Starbucks Corporation (Coursework Sample)

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Tutor
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Starbucks Corporation
Introduction
Starbucks Corporation has been in business since 1971 and has managed to expand its operations rapidly to reach 65 countries with 22551 stores, mainly in the USA (12739 stores), United Kingdom (830 stores), Canada (1395 stores), and China (1868 stores). Its operations are divided into four segments, that is, Americas, EMEA (Europe, Middle East, and Africa), China/Asia Pacific, and channel development. The company works as a marketer, retailer, and distributor of speciality coffee in its worldwide market. The company has employed 191,000 employees, with total assets amounting to US $ 10.752 billion, total equity worth US $ 5272 billion, and an average annual income of US $ 2068 billion. The common stock of Starbuck trades at NASDAQ under the symbol SBUX. The stock has faced several setbacks in the market but the management strategies and business development initiatives have helped to win back the confidence of the investors to the company. The ensuing segments present an analysis of the company’s stock and financial performance, with a view to assessing the current and projected state of the company’s stock.
Analysis of the Starbucks Company
Starbucks has various operational strengths that include excellent employee management, sound financial records, having the number one brand in coffeehouse unit which is valued at us $ 4 billion, and high customer loyalty. This has helped the company to expand rapidly and reach an expansive worldwide market. However, the company has various weaknesses that include low sales due to market stagnation making some units operate at a loss, high reliance on coffee beans price, which is very volatile, and negative publicity based on health and high pricing concerns. The market in which the company operates is highly competitive with companies like McDonalds and Dunkin Donuts re-engineering their business strategies to compete effectively with Starbucks. Increased market competition and business threats have direct effects on the performance of its stock. Fundamentality, investors look at the strategies, management, market, and projection of a company to arrive at their investment decision.
In the year 2004, the Starbucks stock was trading at an average price of $ 45, which dropped to $ 28.3 after the 2:1 stock split in October 2005. The stock price continued to rise, but it had a dramatic fall in 2009 when it reached as low as $ 8.98. The company reviewed its strategies by opting which have borne some fruits where the stock price has increased from $ 8.98 in March 2009 to $ 53 by September 2015. It is projected that the company will outperform the market with the stock price targeted to have a median of $ 64.5, the low estimate of $ 43, and a higher estimate of $ 70. This represents a projected median price increase of 18.83% in the next twelve months. This is more informed by the investors’ confidence following the 2014 23.6% dividend increase to $ 0.55 with an expiated increase of 27.45% in between 2016 and 2017 (Yahoo Finance, 2).
Financial Questions
(The following figures are in million dollars and represent the financial performance of Starbucks in 2014.)
1 Financial Statement Analysis
1 Current ratio
= current assets / current liabilities
= 4168.7/3038.7
= 1.37
2 Quick Ratio
= (Current assets – inventory)/ current liabilities
= (4168.7- 1090.9) /3038.7
= 1.01
3 Inventory Turnover Ratio
= cost of sales / average inventory
= 11497/ 1090.9
=10.54
4 Total Assets Turnover Ratio
= net sales / total assets
= 16447.8/ 10752.9
=1.53
5 Days Sales Outstanding
= (account receivable/ credit sales) * number of days
= (631/16447.8) * 365
=14.003
6 Gross Profit Margin on Sales Ratio
= Gross profit/ revenue
= 4950.8/ 16447.8
= 0.301
7 Net Profit Margin on Sales Ratio
=net profit / revenue
= 2068.1 / 16447.8
= 0.13
8 Return On Equity Ratio
= net income / shareholders’ equity
= 2068.1 / 5273.7
= 0.39
9 Dividend Pay-out Ratio
= annual dividend / earning per share
= $ 0.55 / 1.365
= 0.41
10 Total Debt Ratio
= total debt / total assets
= 5479.2 / 10752.9
= 0.51
Market to Book Ratio
= Market value of the firm / book value of the firm
= market value (share price * outstanding shares) / total value
= (74.55 * 1501) / 10752.9
= 10.41
Price Earnings Ratio
= market value per share /EPS
= 74.55 / 1.365
= 54.62
Price to Sales Ratio
= share price / sales per share
= 74.55 / (16447.8 / 1501)
= 6.803
2 Trend Analysis
Year

2011

2012

2013

2014

Sales

11700

13277

14867

16448

 


13%

12%

11%

Sales per share

0.19

0.21

0.3

0.42

Growth


10.53%

42.86%

40.00%

Earnings per share

0.81

0.895

0.005

1.355

Growth


10.49%

-99.44%

27000.00%

Price earnings ratio

26.19

27.18

29.31

30.58

Growth


3.78%

7.84%

4.33%

Gross margin

3190

3545

4198

4951

Growth


11.14%

18.42%

17.92%

Net income

1245.70

1383.80

8.30

2068.10

Growth


11.09%

-99.40%

24816.87%

Net profit margin

0.1065

0.1042

0.0006

0.1257

Growth


-2.10%

-99.46%

22421.80%

Number of stores

17003

18066

19767

21366

Growth


6.25%

9.42%

8.09%

ROE

2.67

2.60

3.32

3.12

Growth


-0.03

0.27

-0.08

Starbucks has a healthy financial performance with a current ratio of 1.37 and the quick ratio of 1.01. This indicates that the company has a high ability to meet its short-term obligations when they fall due. In addition to this, the company has a high net income and gross income margin indicating that it has a low cost of sales and operational expenses. This can also be attributed to the high price that it charges for its products. However, despite registering an average annual sales growth of 12% from 2011, margin ratio growth of 4.74%, and increase in number of stores by 8.09%, the company faced a reduced sales growth. This has led to a low piece earnings ratio of 4.33% growth in 2014 compared to 7.84% in 2013. In 2014, the company had a price-earnings ratio of 28.27, which was better than the market, which had a price-earnings ratio in 2014 of 23.4 and its major competitors (McDonald's Corp with a price-earnings ratio of 19). This indicates that the company has been doing well and despite the stiff competition in the market, the company is expected to perform better than the market average and its competitors in the next year.
The table below shows a comparative performance between Starbucks and its competitors. (Bloomberg Business, 2015)
Company

Starbucks

McDonald’s

Dunkins

Sales

16448

28105.7

6900

Sales per share

0.42

29.14

7.73

Earnings per share

1.355

5.05

0.25

Price earnings ratio

30.58

3.34

45.28

Gross margin

4951

5647

160221

Net income

2068.1

4757.8

17556

Net profit margin

0.13

0.17