Acc 230 Final Starbucks Financial Analysis Paper
Starbucks Financial Analysis Author Axia College of University of Phoenix Starbucks Financial Analysis Starbucks Coffee originated in 1971 as a coffee and tea cafe opening in a small neighborhood of Seattle, Washington (Starbucks Corporation, 2010). Starbucks continued its service for Seattle residents for a decade when the new director of retail operations and marketing, Howard Shultz, decided to make some beneficial changes to the company. After two years of employment Howard Shultz decided to expand Starbucks outside of the Seattle area.
In 1987 Starbucks was entering in the coffee market and the few numbers of Starbucks were now becoming a corporation (Starbucks Corporation, 2010). Fast forwarding to current times, Starbucks is now located across America and has branched out into international territory. Starbucks now ranges from selling coffees, teas, food, and coffee accessories to having its name brand coffees being sold in grocery stores. Statement of Earnings Starbucks Corporations 2009 fiscal year ended on September 28, 2009 (Starbucks Corporation, 2010).
In comparison with the 2008 Statement of Earnings, Starbucks Corporation has experienced an increase in net earnings totaling $390 million in 2009 (Starbucks Corporation, 2010). This is still significantly lower than the 2007 net earnings of $672 million dropping $360 million over the course of one year. The company was however able to increase the cost of goods sold. Compared to the 2008 gross profit margin when Starbucks experienced a large increase, in 2009 Starbucks experienced a decline by 2. 25% (Starbucks Corporation, 2010).
In the 2009 fiscal year the Statement of Earnings depicts a depreciation and amortization expenses decreased and operating income and operating margin decrease. The decrease in sales which Starbucks reported in 2008 is cause for the decrease in operating income and operating margin in the 2009 fiscal year. Since the 2008 fiscal year, 2009 has brought on a 4% decrease in the net profit margin for Starbucks (Starbucks Corporation, 2010). Balance Sheet In the 2009 fiscal year, Starbucks Corporation states a slight decrease in ash on hand though the net receivables show an increase. A comparison of the 2008 and 2009 inventory depicts a decline in 2009 that suggests Starbucks Corporation is not making inventory purchases prior to selling the current on-hand inventory. The current economic struggles have forced Starbucks Corporation to make some adjustments in the financial strengths of the company and close some coffee shops throughout the 2009 fiscal year, appearing as a decrease to the current assets of Starbucks Corporations.
The decrease in the current assets and fixed assets of Starbucks Corporation the total assets for the 2009 fiscal year have increased by $300 million (Starbucks Corporation, 2010). Statement of Cash Flow The Statement of Cash Flow for the 2009 fiscal year depicts a $70 million decrease in cash flow (Starbucks Corporation, 2010). Starbucks Corporation did however increase its invested cash flow by $115 million in 2009 (Starbucks Corporation, 2010).
An analysis of the Statement of Cash Flow for the 2009 fiscal year of Starbucks Corporation shows that Starbucks Corporation has been attempting to reduce its current operating expenses and cash flow. Ratio Comparisons Within the coffee industry Starbucks Corporations has grown from a small shop to a leading coffee distributor, proving to have financial strength and determination to continue growth. With the weakening economy the continued success of Starbucks Corporation is being threatened by the high cost of coffee and the decreased spending of consumers.
Coffee is now being purchased based on cost, not quality. The financial strengths of Starbucks Corporation is being tested against its limits with the decline in premium coffee sales while Starbucks continues to push to stay on top of competition. Compared to competition in the coffee market Starbucks is displaying a higher debt to equity ratio of 0. 15 compared to the industry at 0. 13. Starbucks Corporation and the coffee industry competition remain similar at a 1. 5 current ratio for Starbucks and a 1. current ratio for the industry (MSN Money Market, 2010). The quick ratio within the coffee industry currently sits at 1. 3 while Starbucks Corporation holds strong at a 1. 2 quick ratio (MSN Money Central, 2010). Starbucks Corporation depicts a leverage ratio in comparison to the competition showing a 1. 7 leverage ratio for both Starbucks and the industry (MSN Money Central, 2010). Starbucks Corporation is also remaining steady with a lower than industry book value to share ratio of 4. 95 compared to 6. 33 (MSN Money Central, 2010). Industry Comparison
An industry analysis can provide Starbucks with a view on the competitive advantages the company has over companies with similar products. Through the analysis, Starbucks can develop an effective strategic plan. The benefits of the industry analysis include knowing “the underlying forces at work in the industry; the overall attractiveness of the industry, and the critical factors that determine the company’s success within the industry” (Encyclopedia for Business, 2010). A United States competitor of Starbucks is Peet’s Coffee and Tea. In 2010, Peet’s reported gross revenue of $168,494, drastically lower than that of Starbucks.
Starbuck’s has the advantage of more locations and a lower per store operating cost of 63. 86 compared to Peet’s at 121. 83 per store. Starbuck’s has managed to run each Starbucks location at a fraction of the cost for Peet’s Coffee and Tea. Based on this information, it is apparent that Starbucks has a competitive advantage over Peet’s Coffee and Tea and continues to be a strong competitor in the industry. In conclusion, Starbucks Corporation has managed to remain financially strong regardless of the slight impact the struggling economy has had on the corporation.
Success over competition remains to be on top and the current inventions of new and unique coffee, tea, and Starbucks environments has continued to result in the success of Starbucks Coffee not seen by other competitors. The growth and strengthening of the current economic situation will allow Starbucks Corporation to expand the financial growth and strengths of the company and continue to remain at the top of the market regardless of the lower cost and quality coffee sold by the competition. Starbucks Corporation offers unique goods and services which allows the company to remain ahead of the market. References
Encyclopedia for Business. (2010). Industry Analysis. Retrieved from http://www. referenceforbusiness. com/small/Inc-Mail/Industry-Analysis. html MSN Money Central. (2010). Starbucks Corporation: Key Ratios. Retrieved on November 11, 2010 from http://moneycentral. msn. com/investor/invsub/results/compare. asp? Page=FinancialCondition&Symbol=SBUX Starbucks Corporation. (2010). Fiscal 2009 Annual Report. Retrieved from http://media. corporate-ir. net/media_files/irol/99/99518/SBUX_AR. pdf Yahoo Finance. (2010). Peet’s Coffee & Tea, Inc. Retrieved from http://finance. yahoo. com/q/is? s=PEET+Income+Statement&annual