Financial Analysis Starbucks Corporation
Financial Ratio Analysis Starbucks Corporation Starbucks Corporation is the global leader in coffee and has a strong entrepreneurial history of product development and branding. Ranked as both a Fortune 500 and Fortune 1000 Best Company to Work For Starbucks employs 116,357 team members in the United States (Fortune, 2010).
Starbucks (SBUX) Corporation according to Plunkett Research, Ltd. ranks in their industry group as number one in sales and profits. National and internationally Starbucks Corporation own 16,858 stores located in a variety of settings. Since its conception in 1971 Starbucks has expanded to over 50 countries and serves millions of consumers a day. The business has expanded beyond coffee sales to include; • Coffee shops and bars including quality foods • Coffee accessories and equipment •
Wholesale coffee distribution Recorded music and DVD sales • Custom music CD kiosks • Book sales (Plunkett Research & Ltd. , 2010) It also licenses its trademarks through other channels such as licensed stores and through certain of its licensees and equity investees, produces and sells ready-to-drink beverages. Starbuck’s portfolio includes brands such as Starbucks®, Tazo® Tea, Seattle’s Best Coffee®, and Starbucks VIA® Ready Brew. Co. has three segments: the U. S. , International, and Global Consumer Products Group (Mergent Online, 2011). Financial Ratios
Analyzing past and current financial ratios determined by Starbuck Corp. balance sheet are indicators of the corporation’s performance and financial condition. A comparison with industry averages identify rends, strengths, and weaknesses in the corporation and can predict future growth and potential bankruptcy. Financial ratios are classified by the information they provide. The following ratios will be used to analyze the financial state of Starbucks Corp. ; leverage ratios, liquidity ratios, efficiency ratios, and profitability ratios. Leverage Ratios
Leverage ratio provides an indication of the future health of the corporation by quantifying the extent the corporation is using long-term debt. Financial leverage is measured by a ratio of long-term debt to total long-term capital (Brealey, Meyers, and Marcus, p. 453, 2003). This analysis was completed for a five year period using Times Interest Earned Ratio, Debt to Equity Ratio, and Total Debt Ratio. Times Interest Earned Ratio measures the extent of Starbucks Corp. interest is covered by earnings. The ratio provides lenders information regarding the ability of the corporation to pay their debt.
If the corporation’s earnings are in excess of the interest payments then the debt is considered fairly secured. Analysts generally calculate this ratio of earnings before interest and taxes (EBIT) to interest payments (Brealey, Meyers, and Marcus, p. 444, 2003). Figure 1 compares Starbucks Corp. to the industry average over five years. The debt incurred by Starbucks is considerably low at 12. 04% but higher then previous four years and the industry average. 2010, Starbucks Corp. time interest earned increased by 7. 57% along with its profit.
According to Starbucks form 10K fiscal year 2010; this was attributed to expansion into new models outside the retail store model, increase focus on consumer global consumer products research and development, and expansion in international markets (Mergent Online, 2003). Debt to Equity Ratio measures the quantity of debt each long-term capital dollar carries as expressed by the total debt divided by the total equity. In Figure 1, Starbucks five year trend is considerably lower debt to equity ratio as compared to industry standards.