Beruflich Dokumente
Kultur Dokumente
Global MBA
Year 2019
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Introduction
Company performance aims to evaluate its market position, assets and liabilities. It aims
to use ratio analysis to effectiveness of its operational and management efficiency. Primary
data is collected from annual reports from year 2017 – 2019. This paper presents in-depth
analysis on different ratios such as liquidity, profitability, solvency and market ratios. Ratio
analysis is conducted to evaluate short and long term liquidity of the firm and ability to meet
its financial obligations. It facilitate in forecasting risk taking ability and long term solvency,
extent to which it can take and repay debt, its assets utilization to generate optimal sales
Starbucks
Starbucks corporation was established in the year 1971 in USA, it is global coffee chain
headquarter at Seattle. Company has expanded its business tremendously with its presence in
28,218 locations [ CITATION www192 \l 1033 ]. It sell premium quality coffee, tea products,
lately it has also invented Frappuccino beverages, La Boulange pastries, and snacks. Key
mission of the company is to inspire and nurture human spirit. It aims to deliver premium
Industry analysis
Coffee industry is highly competitive in terms of price, service and product quality and
innovation. On industry life cycle it is mature stage with low growth rate. There is presence
regional and inter firm rivalry. Its key competitive advantage is its large size and wide market
presence. Key competitors of the brand include Costa Coffee, McDonald's, Dunkin' Donuts.
In terms of industry rivalry barrier to new entrant is low as it does not require high
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investment, it can be started with low investment at regional and local level. There is no
switching cost; however large companies like Starbucks enjoy economies of scale. There is
high threat of substitutes such as tea, juices, water, packaged drinks and soda. Sometimes
customer also preferred to have homemade premium coffee at low cost. Further, bargaining
power of buyer is high as coffee is a commodity enjoyed by many, however company tackle
this situation by offering different types of for customers at various price. Company uses high
quality Arabic beans, it offer premium quality product. According to data, an average
Starbucks customer has yearly income of $70,000, only 17% of its customers falling below
yearly income of $30,000. Suppliers have very low bargaining power as company works with
Internal analysis
Starbucks have strong market position, high brand image with global presence and 39.8
percent market share. Starbucks management aims to expand its business in various new
markets through re-modelling stores, new technologies and aggressive product innovation.
Company aims to open 12000 new stores by year 2021. Key weaknesses of brand include
expensive product as many times customers switch to low cost offering. As it has several
stores in one market, there is risk of Self-Cannibalization due to overcrowding. Key market
opportunities include its recent deal with Alibaba to enter China market; it is also expanding
its business in different emerging markets. However, as the market is at mature stage,
competition is stiff, causing loss of opportunity. Price volatility in coffee industry impact
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Financial analysis
Liquidity
Liquidity ratio aims to analyse how successfully company employ its assets to ensure quick
conversion into cash. It establishes relationship between current assets and liabilities. Three sub types
Liquidity Ratio
2017 2018 2019
Total Current Assets…(A) 5283.40 12494.20 5653.90
Total Current Liability (B) 4220.70 5684.20 6168.70
Liquid Assets: (C/A - Debtors) (C) 4413.00 11801.10 4774.70
Cash and Cash Equivalent (CCE) 2462.30 8756.30 2686.60
Current Ratio (A/B) 1.25 2.20 0.92
Quick Ratio (C/B) 1.05 2.08 0.77
Cash Ratio (CCE/B) 0.58 1.54 0.44
Current ratio
Current ratio helps in calculating cash availability with the firm by dividing current assets
by current liabilities. It is consider by investors to evaluate company stability and its financial
strength to meet its present and future liabilities. It’s a business survival tool consider by
Formula
Calculation
Inference
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Higher current ratio shows stable position of the company, ideal figure is 2, however it is
current ratio as figure below one does not ensure poor financial position. Sometimes,
companies paying their creditors on monthly basis and have quick conversion of cash to pay
liability. In Starbucks, company have strong current ratio figure in 2017 i.e. 1.2, it increased
to 2.20 in 2018 showing very strong market position, however figure decreased to 0.92 in
Quick ratio is stricter than current ratio as it include highly liquid assets to convert into
cash, it deduct inventory from current assets, representing near cash availability for
Formula
Calculation
Inferences
Analysis of ratio is similar to current ratio. In year 2017, quick ratio was 1.05 times which
increased significantly to 2.08 in the year 2018; it also decreased silently in year 2019 to
0.77. Ratio represent that Starbucks has constantly maintain good liquidity position.
Cash ratio
Cash ratio focus on estimating the amount of Liabilities Company can pay from its
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receivable and inventory as tool to convert into cash. It is most fluctuating ratio due to quick
Formula
Calculation
Inferences
According to analysis, in year 2018 Starbucks cash ratio increase to 1.54 from 0.58 in the
previous year, showing its high repaying ability. Further, there is slope in 2019 as figure
reduced to 0.44.
Profitability
As the name defines, it aims to evaluate income and profit generating abilities of the
organization. This ratio is employed by investors to evaluate future company prospects from
categorised as General profitability and overall profitability ratios. Key ratios include
3. Return on Asset
4. Return on Equity
Profitability Ratio
2017 2018 2019
Gross Profit (U) 3743.30 3582.10 3779.90
Net Profit (V) 2884.90 4518.00 3594.60
Revenue (W) 22386.80 24719.50 26508.60
Gross Profit Margin (U/W * 100) (In %) 16.72 14.49 14.26
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Net Profit after Tax Margin (V/W * 100)
12.89 18.28 13.56
( %)
Assets (X) 14365.60 24156.40 19219.60
Equity Capital (Y) 5457.00 1175.80 -6231.00
Net Operating Profit (Z) 4228.20 5758.90 4700.70
Equity Capital + Non-Current Liability
10144.90 18472.20 13050.90
(AA)
Return on Assets (V/X* 100) (In %) 20.08 18.70 18.70
Return on Equity (V/Y* 100) (In %) 52.87 384.25 -57.69
Return on Capital Employed (Z/AA * 100)
41.68 31.18 36.02
(%)
Net profit margin ratio calculate net profit after tax to net sales, to evaluate total sales
profit after being all expenditure. This ratio helps proprietors in evaluating firm efficiency as
it include all non-operating income such as divided, interest and deduct all non-operating
expenditures such as loss of old asset, provision for loss etc. [ CITATION Pro06 \l 1033 ].
Formula
Calculation
ratio
Net Profit after 12.89 18.28 13.56
100) (%)
Inference
As stated, this ratio helps in evaluating product pricing, using this ratio management can
also set price level to reach the one with maximum profit correctly. In the year 2017, profit
margin was 12.89, which increased to 18.29 in the year 2018. However, net profit margin
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shows slump in year 2019 to 13.56. Major problems encountered by brand include increase in
Gross profit margin helps in evaluating operational efficiency of the firm through raw
material and working process optimization [ CITATION Var17 \l 1033 ]. Its figure shows how
optimally raw material and labours are employed at task to gain maximum return.
Formula
Calculations
Inference
Gross profit margin was highest in the year 2017 to 16.72, it decreased to 14.49 in the
year 2018 and there is further decrease in 2019 to 14.26. Gross profit margin needs to be high
as it needs to cover several expenditures such as marketing, research, and cost of selling,
labour and equipment. According to Warren Buffet, gross profit margin less than 40 percent
take strategic actions as it might be a signal of future sales decline [ CITATION gur19 \l 1033 ].
Return on assets
Return on asset aims to finds out organizational ability to utilize its assets efficiently to
Formula
Return on Assets=Total Assets/Net Income
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Calculation
ratio
Return on Assets 20.08 18.70 18.70
(In %)
Inference
According to above analysis, in year 2017 return on assets for Starbucks was 20.08,
which decrease to 18.7 in 2018 and 2019. There is decline in return on assets when there is
rise in assets but profitability fails to rise at same level; or assets fail to perform optimally due
Return on equity
Return on equity demonstrates the way company generate profit using investment fund
Formula
Calculation
ratio
Return on Equity 52.87 384.25 -57.69
(In %)
Inference
performance. Return on equity for Starbucks performed very differently in these three years.
In year 2017 it was 52.87 which rose significantly to 384.25 in the year 2018 showing strong
performance and profitability. However, in year 2019 it again slumped negatively to -57.69
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Efficiency and operation
It is among notable ratios as it measure company effectiveness to control its assets and
convert it into cash or sales. It also evaluates total expenses to net sales, showing company
Activity / Efficiency Ratio
2017 2018 2019
Revenue (I) 22386.80 24719.50 26508.60
Trade Receivable (J) 870.40 693.10 879.20
Creditors (M) 782.50 1179.30 1189.70
Cost of Sales (Q) 18643.50 21137.40 22728.70
Inventory (R ) 1364.00 1400.50 1529.40
Trade Receivable Turnover Ratio (K= I/J) 25.72 35.67 30.15
Trade Receivable Turnover Period (L =
14.19 10.23 12.11
365/K)
Trade Payable Turnover Ratio (N= I/M) 28.61 20.96 22.28
Trade Payable Turnover Period (P = 365/N) 12.76 17.41 16.38
Inventory Turnover Ratio (S= Q/R) 13.67 15.09 14.86
Inventory Turnover Period (T = 365/S) 26.70 24.18 24.56
Accounts payable turnover ratio evaluates short term liquidity; it calculates rates at which
company make payment to its supplier. Times Company paid its debtors in a specific period
of time and number of average day it takes to repay. For Starbucks average account payable
ratio is 28.61 in the year 2017, 20.96 in the year 2018 and 22.28 in year 2019.
Account receivable facilitate in comparing size of company sales and uncollected bills.
Low account receivable ratio shows large accounts of receivable bills, whereas high ratio
indicates timely collection of dues. For Starbucks average trade receivable ratio is 25.72 in
the year 2017, 35.67 in the year 2018 and 30.15 in year 2019. Further average receivable
turnover period is 14.19 in the year 2017, 10.23 in the year 2018 and 12.11 in year 2019.
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Inventory Turnover
Inventory turnover ratio measures how fast firm organization sells its total inventory. It
calculates movement of goods. Strong ratio indicates reduce level of inventory, reduction in
risk of obsolesce and storage. Inventory management is trickier concept as high inventory
turnover ratio indicate low inventory in hand, it might lead to loss of customer and sales.
Formula
Calculation
(S= Q/R)
Inventory
365/S)
Inference
Inventory turnover ratio for Starbucks for the year 2017 was 13.67 with turnover period
of 26.70, in the year 2018 it was 15.09 and turnover period was 24.18; in the year 2019 it was
Gearing Ratio
Gearing ratio measures the proportion of company funds to equity, it facilitate in calculating
financial risk involved in business due to its debt. High gearing ratio represents high debt
and leverage as it is using debt to pay its operations, leading to poor financial position.
Further, if company debt is in variable interest rates then sudden rise in interest might cause
serious loss. However, high gearing ratio is less concern for industries with strong
regulations. Further low gearing ratio might represent conservative financial system.
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Solvency / Gearing Ratio
2017 2018 2019
Total Equity Capital (D) 5450.10 1169.50 -6232.20
Total Assets (E) 14365.60 24156.40 19219.60
Operating Profit / Loss (F) 4134.70 3883.30 4077.90
Interest Expenses (G) 92.50 170.30 331.00
Total Long Term Borrowings (H) 3932.60 9090.20 11167.00
Interest Coverage Ratio (F/G) 44.70 22.80 12.32
Debt- Equity Ratio (H/D) 0.72 7.77 -1.79
Proprietary Ratio (D/E) 0.38 0.05 -0.32
Interest coverage ratio evaluates company ability to meet its interest payment obligations.
Formula
Where:
Calculation
Appendix 1
ratio
Inference
According to analysis interest coverage ratio for year 2017 was 44.70; for 2018 was 22.80
and 2019 are 12.32. This shows interest coverage ratio for Starbucks is lowering every year,
showing rise in debt expense burden and raising questions on company ability to meet its
interest expenditure.
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The debt to equity ratio is evaluated to understand company liabilities vis-à-vis its
shareholder equity; therefore its ability to finance its operations and outstanding using its own
Formula
Debt to Equity Ratio = (short term debt + long term debt + fixed payment obligations) /
Shareholders’ Equity
Calculation
Inference
Lower debt ratio shows stable and strong financial position; it is less risky to creditors.
Debt equity ratio of Starbucks for year 2019 was -1.79 which is very power, whereas 7.77 for
Proprietary ratio
The proprietary ratio aims to evaluate company usage of its capitalization for supporting
business. High proprietary ratio indicates sufficient amount of equity with company for
continuing its business operation. However, low ratio indicates high usage of debt.
Formula
Calculation
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Inference
Starbucks have very low proprietary ratio, showing high risk of financial debt and trade
payables. In the year 2017 it was 0.38, in the year 2018 it was 0.05 and in 2019 it was -0.32.
Market value ratio is ownership ratio calculated to analyse present and future investment
in company. It facilitates to evaluate the way certain variable impact share values, future
market value of company stocks. Key ratios under this include
Investment and Market Ratio
2017 2018 2019
Market Value per Share …(A) 53.71 56.84 88.42
Weighted averg no of shares in issue (B) 1449.50 1382.70 1224.20
Net income available to common shareholders
2885.10 4518.30 3599.20
(C )
14365.6 24156.4 19219.6
Total Assets (D)
0 0 0
Total Liabilities (Current & Non-Current) 22980.6 25450.6
8908.60
(E) 0 0
Book Value (F) = (D-E) 5457.00 1175.80 -6231.00
Net income available to common shareholders
2885.10 4518.30 3599.20
(G )
Earnings Per Share (H) = (C/B)
1.99 3.27 2.94
In '$'
Price to Earnings Ratio (I) = (A/H) 0.70 0.45 0.56
Traling Earning Growth Rate (J) - - 0.14
PEG Ratio (K) = (I/J) - - 4.04
Book Value per share (L) = (F/B) 3.76 0.85 -5.09
Price to Book Value Ratio (M) = (A/M) 14.27 66.84 -17.37
Price earnings ratio calculates company present share prices to its earnings per share, to
evaluate the amount which market is willing to pay for company’s earnings.
Formula
P/E Ratio=Earnings per share/Market value per share
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Calculation
Interpretation
Price to earnings ratio of the company shows downturn in last three years. In the year
2017 it was 0.70, which reduce 0.45 and in 2019 it was 0.56. There is depletion in its book
value, which might result into capital depletion if necessary action not taken.
Formula
Calculation
(A/M)
Inference
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