Starbucks Financial Ratio Analysis: Strengths and Weaknesses
This paper performs a financial ratio analysis of Starbucks using data from the company's 2017 fiscal year results. It evaluates three categories of ratios: profitability ratios (including gross profit margin, net profit margin, return on assets, and return on equity), liquidity ratios (current ratio, quick ratio, and cash ratio), and activity ratios (inventory turnover, receivables turnover, and asset turnover). The analysis identifies key strengths such as strong returns on assets and equity, adequate short-term liquidity, and high receivables turnover, while also noting a slight year-over-year decline in operating margin and profitability.
- Introduction to Ratio Analysis: Defines ratio analysis and states paper's purpose
- Profitability Ratios: Examines operating margin, ROA, and ROE
- Liquidity Ratios: Analyzes current, quick, and cash ratios
- References: Lists all cited sources
- Appendix: Calculated Ratios: Full arithmetic workings for all ratios
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What makes this paper effective
- Each ratio is clearly defined before its result is presented, giving the reader enough context to interpret the figures without prior finance knowledge.
- The paper consistently connects computed numbers back to a plain-English interpretation (e.g., "for every dollar of assets, the company generated a return of 20.08 cents"), making abstract metrics concrete and accessible.
- The appendix provides full arithmetic workings, allowing readers to verify every figure independently and demonstrating methodological transparency.
Key academic technique demonstrated
The paper demonstrates benchmark comparison — each ratio result is evaluated not in isolation but against the prior fiscal year (2016 vs. 2017) or against an interpretive threshold (e.g., a current ratio above 1.0 signals the ability to cover liabilities). This comparative framing transforms raw numbers into meaningful judgments about financial health.
Structure breakdown
The paper opens with a brief introduction defining ratio analysis and stating its purpose. It then moves through two substantive analytical sections — profitability and liquidity — each following the same pattern: define the ratio category, present individual ratios with calculated values, and interpret the business implications. An appendix collects all raw calculations, cleanly separating evidence from analysis. The overall structure is tight and suits a focused quantitative assignment at the undergraduate level.
Introduction to Ratio Analysis
Ratio analysis is a tool that is beneficial for undertaking quantitative analysis on figures found in financial statements. Ratios provide a common approach for comparing the financial strength and performance of two or more companies. Importantly, ratios can reveal a company's financial strengths or weaknesses, as well as trends regarding business conditions and profitability (Noreen, Brewer, & Garrison, 2017). The main purpose of this paper is to perform a ratio analysis of Starbucks in order to analyze the company's strengths and weaknesses.
Profitability Ratios
One of the key aspects that determines the strength of a corporation is its profitability level. Profitability ratios measure the ability of an organization to earn an adequate return and assess the capacity of a firm to generate profit. High profitability ratios are a positive indicator and demonstrate that the firm is operating as it should (Lan, 2012). Despite the fact that Starbucks' returns are commendable, there was a slight decline in the company's profitability during the 2017 fiscal year. The operating income of Starbucks in 2017 was $4.1 billion; however, compared to the 2016 fiscal year, this represented a 0.9% decline. This can be further illustrated by the operating margin, which examines the relationship between revenues and management-controlled expenses. In 2017, the operating margin of Starbucks was 18.5% — a decline of 110 basis points compared to the preceding year.
Two additional ratios that measure a firm's profitability are return on assets and return on equity. Return on assets (ROA) is a metric that determines the efficiency of a firm in utilizing its assets. The ROA of Starbucks in 2017 was 20.08%. This represents one of the company's key strengths, as it shows that for every dollar of assets, the company generated a return of 20.08 cents. Return on equity (ROE), on the other hand, measures the level of income attributable to shareholders relative to the investment that shareholders have put into the company, and takes into consideration the financial leverage used by the firm. In 2017, the ROE of Starbucks was 52.93%, implying that for every dollar of shareholders' equity, Starbucks generated a return of 52.93 cents.
Despite the slight decline in income, Starbucks reported another year of strong financial performance in 2017. This is linked to the fact that each of the company's business segments across the globe contributed to record results, as evidenced by a 3% increase in comparable store sales. The consolidated net revenues of Starbucks in fiscal year 2017 were $22.4 billion, a 5% increase compared to the net revenues of fiscal year 2016 (Starbucks, 2017).
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