Financial Statements Analysis of Starbucks

Fatima Salah Hamed

Abu Dhabi University, Email: 1058445@students.adu.ac.ae

Supervised by:

Professor Haitham Nobanee

Abstract

This project aims to analyze the financial statement analysis of Starbucks. an American company

founded in 1971 in Seattle, Washington, and incorporated on November 4, 1985, to be listed as a

public corporation. It is the premier roaster and retailer for specialty coffee all around the world.

The corporation employees are around 182,000 people in 19,767 company-operated and licensed

stores in around 62 countries in total. It initially focused on the US’s domestic market; however,

in 1996, the company started its operations outside the USA, and since then its footprints are all

over the globe.

Introduction

Starbucks, an American company founded in 1971 in Seattle, Washington, and incorporated on

November 4, 1985, to be listed as a public corporation. It is the premier roaster and retailer for
specialty coffee all around the world. The corporation employees are around 182,000 people in
19,767 company-operated and licensed stores in around 62 countries in total. It initially focused
on the US’s domestic market; however, in 1996, the company started its operations outside the
USA, and since then its footprints are all over the globe. The company serves in Canada,
Australia, China, Japan, UK, etc. Their offerings for the customers include roasted, high-quality
coffee, tea, a variety of fresh-baked items, and also some other beverages depending on the
weather of the country. Along with this, the company sells its coffee and tea products by
licensing its trademarks in other channels, that includes grocery stores, licensed stores, etc.
Starbucks is so successful in the US and some key international markets that the primary concern
they are facing is how to increase revenue healthily. However, it is still managing this challenge
as the revenue in the fiscal year – September 2019 raised to 7.2% .i.e. $ 26.5 billion as compared
to the previous year. (Farley, 2020)

Literature Review
A literature review is a finding of results of different analysis that is related to contemporary
research. The report is primarily the consideration of past analysis which is further linked with
current studies in a more dependable technique. The following are some reviews from the earlier
analysis that related to a recent research study. A researcher named Dr. M Ravichandran studies
the financial performance of several companies that could be ranked within the market industry
according to the effectiveness of multiple financial tools, for example, the researchers examined
the profitability ratio, solvency ratio, and comparative statement. According to the researcher on
the finding analysis, any business must arrange sufficient capital to satisfy its debts & liabilities,
and, the income statement of the corporation that presents the transactions carried by the
company.

Along with this, the increased flow of transactions during the entire year that matters because of
the reasonable price leading to an increase in the profitability of the company. Another research
MS Ganga took into consideration of the evolution of the financial performance of large
corporations in Asian countries. The researcher concluded that for all extensive business ratio
analysis are incredibly significant to plan and control the financial resources. In-depth analysis
results that the companies focus on researching numerous techniques to evaluate the financial
performance of the organization during every quarter of the year. This resulted in finding that the
executives of the organization focus on the grey areas of the financial statements which are
helpful for the planning for future growth and probability of any company. If the managers of the
companies realize the significance of the ratio analysis that fundamentally leader any company
towards its success with time[ CITATION Sar15 \l 1033 ] . The researcher stresses on the ratios
analysis, which fluctuates during the whole year as per the sale of the production. Depending
upon the variation of the sale and purchase the ratio increased or decrease. The increase in the
ratios rates indicates that the company is in a good position of financial status. In addition to this,
the study also means that existing customers are satisfied as compared to the previous year’s
satisfaction of customers, and the company can expect a potential number of customers due to
the comfort of the existing ones. The ratios analysis is also dependent on the situation of
shareholder equity of the company. The ratios analysis is also reliant on the status of shareholder
equity of the company which when increases; means that the potential and existing investors are
willing to float more capital in the company due to outstanding financial performance. (Prof.
(Dr.) Kapil Khatter, 2018)

Data & Methodology

Table 1 FINANCIAL DATA (STARBUCKS COMPANY)

Item/Year 2019 2018 2017 2016

Current Assets 5,653,900 12,494,200 5,283,400 4,760,500
Current
6,168,700 5,684,200 4,220,700 4,546,900
Liabilities
Inventories 1,529,000 1,400,500 1,364,000 1,378,500
Cash 2,686,600 8,756,300 2,462,300 2,128,800
Receivables 879,200 693,100 870,400 768,800
Total Assets 19,219,600 24,156,400 14,365,600 14,329,500
Total Liabilities 25,450,600 22,980,600 8,908,600 4,546,900
Total Equity (6,232,000) 1,169,500 5,450,100 5,884,000
Sales 26,508,600 24,719,500 22,386,800 21,315,900
Cost of Goods 19,468,900 17,367,700 15,531,500 14,575,400
 Sold
EBIT 4,797,200 5,950,300 4,410,000 4,279,900
Interest 96,500 191,400 275,300 108,000
Net Income 3,599,200 4,518,300 2,884,700 2,817,700
[ CITATION fin201 \l 1033 ]

The data has been collected for Starbucks for the last four financial years 2016 to 2019. The data
has been collected from the secondary source from Yahoo Finance. The data has been collected
for different variables extracted from the income statement and balance sheet of Starbucks
Company. Different ratios are used in the analysis like:

 Liquidity Ratios: these ratios are used to measure the ability of an organization in dealing
with its short term liabilities with the help of current assets. The ratios that have been
calculated to evaluate the liquidity position of Starbucks Company are current, quick, and
cash ratio.

 Activity ratios: it helps in determining the efficiency of a company in which an

organization can utilize its operating assets that are reflected in the balance sheet and then
convert them into sales or cash. The ratios that are calculated to evaluate the activity of
Starbucks are inventory, receivable and total asset turnover.

 Debt Ratios: it helps in the measurement of organization leverage. It is the ratio of debt to
assets. It helps to evaluate the sources of finance used by the company in running
operational activities. The ratios calculated under this particular head are debt ratio, and
the time's interest earned ratio[ CITATION Pře19 \l 1033 ].

 Profitability Ratios: it helps in measuring the ability of a company in generating profit by

generating more sales from its business activities and by selling its services in the target
market. The ratios calculated to measure the profitability of the company are return on
equity, return on total assets, and profit margin.

Results & Discussions

Table 2 Liquidity Ratios of Starbucks Company

Ratio/Year 2019 2018 2017 2016

Current Ratio 0.92 2.20 1.25 1.05
Quick Ratio 0.67 1.95 0.93 0.74
Cash Ratio 0.44 1.54 0.58 0.47
Table 3 current ratio of Starbucks

Current Ratio
2.50
2.00
1.50 Current Ratio

1.00
0.50
0.00
2019 2018 2017 2016

Table 4 Quick ratio of Starbucks

Quick Ratio
2.50
2.00
1.50 Quick Ratio

1.00
0.50
0.00
2019 2018 2017 2016

Table 5 Cash ratio of Starbucks

Cash Ratio
1.80
1.60
1.40
1.20 Cash Ratio
1.00
0.80
0.60
0.40
0.20
0.00
2019 2018 2017 2016
The overall liquidity position of the company has decreased from 2016 to 2019. The current
fiscal year position of the company reflects that company is not having enough cash and current
assets to pay its current liabilities. The company does not have a strong liquidity position to deal
with its short term obligations[ CITATION ESU19 \l 1033 ].

Table 6 Activity Ratios of Starbucks

Ratio/Year 2019 2018 2017 2016

Inventory Turnover 12.73 12.40 11.39 10.57
Receivable
30.15 35.67 25.72 27.73
Turnover
Total Asset
1.38 1.02 1.56 1.49
Turnover

Inventory Turnover
14.00
12.00
10.00
8.00 Inventory Turnover
6.00
4.00
2.00
0.00
2019 2018 2017 2016

Figure 1 Inventory turnover of Starbucks

 Receivable Turnover
40.00
35.00
30.00
25.00 Receivable Turnover
20.00
15.00
10.00
5.00
0.00
2019 2018 2017 2016

Figure 2 Receivable turnover of Starbucks

Total Asset Turnover

1.80
1.60
1.40
1.20 Total Asset
1.00 Turnover
0.80
0.60
0.40
0.20
0.00
2019 2018 2017 2016

Figure 3 Total Asset turnover of Starbucks

The activity ratio shows a decrease in the performance of the company from 2016 to 2019. The
decrease indicates that assets are not being used effectively for the generation of sales. The
management needs to revise its business policies and must effectively use its assets.

Ratio/Year 2019 2018 2017 2016

Debt Ratio 1.32 0.95 0.62 0.32
Times Interest Earned Ratio 49.71 31.09 16.02 39.63
Figure 4 Debt Ratios of Starbucks
 Debt Ratio
2016

2017 Debt Ratio

2018

2019

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40

Figure 5 Debt ratio of Starbucks

Times Interest Earned Ratio

2016

2017 Times Interest Earned

Ratio

2018

2019

Figure 6 Interest Earned ratio of Starbucks

The debt ratio is increasing from 2016 to 2019 and that shows management is using more of debt
to run its operational activities. Moreover, the time's interest earned ratio has shown that
management has earned more of EBIT against its interest income in the current fiscal year. it
shows a moderate sign of health for Starbucks management[ CITATION Dia181 \l 1033 ].

Ratio/Year 2019 2018 2017 2016

Return on Equity -0.58 3.86 0.53 0.48
Return on Assets 0.1873 0.1870 0.2008 0.1966
Profit Margin 13.58% 18.28% 12.89% 13.22%
Figure 7 Profitability ratios of Starbucks
 Return on Equity
5.00
4.00
3.00 Return on Equity
2.00
1.00
0.00
2019 2018 2017 2016
-1.00

Figure 8 Return on Equity of Starbucks

Return on Assets
0.2050
0.2000
0.1950 Return on Assets

0.1900
0.1850
0.1800
2019 2018 2017 2016

Figure 9 Return on Assets of Starbucks

Profit Margin
20.00%
18.00%
16.00%
14.00%
12.00% Profit Margin
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2019 2018 2017 2016

Figure 10 Profit Margin of Starbucks

The ROE is negative in the current fiscal year and that shows a negative sign for the investors as
they are losing more money against their investments being made in the Starbucks Company.
The ROA is less than 1 in all financial years and that shows the management is not working
properly for the generation of revenue with the help of its assets[ CITATION Muh201 \l 1033 ]. The
management needs to utilize its assets effectively. The profit margin of the company has
decreased and that shows management is not generating enough sales and has poor control over
its overhead expenses.

Conclusion
It can be concluded from the above discussion that the management of Starbucks needs to work
harder for its survival in the target market. the need of revelation of manageability reports,
putting together monetary choices with respect to corporate maintainability in capital planning
and related angles and the estimation too moderation of supportability dangers and with that
being said that Starbucks need to implement some of the sustainability and growth to see the
development and to achieve its growth as well, as here will give a few ways to gain the growth
they need. The financial statement framework is meant to help with the economical monetary
administration engaging condition, social and administration perspectives in the dynamic the
strategy for interests in destroying environmental change, lessening imbalance, diminishing
ozone harming substance outflows and upgrading vitality viability and social consideration.
[ CITATION Aln20 \l 1033 ] Here with the working capital gives Starbucks an opportunity to arrange
and guarantee growth, by making sure that the productivity is full on ranged, and they are
receiving the highest return to catch up with the shortage that they are suffering with. Working
capital administration takes a shot at improving the benefit of the corporate while moreover
guaranteeing that the corporates are in the situation to take care of their obligations while
keeping up their liquidity viewpoint.[ CITATION Aln20 \l 1033 ] The management needs to purchase
more of current assets and to maintain its inventory level management to make sure it has a
strong liquidity position to deal with its short liabilities. The business manageability dangers can
be cultivated and facilitated through the execution of arranged maintainability chance
administration which is empowering organizations to excel the method of change by thoughtful
the drawn out disclosure including quiet submission with the supportability philosophies and
abstaining from concerning pressures yet additionally progressively misuse business prospects
that are obvious in the advancement. improving the dynamic procedure through adjusting money
related systems of associating feasible issues with financial decisions and basic worth drivers.
[ CITATION AlM19 \l 1033 ]The management needs to implement effective policies to utilize its
assets properly to enhance its sales margin. The management needs to implement cost-effective
strategies that can have sound control over the expenses, money related execution focusses on by
an alternate organization partners, there is likewise more worth creation through an increasingly
ensured condition. [ CITATION Alk19 \l 1033 ]These expenses result in the understatement of net
profit margin and shareholders' wealth.
References

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