3. 1. Details of the company Starbucks
1.1 History of Starbucks
Starbucks Corporation, an American global coffee company and coffeehouse chain based in
Seattle, Washington was founded in the year 1971. Founders Jerry Baldwin, Zev Siegl and
Gordon Bowker from the University of San Francisco had drawn the theme of their new coffee
company from the nautical mythology and later picked a name out of Herman Melville’s
MobyDick, Starbucks, the name which people are familiar with these days.
In 1971, Starbucks opened the first store in Seattle’s Pike Place Market. A few years later, in
1982, Howard Schultz joined Starbucks as the director of retail operations and marketing and
Starbucks began providing coffee to fine restaurants and espresso bars. In 1983, on a trip to Italy,
Schultz was impressed with the popularity of espresso bars in Milan. He saw the potential to
develop a similar coffeehouse culture in the United States. However, he failed to convince
Starbucks’ founders of the viability of a concept as novel as coffee bars in Seattle. He then left
the company in 1985.
The next year, Schultz opened a coffee bar of his own, named “Il Giornale” after one of the
Milan’s newspapers. Two years after that, he had successfully found enough local investors to
purchase Starbucks outright, which put him in a position as the CEO of the firm. At the same
time, he changed the name to Starbucks Corporation and began his primary goal by adopting the
concept of coffee bars in his operating store in Seattle. Over the years, he expanded the firm
throughout the United States, Canada and all over the world.
Starbucks’ greatest period of expansion began in the early 1990s. In spite of having opened
moneylosing branches in the USmidwest and British Columbia, it moved profitably into
California in 1991, making its initial public offering on the stock market the following year.
Starbucks continued to expand throughout the decade by opening on average two new stores
every day. Until today, it is reported that Starbucks has a total number of 21,878 stores in 66
countries and territories, including 12,218 in the United States, 1,716 in China, 1,330 in Canada,
1,079 in Japan and 808 in the United Kingdom.
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4. 1.2 Recent Developments of Starbucks
Since 1971, Starbucks Corporation has been committed to ethically sourcing and roasting the
highestquality arabica coffee. Today, with stores around the globe, the company is the premier
roaster and retailer of specialty coffee in the world.
In fiscal 2013, Starbucks has opened 1,701 net new stores across the globe and at the same time
having its first stores opened in India, Vietnam and Monaco, and later announced the plan to
enter Colombia in 2014. Besides, Starbucks had hit a record of $14.9 billion in revenue and
ranking as FORTUNE Magazine’s 5digit shareholder returns.
In February 2014, Starbucks has marked its two significant milestones in Southeast Asia,
opening its first store in Brunei and its 100th store in Singapore, marking its 15th market in the
Asia Pacific region and its 64th market globally. The company is on track to expand its footprint
by adding approximately 750 stores across China and Asia Pacific within the year 2014.
Later in March, Howard Schultz, chairman, president and CEO of Starbucks, together with
Oprah Winfrey, the global media leader and philanthropist, had announced the collaboration to
cocreate Teavana Oprah Chai Tea which will be sold in Starbucks and Teavana stores across the
U.S. and Canada. In addition, Starbucks will be making a donation for each product sold to the
Oprah Winfrey Leadership Academy Foundation, which provides funding and educational
opportunities for the youth.
This year, on the 6th of April, 2015, Starbucks had announced that through its partnership with
Oprah Winfrey, the sales of Teavana Oprah Chai have raised more than $5 million for the youth
organizations in the U.S. and Canada. Apart from that, recently, Starbucks has also made a
commitment to hire 10,000 young people who are not in school or are unemployed over the next
3 years, and at the same time making college education possible for thousands of employees
through the Starbucks College Achievement Plan, which has 2,000 partners enrolled in the
program, with a goal to graduate 25,000 partners by 2025.
Besides, Starbucks has also successfully verified 99% of its coffee as ethically sourced this year
and meanwhile on the 16th of April, Starbucks is named as one of the “Best Workplaces in
Canada" for the fifthconsecutive year and at the same time being one of the highest ranking
publiclytraded retailer on the list of top 50 large and multinational companies.
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7. 3. Financial Ratio Analysis
3.1 Profitability Ratio
*in million
Profitability
Ratio
Formula 2013 2014 Interpretation
Return on
Equity (ROE)
(Net Profit /
Average
Owner
Equity)
x 100%
[8.3/
(4482.3+5114.5)]
x 100%
= (8.3/4798.4)
x 100%
= 0.2%
[2068.1/
(5273.7+4482.3)]
x 100%
= (2068.1/4878)
x 100%
= 42.4%
During the 2013 to 2014
period, the ROE has
increased from 0.2% to
42.4%. The owner is
getting more return from
his capital as compared
to last year.
Net Profit
Margin (NPM)
(Net Profit /
Net Sales)
x 100%
(8.3/14866.8)
x 100%
= 0.1%
(2068.1/16447.8)
x 100%
= 12.6%
During the 2013 to 2014
period, the NPM has
increased from 0.1% to
12.6%. The ability of
the business to control
its expenses is getting
better as compared to
last year.
Gross Profit
Margin (GPM)
(Gross Profit /
Net Sales)
x 100%
[(14866.86382.3)
/14866.8] x 100%
= (8484.5/14866.8)
x 100%
= 57.1%
[(16447.86858.8)
/16447.8] x 100%
= (9589/16447.8)
x 100%
= 58.3%
During the 2013 to 2014
period, the GPM has
increased from 57.1% to
58.3%.The ability of the
business to control its
cost of goods sold
expenses is getting
better as compared to
last year.
Selling
Expenses
Ratio (SER)
(Total Selling
Exp. / Net
Sales)
x 100%
[(4286.1+431.8) /
14866.8)] x 100%
=(4717.9/14866.8)
x 100%
= 31.7%
[(4638.2+457.3) /
16447.8)] x 100%
=(5095.5/16447.8)
x 100%
= 31%
During the 2013 to 2014
period, the SER has
decreased from 31.7%
to 31%. The ability of
the business to control
its selling expenses is
getting better as
compared to last year.
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8. Profitability
Ratio
Formula 2013 2014 Interpretation
General
Expenses
Ratio (GER)
(General Exp.
/ Net Sales) x
100%
[(621.4+937.9)/
14866.8]
x 100%
=(1559.3/14866.8)
x 100%
= 10.5%
[(709.6+991.3)/
16447.8]
x 100%
=(1700.9/16447.8)
x 100%
= 10.3%
During the 2013 to 2014
period, the GER has
decreased from 10.5%
to 10.3%. The ability of
the business to control
its general expenses is
getting better as
compared to last year.
Financial
Expenses
Ratio (FER)
(Financial
Exp. / Net
Sales) x
100%
(28.1/14866.8)
x 100%
= 0.2%
(64.1/16447.8)
x 100%
= 0.4%
During the 2013 to 2014
period, the FER has
increased from 0.2% to
0.4%. The ability of
business to control its
financial expenses is
getting worse as
compared to last year.
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9. 3.2 Stability Ratios
*in million
Stability Ratios Formulae 2013 2014 Interpretation
Working Capital (Total Current
Asset / Total
Current
Liabilities)
(5471.4/5377.3)
= 1.02 : 1
(4168.7/3038.7)
= 1.37 : 1
During the 2013 to
2014 period, the
business’s working
capital has increased
from 1.02:1 to 1.37:1.
The business’s ability
to pay off its current
liabilities is getting
better. However, it
does not satisfied the
minimum ratio of 2:1.
Total Debt (Total
Liabilities /
Total Assets)
x 100%
(7034.4/11516.7)
x 100%
= 61.1%
(5479.2/10752.9)
x 100%
= 51%
During the 2013 to
2014 period, the
business’s total debt
has decreased from
61.1% to 51%. This
means that the
business’s total debt
has decreased.
However, it does not
satisfied the 50%
limit.
Inventory
Turnover
365 (Cost of÷
Goods
Sold/Average
Inventory)
365 ÷
(6382.3/1111.2)
= 63.5 days
365 ÷
(6858.8 / 1090.9)
= 58.1 days
During the 2013 to
2014 period, the
business’s inventory
turnover has
decreased from 63.5
days to 58.1
days.This means that
the business sells its
goods faster than last
year.
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10. Stability Ratios Formulae 2013 2014 Interpretation
Debtor Turnover 365 (Credit÷
Sales/Average
Debtor)
365÷
[ 7433.4÷
[(561.4+485.9)/2] ]
= 365 ÷
(7433.4/523.7)
= 25.7 days
365 ÷
[ 8223.9÷
[(631+561.4)/2] ]
= 365 ÷
(8223.9/596.2)
= 26.5 days
During the 2013 to
2014 period, the
business’s debtor
turnover has
increased from 25.7
days to 26.5 days.
The business takes a
longer time to collect
its debt as compared
to last year.
Interest Coverage (Interest
Expenses +
Net Profit) ÷
(Interest
Expenses)
(28.1 + 8.3)
28.1÷
= 1.3 times
(64.1 + 2068.1)
64.1÷
= 33.3 times
During year 2013 to
2014, the business’s
interest coverage has
increased from 1.3
times to 33.3 times.
The ability of the
business to pay its
interest expenses is
getting better. In
addition, it satisfies
the minimum
requirement of 5
times.
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11. 4. Price/Earning Ratio
Share price of Starbucks Corporation as at 1st of June in 2015 : $51.96
Earning per share of Starbucks Corporation as at 1st of June in 2015 : $1.70
P/E ratio = Current share price
Earnings per share (in number of times)
= $51.96
$1.70
= 30.56 times
Interpretation :
Based on calculation, the company’s price/earning ratio is 30.56 times. This means that the share
price of the company is high and the investor will have to wait for a period of about 31 years to
recoup his investment.
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12. 5. Investment Recommendation
Based on calculation, it is concluded that the business’s profitability was getting better over the
period from 2013 to 2014. The Return on Equity (ROE), Net Profit Margin (NPM), Gross Profit
Margin (GPM), Selling Expenses Ratio (SER) and General Expenses Ratio (GER) over the
20132014 period have shown that the business is generating revenues and profit in which the
owner is getting more return from his investment and the business’s ability in controlling its
overall expenses are also getting better as compared to last year. However, there is an increase in
the Financial Expenses Ratio (FER) whereby the business’s ability in controlling its financial
expenses is getting worse as compared to the year in 2013.
Besides, the stability ratios which includes the company’s working capital, total debt, inventory
turnover and interest coverage are achieving a satisfactory result such that the business’s
performance was getting better over the 20132014 period. However, there is an increase in the
debtor turnover ratio in which the business is taking a longer time to collect its debt as compared
to last year.
On the other hand, the P/E ratio of Starbucks Corporation calculated based on the current share
price and earning per share is 30.56 times. This means that if an investor were to purchase the
shares of Starbucks Corporation, he would have to wait for a period of about 31 years to recoup
his investment. Besides, a conservative investor would most probably purchase only a share with
a P/E ratio of 15 times or below.
In conclusion, the Starbucks Corporation’s shares are not suitable for investment as the current
share price is high such that it comes with a P/E ratio of more than 15 times. In other words, if a
person were to invest in the company’s shares, he or she will have to wait for a long time to
claim back his or her original principal. Hence, it would be wise not to invest in the company.
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13. 6. References
1. Profitability Ratio: Definition, Formula, Analysis & Example. (n.d.). Retrieved June 1,
2015, from
http://study.com/academy/lesson/profitabilityratiodefinitionformulaanalysisexample.
html
2. Starbucks Corporation (SBUX). (n.d.). Retrieved June 1, 2015, from
http://www.nasdaq.com/symbol/sbux
3. Starbucks Coffee Company,.(2015). Retrieved 1 June 2015, from
http://globalassets.starbucks.com/assets/5deaa36b7f454011a8597d271f552106.pdf
4. Starbucks Coffee Company,. (2015). Company Information. Retrieved 1 June 2015, from
http://www.starbucks.com/aboutus/companyinformation
5. Inside Retail Asia,. (2014). Starbucks hits milestone in Singapore Inside Retail Asia.
Retrieved 2 June 2015, from
http://insideretail.asia/2014/02/16/starbuckshitsmilestoneinsingapore/
6. Starbucks Newsroom,. (2015). Starbucks and Oprah Winfrey Come Together to Create
Teavana Oprah Chai Tea | Starbucks Newsroom. Retrieved 2 June 2015, from
https://news.starbucks.com/news/starbucksandoprahwinfreycometogethertocreatet
eavanaoprahchaitea
7. Starbucks Newsroom,. (2015). Starbucks Announces $5 Million Raised for Youth
Education and Mentorship through Teavana Oprah Chai | Starbucks Newsroom.
Retrieved 2 June 2015, from
https://news.starbucks.com/news/5millionraisedforeducationthroughteavanaoprahch
ai
8. Starbucks Newsroom,. (2015). Starbucks Named One of the Top 10 Places to Work in
Canada | Starbucks Newsroom. Retrieved 2 June 2015, from
https://news.starbucks.com/news/starbucksnamedoneofthetop10placestoworkinc
anada
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![School Of Architecture, Building & Design
Foundation In Natural & Built Environment
Group Members :
NAME STUDENT ID
OOI YIN JI 0319962
LING SUE ER 0321683
LILLIAN TAN AI JUN 0320087
Module : Basic Accounting [ACC30205]
Assignment title : Financial Ratio Analysis Report (Starbucks)
Lecturer : Mr. Chang Jau Ho
Submission Date : 4th June 2015
1](https://image.slidesharecdn.com/accreport-150608110959-lva1-app6892/85/ACC-REPORT-1-320.jpg)
