Valuation and Investment Analysis Term Paper Example | Topics and Well Written Essays - 750 words

Valuation and Investment Analysis - Term Paper Example Due to the slow U.S. economy, Best Buy has been plagued by declining sales during the last few years. Although the company reported losses of 2.4% for 2012, it was primarily due to the buyout of Best Buy Mobile for $1.3 billion. For 2013 the company reported a 0.5% loss, but the company was able to record a net profit of 1.3% in 2014 for the first time in the last three years. The company has been working hard to change its operating strategy and trim operations in order to turn around their financial performance. In 2012, the company hired new CEO and turnaround expert Hubert Joly which revised the companys strategy, closed down many of the less profitable big-box store, expanded many of the smaller retail store outlets, expanded their mobile best buy store outlets, streamlined and improved their online operations. Amid competition from giant retailers like Amazon.com and Wal-Mart in the consumer electronics business, Best Buy is looking to redirect their strategy through acquisitions and further expanding their mobile phone business in China and Mexico through their new venture of Best Buy Mobile. The company’s new strategy for their electronic business involves increasing the total number of retail stores, while decreasing their overall square footage in order to decrease fixed costs. The company seeks to improve their on-line revenues and customer experience by offering free shipping and more competitive pricing. By analyzing the companys overall financial performance, financial ratios and performing a valuation analysis this paper will determine whether Best Buy is a good long term investment. In order to evaluate the companys future financial performance I will need to calculate the companys growth rate and average discount rate. The growth rate was calculated by multiplying the return on operating capital by the retention rate. Based