Whole Foods financial recommendation for the next 2 years - Essay Example

WHOLE FOODS MARKET Whole Foods Market Whole Foods Market is considered to be one of the leading stores that provide natural and organic foods. The company is globally recognised because of it’s highly appreciate attribute of being socially responsible. The company can be traced back to the 80s era, when its first store was opened and with the passage of time the company grew enormously that it has more than 300 stores in North America and the United Kingdom. Whole Foods Market has expanded using different techniques such as acquisition and mergers along with an element of organic growth as well (Official Website, 2011).

The company still plans to expand into other areas such as Australia, United Kingdom and the United States as well. Besides the expansion, Whole Foods also seems interested in introducing new private label product lines. Thus for such an expansion and introduction of new product line, the company would need some capital/investment. There are two broad ways in which the company can obtain additional capital in order to finance all its plans. Those two sources of finance are:Equity Finance: This is a way through which Whole Foods Market can issue their shares within the market.

Each share issues within the market would fetch the company some funds. The company would issue the number of shares that they might consider appropriate for the expansion plans. Equity finance is expensive to achieve because of its attached costs such as Advertisement costs, Brokerage costs and in some instance Underwriting costs. The only attractiveness of Equity finance is that it is less risky than debt finance (the other source of finance) as the shareholders i.e. the owners would not have to be mandatorily paid their invested amount.

Debt Finance: Debt Finance can be acquired through Banks, private and other institutional investors. Debt finance is basically a loan commitment that has to be paid as soon as it falls due. Although debt finance is cheaper than equity finance, it carries with itself a burden to repay the liability as soon as it falls due and it is because of this reason that debt finance is considered to be risky. The other issues that are related to debt finance are that the term of the loan would also be of the essence.

Longer the period, higher would be the cost of debt i.e. the interest rate that would have to be paid on the loan commitment. Hence it can be argued that it depends upon a company’s culture, philosophy and risk appetite as to how the expansion may be financed. Equity finance would lead to the dilution of shares, which would be highly unacceptable by the existing shareholders, whilst increased debt finance would make a company more vulnerable to the risk of bankruptcy. The company’s financial statements suggest that the company’s management is more keen towards equity finance as the company’s ordinary shares have increased in the year 2010 (illustrated in the cash flow statement under the heading of Cash Flows from financing activities) (Annual Report, 2010).

ReferencesAnnual Report (2010), Whole Foods Market, Retrieved Aug 15, 2011, fromhttp://www.wholefoodsmarket.com/company/pdfs/ar10.pdfOfficial Website (2011), About Whole FoodsMarket, Company Info, Whole Food Markets, Retrieved Aug 15, 2011, fromhttp://www.wholefoodsmarket.com/company/