Question

DATA ANALYTICS

You have been hired by Best Buy to evaluate the financial viability of the company’s kitchen appliance product line. The company is looking for an independent perspective about this aspect of its business and has offered to share any data you deem relevant. Best Buy has 1,000 stores in the U.S and 50 in Mexico.

In thinking about your approach to provide Best Buy with useful financial information about the kitchen appliance product line, describe:

1. List the five most relevant data sets you would gather, prioritize them 1-5, and justify the position of importance for each set?
2. What specifically would you do with the data?

Answer 1

Financial Viability :

To test the financial viability of a project , we may need to perform certain statistical tests to evaluate the same.

First we need to treat the Kitchen appliances division as a separate project with its own cash flows and expenses, and find the Projected Cash Flows , and use the DCF method to evaluate whether it is NPV positive or NPV negative.

These are the following information sources needed, internally and externally:

External :

1. Market study for the demand size of kitchen appliances products
2. Geography wise demand details in USA and Mexico
3. Detailed competitor analysis.
4. Country risk detailed analysis.

Internal :

1. Historical Financials
2. Projected plan of expansion across geographies, with projected revenues.
3. Detailed cost workings and budgets
4. Forecasting for the next 3 years
5. Balance Sheet, Capex over next 3 years, and sources of funding for the same.

Reason for priority:

Historical is the only real data, and needs to be subject to proper due diligence, gives a grounding to all the future projections.

Expansion plans tell us the reasonableness of revenue projections.

Next we come to costing , since costs are of the next priority with respect to profitability analysis.

Other forecasting items need to be factored in.

Finally comes the sources of funds, and application of funds, to determine cost of the project, and leveraging decisions which would affect the required rate of return.

Based on the above information we may have to analyze:

1. Achievability of the revenue targets
2. Cost assumptions reasonableness
3. Analyze detailed projections
4. Based on funding decision - calculate the WACC (weighted average cost of capital)
5. Calculate the Discounted cash flow of the division to determine if NPV positive or negative.