STARBUCKS SLRP - Where Are We?

STARBUCKS SLRP - Where Are We?

New Project Proposal: Starbucks Letters December 2008 Presented By: Dawn Harmsen Ann Hempfling Bob Kasai Sierra Kollar-Lane Yang Yang Xu Ryan Wein STARBUCKS Company History Company Starbucks Started 1971 in Seattle, WA Incorporated 1987 1992 Public Highest Distribution (Long-term Goal, 5+ Years) Growth goal of 20,000 stores in U.S. and 20,000 stores internationally Current Distribution 1997 - Purchases Seattles Best U.K. (60 stores) 2003 - Acquires Seattles Best U.S. 2006 - Purchased 40 Dietrich & Coffee People stores 2007 15,760 U.S. and International stores (11,168 in U.S. alone), plus wholesale and resale distribution companies MBA Finance Fall 2008 STARBUCKS Company Mission Inspire and nurture the human spirit - - one person, one cup, one neighborhood at a time

Be a third place for people to spend time beside home and work Understand environmental issues and share information with our partners Recognize that fiscal responsibility is essential to our environmental future Instill environmental responsibility as a corporate value Strive to buy, sell and use environmentally-friendly products Develop innovative and flexible solutions to bring about change Measure and monitor our progress for each project Encourage all partners to share in our mission MBA Finance Fall 2008 STARBUCKS Where We Are Starbucks purchases and roasts high-quality whole bean coffees and sells them along with fresh, rich-brewed, Italian style espresso beverages, a variety of pastries and confections, and coffee-related accessories and equipment -primarily through its company-operated retail stores. In addition to sales through our company-operated retail stores, Starbucks sells whole bean coffees through a specialty sales group and supermarkets. Starbucks produces and sells bottled Frappuccino coffee drink and a line of premium ice creams through its joint venture partnerships, and offers a line of innovative premium teas produced by its wholly owned subsidiary, Tazo Tea Company.

Starbucks brand has high recognition and positive reputation for high quality product and customer service. Starbucks has a large number of sales points, including company-owned stores and licensed stores (Starbucks retail product) The Company is transitioning from a focus on store expansion to improving customer Starbucks Experience. The closing of under-performing retail stores will allow more focus on quality of existing stores and product offerings, rather than expansion. MBA Finance Fall 2008 STARBUCKS Where Do We Want To Be (Vision) The Company's objective is to establish Starbucks as the most recognized and respected brand in the world. The Companys retail goal is to become the leading retailer and brand of coffee in each of its target markets by selling the finest quality coffee and related products and by providing each customer a unique Starbucks Experience. The Starbucks Experience, or third place after home and work, is built upon superior customer service as well as clean and well-maintained Company-operated retail stores that reflect the personalities of the communities in which they operate, thereby building a high degree of customer loyalty. Even as we focus on coffee, we will innovate by creating new products and experiences that complement the coffeehouse experience and drive transactions. Expand food item offerings, especially healthy selections, in order to increase food sales above 17% of total sales. MBA Finance Fall 2008

STARBUCKS How Do We Get There (Strategy) Retain loyal customers Provide customers the freshest-tasting food possible Refocus on customer experience in stores, new product and store design elements, and new training and tools to help employees give customer a superior experience. Develop products that will generate growth of earnings per share and add to The Starbucks Experience. MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Executive Summary The Concept Starbucks Letters The Opportunity Bring life to the ailing baked goods sales Increased customer satisfaction with baked goods The Potential MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Executive Summary Our Current Baked Good Products Perfect Oatmeal

Fruit Stella Real fruit, oats, nuts and clover honey with plenty of yum. Multigrain Roll Bursting with 100% whole grains plus juicy baked berries and omega-3s. Chewy Fruit & Nut Bar 100% whole-grain goodness finished with your choice of dried fruit, nut medley or brown sugar. Made with seven hearty grains and seeds and the sweet taste of honey. Comes with your choice of almond butter or fruit Apple Bran Muffin A good source of fiber, with hearty grains, dried cherries and baked apple. MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Sales Research Customers 2009 is projected to attract 920,700 new Health Conscious customers 27% of first-time customers have become repeat customers Research shows that consumers are looking for a healthier alternative to the high calorie, high fat donuts in the marketplace today.

MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Sales Research Starbucks Letters These will be differentiated from the existing bakery items that Starbucks sells because they are steamed (no oil required), fresh, and made to order MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Pricing Structure Selling price $1.50/donut Competitor prices range from $.75 - $2.00 Cost $.50/donut Profit $1.00/donut MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Return On Investment IRR = 53% CoC = 8%

Change = + 45% MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Terms and Conditions 1. Pricing valid from October 1, 2008 through October 31, 2008. Pricing is subject to change at anytime. 2. Offer valid at participating U.S. Starbucks stores 3. Pricing is valid on any Starbucks Letter bought at any participating U.S. Starbucks store. 4. This offer is void where prohibited by law 5. Purchaser will provide payment at the time of good are purchased 6. All matters of program will conclusively resolved by Starbucks Corporation 7. This offer may be combined with any other offer 8. Terms and conditions are subject to change monthly MBA Finance Fall 2008 STARBUCKS Project Strengths Low price point of Starbucks Letters relative to existing bakery options

will attract consumers looking for value but desire high-quality product Requires few additional resources (manpower, equipment, supplies) Reinforcement of strong brand image with the S-shaped letter Reinforcement of reputation for high-quality products and fast, reliable service The advantage the Starbucks name associated with high quality and a great experience Aroma of freshly baked letters will enhance the ambiance of retail locations Large number of locations ensures enormous exposure to new product very quickly Healthier option than traditional fried donuts (less calories from fat) MBA Finance Fall 2008 STARBUCKS Project Weaknesses Possible erosion from existing pastry, muffin, Danish, and breakfast sandwich sales (at select locations) Contradicts the move toward healthy breakfast options, including Starbucks Perfect Oatmeal, Chewy Fruit & Nut Bar, Apple Bran Muffin, Berry Stella and Power Protein Plate Introduction of new Starbucks Letters in domestic market only; may

miss out on significant opportunities in foreign markets Product pricing is lower than many existing foods offered; however, the price is still approximately twice that of a donut from competitors MBA Finance Fall 2008 STARBUCKS Project Opportunities Increase market share with introduction of fresh, made-to-order Starbucks Letters Product will maintain premium image but at an affordable price Diversification of non-beverage items without the need for increased head count Aroma of freshly baked Letters will enhance the ambiance of retail locations High-margin product May attract customers from lower-priced competitors (McDonalds, Dunkin Donuts) Product will help diversify offerings in the event that premium coffee loses popularity Increase spending on advertising to promote Starbucks healthier food options (including Starbucks Letters). MBA Finance Fall 2008 STARBUCKS

Project Threats Current economic environment has resulted in reduced consumer spending; consumers have less disposable income, and may spend only on necessities, not luxuries Competitors with lower prices yet good quality Consumers craving a donut-like pastry may overlook Starbucks due to perceived taste and lack of variety compared to competitors (Dunkin Donuts) Potential increase in raw material costs due to rising dairy and other food commodity prices Negative publicity/image (as a corporate giant that has put independent and smaller chains out of business) may keep potential customers from ever discovering new product MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Project Assumptions Initial Capital Investment Sales $1.50 Product Cost

Year 1: 50 units per store per day Year 2: 75 units per store per day Year 3: 100 units per store per day Product Price Machines estimated cost of $25,000, one each for the 11,000 U.S. stores = $275,000,000 $0.50 Tax Rate 36.3% MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Project Cash Flows Yr 0 unit price variable cost sales volume Sales Volume $ in (000,000) Yr 1 Yr 2 Yr 3 $1.50 $0.50 per day per store total per yr (*365) (in Millions) Revenue variable cost depreciation EBIT tax NI depreciation OCFs NWC

Beginning Ending .5% current year sales Change in net working capital Net capital spending Initial cost resale value tax savings on resale net Capital spending 50 11,000 $200.8 75 11,000 $301.1 100 11,000 $401.5 301.1 100.4 39.3 161.5 58.6 102.8 39.3 142.1 451.7 150.6 67.3 233.8 84.9 148.9 67.3 216.3 602.3 200.8 48.1 353.4 128.3 225.1 48.1 273.2 0.0 1.5 -1.5

1.5 2.3 -0.8 2.3 0.0 2.3 0 sums to zero -275.0 11.0 39.7 (net bk value- resale)*.363 50.7 -275.0 0.0 0.0 OCF NWC Net Cap spending Net Cash Flows -275.0 -275.0 142.1 -1.5 0.0 140.6 216.3 -0.8 0.0 215.5 273.2 2.3 50.7 326.1 PVIF i=8 Discounted Cash Flows 1 -275.0 0.9259 130.2

0.8573 184.8 0.7938 258.9 -134.4 -1.955 81.1 407.3 NPV = $298.9 IRR = 53.01% 53.01% Payback cum net CFs Payback = -275.0 1.96 MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Project Cash Flows NPV = $298.9 million IRR = 53% Payback = 1.96 years MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Price Sensitivity Price NPV IRR Payback

$0.85 -$16.8 5.06% no $0.90 $7.4 9.28% 2.64 $1.00 $56.0 17.36% 2.39 $1.40 $250.3 46.34% 1.75 The project will result in a positive NPV even if we priced our product as low as $0.90 For every $0.10 change in price, NPV changes $485.7mm in the same direction MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Volume Sensitivity Volume NPV IRR Payback 25,25,25 -$22.1 3.87% no 25,25,50 $28.7 12.84% 2.55 51,76,101 $305.4 53.98% 1.6 The project will result in a positive NPV even if we sold our

product starting at a volume of 25 units per store per day in year 1, 25 units per store per day in year 2, and not growing to 50 units per store per day until year 3 For a one unit change in volume per year, NPV changes $485.7mm in the same direction MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Project Capital Structure Starbucks has healthy Structure: A healthy capital structure that reflects a low level of debt and a corresponding high level of equity is a very positive sign of investment quality. 2008 45% Equity 55% Debt 2009 45% Debt 55% Equity MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Project Capital Structure Cost of Equity/Debt Using a Risk-free rate of 2.657% (10 year T-Bond) and a Market Risk Premium of 5%, the following Cost of Equity was calculated for Starbucks (Beta=1): Cost of Equity = .02657 + 1(.05) =7.66% Cost of Debt Currently priced to yield 13% Tax Rate 36.3% MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Project Capital Structure Re = cost of equity Rd = cost of debt E = market value of the firm's equity D = market value of the firm's debt

V=E+D E/V = percentage of financing that is equity D/V = percentage of financing that is debt Tc = corporate tax rate WACC The Value of Firm WACC=10% WACC=8% We will choose the firms capital structure so that the WACC is minimized. For this reason, we will say that one capital structure is better than another if it results in a lower WACC. MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Project Capital Structure Mini Indenture Issuer - Starbucks Corporation Issue date - December 6, 2008 Bond $200,000,000 Maturity coupon 6.250% 5 years Due - December 6, 2013 MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Capital Structure Inputs & Outputs NPV Capital investment Seek funding Balance sheet Bond issue D/E Ratio Capital Structure Cost of Capital MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Strategic Long-term Plan STARBUCKS CORPORATION STATEMENT OF EARNINGS / BUDGET FORECAST FOR NEXT 3 FISCAL

YEARS (2009-2011) ($ in millions) ** PROJECT FORECAST ONLY ** 2009FYE Sales/Store/Day Variable Cost/Unit Sales Price/Unit Sales (Units) Revenue COS Gross Profit SG&A EBIT Tax Net Income EPS # of Shares 50 0.5 1.5 200.8 301.1 100.4 200.8 0.0 200.8 72.9 127.9 0.17 731.7 2010FYE 2011FYE 75 0.5 1.5 301.1 451.7 150.6 301.1 0.0 301.1 109.3 191.8 0.26 731.7 100 0.5

1.5 401.5 602.3 200.8 401.5 0.0 401.5 145.7 255.8 0.35 731.7 Using project assumptions from NPV analysis for project forecasts Normal business operations forecasted separately, then project totals and normal business summed ** REST OF COMPANY FORECAST ONLY (not including Project) ** 2009FYE 2010FYE 2011FYE Net Revenue Total Operating Exp Other Income EBIT Income Taxes Earnings 10,699.9 9,629.9 1,070.0 0.1 1,070.1 388.4 681.6 ** TOTAL FORECAST (all portions) ** 2009FYE Net Revenue Total Operating Exp Other Income EBIT Income Taxes Earnings EPS # of Shares 11,001.1 9,730.3 1,270.7

0.1 1,270.8 461.3 809.5 1.11 731.7 11,014.6 9,913.2 1,101.5 0.1 1,101.5 399.9 701.7 11,224.4 10,102.0 1,122.4 0.1 1,122.5 407.5 715.1 2010FYE 2011FYE 11,466.3 10,063.7 1,402.6 0.1 1,402.7 509.2 893.5 1.22 731.7 11,826.7 10,302.7 1,523.9 0.1 1,524.0 553.2 970.8 1.33 731.7 MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Annual Plan Financial Statements STARBUCKS CORPORATION

CONSOLIDATED INCOME STATEMENTS FOR NEXT 3 FISCAL YEARS (2009-2011) ($ in millions) Sales revenue Less operating expenses Other Income EBIT Less income taxes Net income 2009FYE 2010FYE 2011FYE $11,001.1 9,730.3 1,270.7 0.1 1,270.8 461.3 $809.5 $11,466.3 10,063.7 1,402.6 0.1 1,402.7 509.2 $893.5 $11,826.7 10,302.7 1,523.9 0.1 1,524.0 553.2 $970.8 Income Statement and Balance Sheets created for next three fiscal years, based on project and normal business forecasts. STARBUCKS CORPORATION CONSOLIDATED BALANCE SHEETS FOR NEXT 3 FISCAL YEARS ($ in millions) 2009FYE 2010FYE

2011FYE ASSETS Cash ST Investments Accts Receivable Inventory Prepaid Expenses Deferred IT Total Current Assets 1,031.5 52.7 284.1 662.7 145.4 676.7 $2,853.1 1,925.0 52.7 284.1 662.7 145.4 1,185.9 $4,255.8 2,895.8 52.7 284.1 662.7 145.4 1,739.1 $5,779.8 LT Investments Equity Property, plant, eqpmt Other Assets Intangible Assets Goodwill TOTAL ASSETS: 77.6 350.4 3,183.1 258.3 65.8 234.8 $7,023.1 77.6

417.7 3,115.8 258.3 65.8 234.8 $8,425.8 77.6 465.8 3,067.7 258.3 65.8 234.8 $9,949.8 2009FYE 2010FYE 2011FYE LIABILITIES ST Debt Accts Payable Accrued Expenses Deferred Revenue Current Portion LT Debt Total Current Liabilities $615.9 329.4 742.4 373.5 0.7 $2,061.9 $615.9 329.4 742.4 373.5 0.7 $2,061.9 $615.9 329.4 742.4 373.5 0.7 $2,061.9 LT Debt Other LT Liabilities TOTAL LIABILITIES:

749.8 463.3 $3,275.0 749.8 463.3 $3,275.0 749.8 463.3 $3,275.0 SHAREHOLDER'S EQUITY Common Stock Other Add'l Paid-in Capital Retained Earnings Accum Other Income TOTAL SE: 0.7 39.4 3,628.4 79.6 $3,748.1 0.7 39.4 5,031.1 79.6 $5,150.8 0.7 39.4 6,555.1 79.6 $6,674.8 TOTAL LIAB & SE: $7,023.1 $8,425.8 $9,949.8 MBA Finance Fall 2008 STARBUCKS New Project Starbucks Letters Annual Plan STARBUCKS CORPORATION STATEMENT OF EARNINGS / BUDGET FORECAST FOR 2009 FISCAL YEAR

($ in millions) ** PROJECT FORECAST ONLY ** 2009FYE Sales/Store/Day 50 Variable Cost/Unit 0.5 Sales Price/Unit 1.5 Sales (Units) 200.8 Revenue 301.1 COS 100.4 Gross Profit 200.8 SG&A 0.0 EBIT 200.8 Tax 72.9 Net Income 127.9 EPS 0.17 # of Shares 731.7 Sales/Store/Day Variable Cost/Unit Sales Price/Unit Sales (Units) Revenue COS Gross Profit SG&A EBIT Tax Net Income EPS # of Shares ** REST OF COMPANY FORECAST ONLY (not including Project) ** 2009FYE Net Revenue Total Operating Exp Other Income EBIT Income Taxes Earnings

10,699.9 9,629.9 1,070.0 0.1 1,070.1 388.4 681.6 ** TOTAL FORECAST (all portions) ** 2009FYE Net Revenue 11,001.1 Total Operating Exp 9,730.3 1,270.7 Other Income 0.1 EBIT 1,270.8 Income Taxes 461.3 Earnings 809.5 EPS 1.11 # of Shares 731.7 Net Revenue Total Operating Exp Other Income EBIT Income Taxes Earnings Net Revenue Total Operating Exp Other Income EBIT Income Taxes Earnings EPS # of Shares Fiscal 2009 (Oct. 2009 - Sept. 2010) Project Forecast by Quarter Q1 09 Q2 09 Q3 09 Q4 09 40 45 50 65

0.5 0.5 0.5 0.5 1.5 1.5 1.5 1.5 40.2 45.2 50.2 65.2 60.2 67.8 75.3 97.9 20.1 22.6 25.1 32.6 40.2 45.2 50.2 65.2 0.0 0.0 0.0 0.0 40.2 45.2 50.2 65.2 16.1 18.1 20.1 26.1 24.1 27.1 30.1 39.1 0.03 0.04 0.04 0.05 731.7 731.7 731.7 731.7 2009 Rest of Company Forecast by Quarter (divided each quarter evenly by 25%) Q1 09 Q2 09

Q3 09 2,675.0 2,675.0 2,675.0 2,407.5 2,407.5 2,407.5 267.5 267.5 267.5 0.0 0.0 0.0 267.5 267.5 267.5 97.1 97.1 97.1 170.4 170.4 170.4 Q4 09 2,675.0 2,407.5 267.5 0.0 267.5 97.1 170.4 Total 2009 Forecast (project + rest of company) Q1 09 Q2 09 Q3 09 2,735.2 2,742.7 2,750.3 2,427.6 2,430.1 2,432.6 307.6 312.7 317.7 0.0 0.0 0.0 307.7 312.7 317.7 111.7 113.5

115.3 196.0 199.2 202.4 0.27 0.27 0.28 731.7 731.7 731.7 Q4 09 2,772.8 2,440.1 332.7 0.0 332.8 120.8 212.0 0.29 731.7 MBA Finance Fall 2008 2009FY plan for project and normal business broken into forecasts for each quarter STARBUCKS Liquidity Performance Metrics Current Ratio Current Ratio 2.80 2.06 1.38 0.86 0.79 0.79

0.80 SBUX SBUX SBUX SBUX SBUX SBUX Ind Avg FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 07 One of the most widely use ratios Taken from Balance Sheet Measures short term liquidity, or the ability to pay current debt off if necessary. 2011FYE shows $2.80 of current assets for every dollar in current liability MBA Finance Fall 2008 STARBUCKS Liquidity Performance Metrics Quick (Acid-test) Ratio Quick Ratio 0.77 0.89 0.77

0.46 0.47 0.48 SBUX SBUX SBUX SBUX SBUX SBUX Ind Avg FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 07 Measure of Short Term Liquidity Taken from Balance Sheet Takes inventory out of current assets 0.84 Least liquid current asset Book values are least reliable as measure of market value of inventory Removes the question of damaged, obsolete, or unknown inventory shrinkage Large inventories may be a sign of short-term trouble.

Over-estimation of sales, over bought or over production, slow moving inventory Large inventories decrease the ratio MBA Finance Fall 2008 STARBUCKS Leverage Performance Metrics Debt Ratio Debt Ratio 0.50 0.57 0.55 0.47 0.55 0.39 0.33 SBUX SBUX SBUX SBUX SBUX SBUX Ind Avg FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 07

Measure of Long Term Solvency Takes into account all debts of all maturities to all creditors Taken from Balance Sheet Current Liabilities + long term debt compared to total assets 2011FYE shows 33% debt or $0.33 in debt for ever $1 in asset Relates to Capital Structure MBA Finance Fall 2008 STARBUCKS Leverage Performance Metrics Debt-to-Equity Ratio Debt to Equity Ratio 1.34 1.24 0.99 0.93 0.87 0.64 0.49 SBUX SBUX SBUX SBUX SBUX SBUX Ind Avg FY 06 FY 07

FY 08 FY 09 FY 10 FY 11 FY 07 Measure of Long Term Solvency Ratio of company's total liabilities divided by the shareholder's equity from Balance Sheet 2011FYE shows 49% debt to equity or $0.49 in debt for every $1 in owner equity MBA Finance Fall 2008 STARBUCKS Activity Performance Metrics Inventory Turnover Ratio Inventory Turn (Times/Year) 53.21 12.24 13.61 15.83 14.68 15.19 15.55 SBUX SBUX SBUX SBUX SBUX

SBUX Ind Avg FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 07 Measures asset management Number of times per year the entire inventory is sold off or turned over The higher the ratio is, the more efficiently the inventory is managed Taken from Balance Sheet (Inventory) and Income Statement (Cost of goods sold) MBA Finance Fall 2008 STARBUCKS Activity Performance Metrics Average Collection (Days Receivables) Ratio Average Collection 39.25 10.51 11.17 9.89 9.43 9.04 8.77 SBUX SBUX

SBUX SBUX SBUX SBUX Ind Avg FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 07 Measures how fast we collect on the sales to reuse the money 2011FYE shows the outstanding credit accounts were collected, and reused the money 8.77 times Taken from Income Statement (Sales) and Balance Sheet (Accounts receivable) MBA Finance Fall 2008 STARBUCKS Activity Performance Metrics Asset Turnover Ratio Asset Turnover (Times/Year) 1.76 1.76 1.89 1.57 1.36 1.19 1.50

SBUX SBUX SBUX SBUX SBUX SBUX Ind Avg FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 07 Measures the big picture - for every dollar of assets, how much in sales were generated 2011FYE for every $1 in asset, $1.19 in sales were generated Taken from the Income Statement (Sales) and Balance Sheet (Total Asset) MBA Finance Fall 2008 STARBUCKS Profitability Performance Metrics Profit Margin Profit Margin 7% 7% 7% 8% 8% 7%

4% SBUX SBUX SBUX SBUX SBUX SBUX Ind Avg FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 07 Measures percent of profit for every dollar in sales Taken from Income Statement, Net Income over Sales 2011FYE shows an increase to 8% Low percentage can be made up in volume MBA Finance Fall 2008 STARBUCKS Profitability Performance Metrics Return On Assets Return on Assets 13% 13% 12%

11% 10% 7% 8% SBUX SBUX SBUX SBUX SBUX SBUX Ind Avg FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 07 Measures profit per dollar of assets Taken from Income Statement (Net Income) and Balance Sheet (Total Assets) MBA Finance Fall 2008 STARBUCKS Profitability Performance Metrics Return On Equity Return on Equity 26% 30%

29% 16% 22% 17% 15% SBUX SBUX SBUX SBUX SBUX SBUX Ind Avg FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 07 Measures how the stockholders did on their investment Taken form Income Statement (Net Income) and Balance Sheet (Total Equity) MBA Finance Fall 2008 STARBUCKS Profitability Performance Metrics Earnings Per Share Earnings per Share $1.11 $0.76

$1.22 $1.33 $0.90 $0.53 SBUX SBUX SBUX SBUX SBUX SBUX FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 Assumptions Number of stocks outstanding remained constant throughout the three year project Taken from Income Statement (Net Income) and Balance Sheet or 10K (Shares Outstanding) Basic and Diluted Shares outstanding are the same from 2008FYE and later MBA Finance Fall 2008 STARBUCKS Profitability Performance Metrics Earnings Per Share (Price) Price Earnings per Share $44.86

$29.20 $27.82 $13.44 $12.18 $11.21 SBUX SBUX SBUX SBUX SBUX SBUX FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 Assumptions Price per share remains constant throughout the three year project Basic and Diluted Shares outstanding are the same for 2008FYE and later Uses Market price per share and EPS calculated previously MBA Finance Fall 2008 STARBUCKS Conclusions

The current state of the economy not withstanding, we believe investment in this project would be a profitable venture. Our product continues to grow Starbucks current menu focus of growing their food offerings. Our product is another example of a low per unit cost offering generating significant revenues. Capital structure is healthy due to the increase in equity. Thank you and have a Very Merry Christmas! MBA Finance Fall 2008

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