and high cash balance. At the end of fiscal 2015, the company’s total long-term debt stood at $62 million, compared to a cash balance of $392 million. The company has had negative net debt (minus cash and cash equivalents) for the last five fiscal years, which indicates a strong financial standing with a comfortable room for future expansions.

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Peer comparison

According to its financial leverage (using a total debt-to-total-assets ratio), Whole Foods has the strongest financial position among the other major companies in its peer group. The company’s total debt-to-asset ratio in fiscal 2015 was the lowest in the industry and stood at 1.1%, indicating that most of the company’s assets were financed through equity. In comparison, Kroger Company (KR) had a debt to asset ratio of 38%, while Sprouts Farmers Market (SFM), Wal-Mart Stores (WMT) and Costco Wholesale Corporation (COST) had respective ratios of 30%, 24%, and 18% during fiscal 2015, which indicate debt-fueled growth.

Recent changes in balance sheet

Whole Foods recently announced its intention to finance its $1 billion share buyback program by raising debt. The company plans to borrow $1 billion before the end of the first quarter of 2016. Whole Foods has also entered into a $500 million, five-year revolving credit facility. The company may also incur additional short-term debt of up to $350 million, which it says would be repaid with proceeds from its long-term debt.

To know more about Whole Foods’ debt raising plans, please refer to Market Realist’s earnings overview series Whole Foods’ Same-Store Sales Fell and Profit Missed Expectations

ETF exposures and what’s to come

Whole Foods Market (WFM), Wal-Mart Stores (WMT), Kroger Company (KR), and Sprouts Farmers Market (SFM) all have exposure in the SPDR S&P Retail ETF (XRT). Together these companies account for 4.1% of the fund.

Continue to the next part of this series for a look at Whole Foods’ stock performance and dividend payouts.

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