Bed Bath & Beyond: The Capital Structure Decision Harvard Case Solution & Analysis

Bed Bath & Beyond: The Capital Structure Decision Case Solution

Introduction and key issues:This case is about the Bed, Bath and Beyond, which was founded by Eisenberg and Feinstein in the year 1971. The company achieved significant growth through operational and strategic measures and the financial of the company showed strong financial position as it achieved 22% revenue growth and 32% net income growth as compared to the last year. However, the capital structure of the company includes no long term debt and the increase in cash in hand ratio shows the potential of the company to achieve future objectives related to the expansion of stores and maintaining shareholder’s return. For this purpose, the firm has different available options related to the capital structure whereas,maintaining suitable capital structure is also important with respect to the investors’ confidence upon the company and leverage ratio as well.

bbby case solution

bbby case solution

Analysis: The BBBYis performing well within the industry as there are certain key success factors for the company, which helped to achieve the sustainable growth for the company in terms of revenue, profit margin, market share and the number of stores. The company is offering numerous products to its customers in order to provide one-stop shop facility to its customers, which also helps the company in order to attain the customer loyalty which is also a key success factor for the company. Increase in number of sales, profit margin, number of customers, market share and number of stores are considered as the strengths for the BBBY as they provide advantage to the company over its competitors as well as and it also shows that there are significant opportunities in the market for the company which could help the company in growing sustainably.

BBBY is following the lower pricing policy to attract larger number of customers and this strategy is also a strength for the company however, in the same manner it could also be a threat as it could reduce the profit margins of the company in tough economic conditions. Moreover, providing good customer experience and excellent customer services are also strengths for the company and this also provides an opportunity to open new stores locally and internationally. The company is spending less on the marketing activities, which isa weakness with respect to its competitors who are spending more at advertising and enjoying the greater benefits such as Wal-Mart and Tesco.

Moreover, keeping so much cash in financials and earning low interest income are also weaknesses for the company, and could be a significant threat as well, as the competitors are following the low cash in hand policy,as well as they are investing extra cash in more profit generating projects whereas, lower interest rates also decrease the return on equity which is also a significant threat for the future of the company.

Future plans: The management of the company is considering increasing the number of stores locally and internationally, and in addition to this, the huge cash and cash equivalent in the financials of the company are greater than the required funds while the interest rate earnings is a matter of concern as the declining interest rate lowers the return on equity, therefore the management of the company wants to increase the return on equity and earnings per share along with maintaining the credit ratings.

Alternatives: For that purpose, there are certain alternatives available to the company. As the funds are greater than the current requirement of the company, therefore in that situation, the shares repurchase scheme is the best available option to the company, regarding how much share should be repurchased and how much should be ratio of debt. These are the main factors that must be considered while repurchasing shares and issuing debt. Currently, the company is using no debt facility, therefore the credit rating of the company is high and the company could use this credit rating to acquired debt at lower interest rates.....................

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