Financial Analysis of Starbucks Overview Industry and Market

Financial Analysis of Starbucks Overview  Industry and Market

Financial Analysis of Starbucks Overview Industry and Market Commodity Starbucks is only global chain Dominated by single or small chain retailers Global demand Market Elasticity Overview Coffee Industry Overview Starbucks Strategy High Margin Specialty Products Franchising Global Expansion

3 Years Summary Ratios Historical Balance Sheet Proportions 5 Year Projection Ratios by categories Liquidity Ratios Short-term solvency Current Ratio Quick (Acid Test) Ratio Cash Flow Liquidity Ratio Liquidity Ratios Starbucks Current Ratio Quick (Acid Test)

Ratio Cash Flow Liquidity Ratio 2007 2006 2005 0.76 0.79 0.99 0.47 0.46 0.54

0.81 0.82 1.00 Liquidity Ratios 1.2 1 0.8 0.6 0.4 0.2 0 Current Ratio Quick (Acid Tes t) Ratio Cas h Flow Liquidity Ratio 2007

2006 2005 Liquidity Ratios (continued) Efficiency in managing cash Net Trade Cycle Average Collection Period Days Inventory Held Days Payable Outstanding Liquidity Ratios (continued) Starbucks 2007 2006

2005 Net Trade Cycle (days) 48.54 50.73 65.19 10.64 10.51 10.93 84.46 86.65

91.12 45.12 46.43 36.86 Average Collection Period (days) Day Inventory Held Days Payable Outstanding Liquidity Ratios (continued) 100 Net Trade Cycle (days ) 80

Average Collection Period (days ) 60 40 Day Inventory Held 20 0 Days Payable Outs tanding 2007 2006 2005 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 Starbucks 2007 2006 2005 Accounts 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 Accounts Receivable Turnover 14 12

10 8 6 4 2 0 Inventory Turnover Accounts Payable Turnover Fixed As s et Turnover 2007 2006 2005 Total As s et Turnover Leverage Ratios Address extent of firms financing with debt.

Debt Ratio Long-term Debt to Total Capitalization Debt to Equity Leverage Ratios Starbucks 2007 2006 2005 Debt Ratio 51.31% 49.7% 40.5%

0.10% 0.09% 0.14% 1.21 0.99 0.68 LT Debt to Total Capitalization Debt to Equity Leverage Ratios 1.4 1.2 1

Debt Ratio 0.8 0.6 LT Debt to Total Capitalization 0.4 0.2 Debt to Equity 0 2007 2006 2005 LT Debt to Total Capitalization

0.0015 0.001 LT Debt to Total Capitalization 0.0005 0 2007 2006 2005 Leverage Ratios (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 (continued) Starbucks 2007 2006 2005 Times Interest Earned 97 106 600

Cash Interest Coverage 108 134 1,087 Fixed Charge Coverage 2.56 2.75 2.86 Cash Flow Adequacy

1.24 1.25 1.37 Leverage Ratios (continued) 1200 1000 800 Tim es Interes t Earned 600 400 Cas h Interes t Coverage 200 0

2007 2006 2005 3.5 3 2.5 2 1.5 1 0.5 0 Fixed Charge Coverage Cas h Flow Adequacy 2007 2006

2005 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 Starbucks 2007 2006 200 5 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% 24.9% 25.6% 26.3% Cash Return on Assets Profitability Ratios 0.7 0.6 0.5 0.4 0.3

0.2 0.1 0 Gros s Profit Margin Operating Profit Margin Net Profit Margin Cas h Flow Margin ROA or ROI Return on Equity 2007 2006 2005 Cas h Return on As s ets Trend Analysis Starbucks

2007 2006 2005 Ending share price $29.90 $34.05 $31.93 Earnings per share $0.84 $0.71 $0.61

39 48 52 Price to earnings ratio Trend Analysis 60 50 40 Ending s hare price 30 20 Price to earnings ratio

10 0 2007 2006 2005 Earnings per s hare 1 0.8 0.6 0.4 0.2 0 Earnings per s hare 2007

2006 2005 Starbucks 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 Starbucks Summary The effect of competition on strategy and profitability Impact of high/low leverage The value of the ratio analysis

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