financial analysis of starbucks. industry and market – commodity – starbucks is only global...
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Financial AnalysisFinancial Analysisof Starbucksof Starbucks
Industry and Market– Commodity– Starbucks is only global chain– Dominated by single or small chain retailers– Global demand– Market Elasticity
OverviewOverview
OverviewOverviewCoffee Industry
OverviewOverview Starbucks Strategy
High Margin Specialty Products Franchising Global Expansion
3 Years Summary 3 Years Summary RatiosRatios
HistoricalHistoricalBalance Sheet Proportions
5 Year Projection5 Year Projection
Ratios by categoriesRatios by categories
Liquidity RatiosLiquidity Ratios
Short-term solvency
Current Ratio
Quick (Acid Test) Ratio
Cash Flow Liquidity Ratio
Starbucks 2007 2006 2005Current Ratio 0.76 0.79 0.99 Quick (Acid Test) Ratio
0.47 0.46 0.54 Cash Flow Liquidity Ratio
0.81 0.82 1.00
Liquidity RatiosLiquidity Ratios
Liquidity RatiosLiquidity Ratios
0
0.2
0.4
0.6
0.8
1
1.2
2007 2006 2005
Current Ratio
Quick (Acid Tes t) Ratio
Cash Flow Liquidity Ratio
Liquidity Ratios Liquidity Ratios (continued)(continued)
Efficiency in managing cash
Net Trade Cycle
Average Collection Period
Days Inventory Held
Days Payable Outstanding
Liquidity Ratios Liquidity Ratios (continued)(continued)
Starbucks 2007 2006 2005Net Trade Cycle (days) 48.54 50.73 65.19Average Collection Period (days)
10.64 10.51 10.93Day Inventory Held
84.46 86.65 91.12Days Payable Outstanding
45.12 46.43 36.86
Liquidity Ratios Liquidity Ratios (continued)(continued)
0
20
40
60
80
100
2007 2006 2005
Net Trade Cycle (days)
Average Collection Period(days)
Day Inventory Held
Days Payable Outs tanding
Asset Utilization Ratios Asset Utilization Ratios
Address efficiency of business operations
Accounts Receivable Turnover Inventory Turnover Accounts Payable Turnover Fixed Asset Turnover Total Asset Turnover
Asset Utilization Ratios Asset Utilization Ratios
Starbucks 2007 2006 2005Accounts Receivable Turnover 10.11 5.37 5.12
Inventory Turnover 13.29 4.21 4.01
Accounts Payable Turnover 7.12 7.86 9.90
Fixed Asset Turnover 3.27 3.40 3.46
Total Asset Turnover 1.98 1.76 1.81
Asset Utilization Ratios Asset Utilization Ratios
02468
101214
2007 2006 2005
Accounts ReceivableTurnover
Inventory Turnover
Accounts Payable Turnover
Fixed Asset Turnover
Total Asset Turnover
Leverage Ratios Leverage Ratios
Address extent of firm’s financing with debt.
Debt Ratio
Long-term Debt to Total Capitalization
Debt to Equity
Leverage Ratios Leverage Ratios
Starbucks 2007 2006 2005Debt Ratio 51.31% 49.7% 40.5%LT Debt to Total Capitalization 0.10% 0.09% 0.14%
Debt to Equity 1.21 0.99 0.68
Leverage Ratios Leverage Ratios
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2007 2006 2005
Debt Ratio
LT Debt to TotalCapitalization
Debt to Equity
LT Debt to Total Capitalization
0
0.0005
0.001
0.0015
2007 2006 2005
LT Debt to TotalCapitalization
Leverage Ratios Leverage Ratios (continued)(continued)
Address ability to service debt and other long term cash needs
Times Interest Earned Cash Interest Coverage Fixed Charge Coverage Cash Flow Adequacy
Leverage Ratios Leverage Ratios (continued)(continued)
Starbucks 2007 2006 2005Times Interest Earned 97
106 600
Cash Interest Coverage 108
134 1,087
Fixed Charge Coverage 2.56 2.75 2.86Cash Flow Adequacy 1.24 1.25 1.37
Leverage Ratios Leverage Ratios (continued)(continued)
0
200
400
600
800
1000
1200
2007 2006 2005
Tim es Interes t Earned
Cash Interes t Coverage
00.5
11.5
22.5
33.5
2007 2006 2005
Fixed Charge Coverage
Cash Flow Adequacy
Profitability Ratios Profitability Ratios
Address overall efficiency and performance
Gross Profit Margin Operating Profit Margin Net Profit Margin Cash Flow Margin Return on Total Assets (ROA) / Return on Investment (ROI) Return on Equity (ROE) Cash Return on Assets
Profitability Ratios Profitability Ratios
Starbucks 2007 2006 2005
Gross Profit Margin 52.3% 59.2% 59.1%Operating Profit Margin 9.95% 11.5% 12.3%Net Profit Margin 6.28% 7.2% 7.8%Cash Flow Margin 14.3% 14.5% 14.5%ROA or ROI 12.46% 12.7% 14.1%Return on Equity 27.24% 25.3% 23.7%Cash Return on Assets 24.9% 25.6% 26.3%
Profitability Ratios Profitability Ratios
00.10.20.30.40.50.60.7
2007 2006 2005
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
Cash Flow Margin
ROA or ROI
Return on Equity
Cash Return on Assets
Trend Analysis Trend Analysis
Starbucks 2007 2006 2005
Ending share price $29.90 $34.05 $31.93
Earnings per share $0.84 $0.71 $0.61
Price to earnings ratio 39 48 52
Trend Analysis Trend Analysis
0
10
20
30
40
50
60
2007 2006 2005
Ending share price
Price to earnings ratio
Earnings per share
00.20.40.60.8
1
2007 2006 2005
Earnings per share
Starbucks SummaryStarbucks Summary
Based on entrance of strong competitors, such as Java the Hut
More pessimistic
Sensitivity Analysis: Revision with lower growth, margin, and profit than original forecast
The effect of competition on strategy and profitability
Impact of high/low leverage The value of the ratio analysis
Starbucks SummaryStarbucks Summary