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Starbucks Ratio Analysis
Ratio analysis is a tool that is beneficial in undertaking quantitative analysis on figures found on financial statements. Ratios provide a common approach for comparing financial strength and performance of two or more companies. Imperatively, ratios can divulge a company’s financial strength or weakness in addition to divulge trends regarding business conditions and profitability (Noreen, Brewer, and Garrison, 2017). The main purpose of this assignment is to perform ratio analysis of Starbucks to analyze the company’s strengths and weaknesses.
Profitability
One of the key aspects that determine the strong suit of a corporation is its profitability levels. Profitability ratios measure the ability of an organization to earn an adequate return. They measure the capacity of a firm to generate profit. It is imperative to note that high profitability ratios are a good indicator and demonstrate that the firm is operating as it should (Lan, 2012). Despite the fact that the returns generated by Starbucks are commendable, there was a decline in the profitability level of the company. In the 2017 financial year, the operating income of Starbucks was $4.1 billion. However, as compared to the 2016 fiscal...
This can be delineated by the operating margin, which investigates the relationship between revenues and management controlled expenses. In 2017, the operating margin of Starbucks was 18.5%. However, this was a decline of 110 basis points in comparison to the preceding year.
Other ratios that measure the profitability of a firm are return on assets and return on equity. Return on assets (ROA) is a metric that determines the efficiency of a firm in capitalizing its assets. The ROA of Starbucks in 2017 was 20.08%. This is one of the strengths of the company as it shows that for every dollar of assets, the company generated a return of 20.08 cents. On the other hand, return on equity measures the income level that is attributed to shareholders against the investment that is put into the company by shareholders. It takes into consideration the financial leverage used by a firm. In 2017, the ROE of Starbucks was 52.93%. This is a high return and implies that for every dollar of shareholders’ equity, Starbucks generated a return of 52.03 cents. Regardless of the slight decline in income generated, Starbucks reported another financial year of strong performance. This is linked to the fact that each of the…
.....K, which is for the year ended October 2, 2016. This was used because many ratios are compared on an annual basis -- a quarterly report would yield different numbers. The first section is the liquidity ratios. These reveal the short-term health of Starbucks. The basic liquidity measure is the current ratio, which is the current assets over current liabilities. Starbucks, at 1.05, is at the industry average, and 1.05 is
Starbucks Ratio Analysis The relevance of ratio analysis cannot be overstated in seeking to assess the financial viability of an enterprise. As Porter and Norton (2012) point out, ratio analysis is one of the most important “techniques used by investors, creditors, and analysts in making informed decisions” (p. 698). Starbucks Corporation remains one of America’s foremost coffee marketers and retailers. In addition to sourcing, roasting, as well as selling coffee, the
However, the company has in general enjoyed success overseas and as a result international sales now account for 27% of operating income (2010 Starbucks Annual Report). The international division remains a key source for growth at Starbucks, in particular the Chinese market, where Starbucks has enjoyed considerable success and now sits at over 500 stores. The company struggled in the mid-2000s due to two main factors. The first was the
Starbucks and Peet's have similar gross margins. Dunkin' Brands has a much better gross margin at 78.9%, while McDonalds has a lower gross margin at 39.6%. Starbucks' gross margin might put it in the middle of the pack for quick service, but it is still a healthy margin. The company is profitable, something most of the firms in the industry are. Interesting, Dunkin is the least profitable of these
This strategy was combined with the company's focus on CAFE-based compliance and support for Fair Trade-based trading practices with coffee suppliers. This renewed focus on managing their supply chains to tighter levels of profitability and performance metrics including increasing quality standards has led to a significant reduction in operating expenses and control of variable costs (Starbucks Investor Relations, 2011). Starbucks was also able to manage costs of closing locations
Please see Appendix a for a give year ratio analysis of Starbucks Corporation illustrating the significant effect the recession is having on gross margins. Yet despite this pressure, Starbucks continues to be successful in keeping its gross margins above industry average at 9.67% for the latest fiscal year. Also noteworthy about their financial performance is the increase in Revenue Per Employee from $53,864 in 2004 to $59,156. This speaks