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Starbucks A Financial Review
Starbucks A Financial Review
Starbucks A Financial Review
Globally we can all agree coffee is the preferred beverage to get your day started. One of the largest and fastest growing
coffee beverage providers in the world is the Starbucks Company. Starting in 1971, when the first Starbucks opened in Seattle's
historic Pike Place Market with the intention “to share great coffee with friends and make the world a little better”. Starbucks states,
“We make sure everything we do is through the lens of humanity-from commitment to the highest quality coffee in the world, to the
way we engage with our customers and communities to do business responsibly.” Starbuck has won the “The World’s Most Ethical”
award in 2018. (www.starbucks.com)
In addition to the global social impact Starbucks has made on the coffee industry they have become one of the most profitable
companies. Starbucks become a public company in 1992 with shares being sold at $17, today shares are sold for $75. In 2018
Starbucks returned $8.9 billion dollars to shareholders. They have consistently returned $25 billion dollars in the past 3 years to
shareholders. Just as the revenues continue to grow, the Starbucks locations are too. In 2015 Starbucks had 12,521 stores in US,
along with 23,043 stores World wide. Starbucks constantly makes financial gains by showing revenues increasing year to year.
Amidst opening new locations they are on track to become one of the most recognized coffee stores in the world. Kevin Johnson the
CEO said, “ Our long-term plan for growth with focus and discipline is built on the acknowledge that the pursuit of profit is not in
conflict with pursuit of doing good. Starbucks is more than just a coffee chain, they are a company with a purpose!
(www.starbucks.com)
Starbucks Coffee Company 2015-2018: A Financial Analysis
Financial Analysis
Let us now take a more indepth review of Starbucks financial performance through ratio analysis. We will review 4 financial
ratios covering: profitability, asset utilization, liquidity, and debt utilization. Upon further analysis of the financial ratios the company
and public business professionals will have a greater knowledge of Starbucks performance and overall financial health. The following
data will include ratios from 2015 through 2018.
Profitability ratios
Profitability ratios are used in determining the ability of the company to return on sales, total assets, and invested capital. (Block, Hirt
& Danielsen, 2017) Figure 1: Profitability Ratios for Starbucks Coffee Company (2015-2018)
Asset Utilization
After reviewing the profitability ratios, we can further our financial ratio analysis with asset utilization ratios. These ratios will show
the company’s generated revenue ability through certain assets. (Block, Hirt & Danielsen, 2017)
Receivables Turnover
Receivable turnover was relatively the same moving a marginal amount from 2015-2017, although we see a large increase in 2018.
The cause for this increase can be a result of lower accounts receivables during this year.
Average Collection Period
The average collection period was steady the first two years at 13 days, and started to increase the year following. In 2018, the
average collection period dropped by 4 days from previous year. One contributing factor for this drop can be explained through the
increase of sales for 2018.
Inventory Turnover
Inventory turnover grew slowly from 2015 to 2018 by 1 times each year. Inventory had remained relatively the same over the four
years while sales continued to show an increase.
Fixed Asset Turnover
Fixed asset turnover from 2015-2018 had little to no change respectively throughout the four years. Fixed assets were acquired at a
slow rate while sales climbed substantially throughout the four years.
Total Asset Turnover
The total asset turnover ratio showed little change from 2015-2018. A slight change can be seen from 2017 to 2018, explained by an
increase in current assets for this year. This is mirrored by the Fixed Asset Turnover as little changes had been made with fixed
assets.
Starbucks Coffee Company 2015-2018: A Financial Analysis
Liquidity
Liquidity ratios assess the level of liquidity related to a company's assets. (Block, Hirt & Danielsen, 2017) When it comes to reducing
debt through payment, liquidity ratios can be very useful especially to short-term investors.
Figure 3: Liquidity ratios for Starbucks Coffee Company (2015-2018)
Financial Ratio 2015 2016 2017 2018
Current Ratio
Current ratio remained even from 2015 to 2016, we see a slight increase in 2017. While 2018 a significant increase can be seen.
This increase is a result of the increase in debt accrued during this year. Starbucks hit the ideal current ratio rate during this year.
When a company can show current assets double the current liabilities it is evidence they can manage current financial
responsibilities.
Quick Ratio
Quick ratio doubled in 2018 from the previous years. In 2018, we see a drastic increase in inventory from 2015-1017 reducing
Starbucks current assets coupled with higher current assets recorded this year. Further analysis of the liquidity ratio shows Starbucks
has rose above average for both ratios providing a healthy financial standing for their shareholders.
Starbucks Coffee Company 2015-2018: A Financial Analysis
Debt Utilization
Debt utilization ratios are the final ratios we will be analysis. In this section of the financial analysis, we will determine the companies
ability to use debt to leverage it’s investments. (Block, Hirt & Danielsen, 2017)
Figure 4: Debt Utilization ratio for Starbucks Coffee Company (2015-2018)
Allocations of Investments
In review of Starbucks allocations of investments, there was a significant increase in the amount of commercial paper
issued in 2018, this rise can be contributed a more stable corporate environment. With the expansion and growth expected
in coming years, will provide short-term financing to fund the expansion. Commercial paper, CD’s and restricted cash are
used to finance growth and development. Starbucks had a 89% increase in Marketable Equity Securities from 2015 to
2018. The increase in marketable securities was created by 2 for 1 stock split in 2015. Marketable Equity Securities are
financial instruments used to increase cash flow.
Starbucks has decreased Equity Foreign Arrangements over the past 4 years by 81%. In 2015, Starbucks had developed
globally with expansion into China. While Foreign currency contrasts had shown slight changes, not as significant as the
Foreign Equity Arrangements had shown which are an agreement the company has to sell future stock. With the stock
climbing at the rate we have seen over the past 4 years, it is reasonable to see an increase in the Equity Foreign currency.
Swaps are the last investment resource we will review, over the past 4 years, Starbucks had swaps listed in cross currency
and interest swaps. These swaps are a way for investing through the exchange of cash flow or the value of an asset, or the
exchange of the internet.
Starbucks Coffee Company 2015-2018: A Financial Analysis
Retirement Plans
Starbucks offers a Saving plan for retirement called Future Roast. The Future Roast plan is a 401(k) Savings Plan, were
employees can contribute anywhere from 1% to 75% of their pay, in turn Starbucks matches your contributions through
the basic rate option or the enhanced rate options which is determined by the Board of Directors each November. The
basic rate matches at 100% of the first 4% of eligible pay, and the Enhanced rate matches 100% of the first 6% of eligible
pay. In addition to the 401K Future Roast saving plans Starbucks also offers vesting options to employees through
employees acquiring ownership of shares of the company. Shares can be acquired through the Bean Stock equity reward
program.
Starbucks offers several equity securities including non-qualified stock options, incentive stock options, restricted stock,
restricted stock units or stock appreciation rights to employees, non-employee directors and consultants. They also offer
options for new shares of common stock with vesting of restricted stock units.
Starbucks Coffee Company 2015-2018: A Financial Analysis
Starbucks Coffee company returned 25 billion dollars in revenues to shareholders in the past 3 years and have one of the most
recognitioned brands in the coffee industry. As the demand for coffee supply increase, and the expenses of 100% arabica
coffee beans are on the rise they will need to be diligent in acquiring assets at an equal rate of increasing liabilities. We saw in
the asset utilization ratios, a decrease in accounts receivable in 2018 from the previous years observed. Another area to focus
on would be the plans for development and growth. With the increase in locations, Starbucks gains a greater need for
American operating segment to finance the expenditures of the new locations. Competition is on the rise in this industry causing
increasing pressure for Starbucks to continue to target new initiatives attractive to consumers with programs like the
Cornerstone Investor in Valor Siren Ventures for “New Retail” innovations costing 100 million. The increase in inventory will
create drastic changes reducing Starbucks current assets. A recommendation would be to acquire new inventory a rate in
closer proximity to the use of inventory. The financial outlook was revised after the stock prices fell in 2015, with expectations
to grow in the China market to make up for the stock drop. The drop was attributed to the closure of the Teavana tea chains,
would recommend to do product or market analysis prior to the expenditure of new product chains. Comparatively Starbucks
continues to be a top product supply with earning net Revenues reported at 6.3 billion while store sales are up 3% in 2018.
Appendix Starbucks Coffee Company Consolidated Statement of Earnings (in millions)
2015 2016 2017 2018
References
Block, S., Hirt, G., & Danielsen, B. (2017). Foundations of financial management. (16 ed.). New York City, NY: McGraw-Hill.