Case Study : Return On Equity ( Roe )

2. Starbucks enjoyed strong financial performance in 2011. The company did not explicitly attribute this, but with an 8% rise in same store sales it seems that either the consumer market bounced back, or Starbucks made changes that attracted more consumers. The company feels that it offered better products and a better experience at its stores. The company also credited operating efficiencies and tight control of spending for improved profits. In addition, the company continued its global expansion, which improved the top line, and used the economies of scale it generated as part of its cost control program.

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

Starbuck’s return on investment (ROI) increased to 35.86%, a 5.07% change from 2014. Their return on assets increased to 23.77% from 18.57% in 2014, and their return on equity increased to 49.73%, a 7.32% increase from the prior year as well (“Starbucks Fiscal”, 2016).

Starbucks’ D/E ratio has seen an increase, almost doubling between 2012 and 2013. Years prior to that it was holding steady. Sbux appears to be utilizing more debt in their expansion.

The increase in cost of sales has significant impact on the total net revenues. Looking at the Starbuck’s reports the total net revenues have also increased. For example the total net revenues have risen from (in millions) $7,786.9, $9,411.5, to $10,383.0 in years 2006, 2007, and 2008 respectively. Unfortunately, in year 2009 the total revenue has dropped to $9.774.6, possibly result of the global economic downturn (Starbucks Corporation, 2009, Annual Report).

The succeeding content of this executive summary provides an analysis on Starbucks’ Corporation profit using the company’s most three most recent annual reports. Team B uses “the information contained in the company’s balance sheet and income statement noting that annual reporting period and fiscal year mean year-end numbers. Additionally, included is the company history, audit for the company, stock exchange listing, cash and cash equivalents at the end of its 2 most annual reporting periods. Moreover, total current assets, largest current assets, company’s total assets at the end of its 2 most recent annual reporting years. Furthermore, accounts payable,

Starbucks is the world’s largest specialty coffee retailer, Starbucks has more than 16,000 retail outlets in more than 35 countries. Starbucks owns more than 8,500 of its outlets, while licensees and franchisees operate more than 6,500 units worldwide, primarily in shopping centers and airports. The outlets offer coffee drinks and food items such as pastries and confections, as well as roasted beans, coffee accessories, teas and a line of compact discs. The company also owns the Seattle's Best Coffee and

Using these numbers show a ratio of 1.549; this is a fairly low number for a company considering anything under “1” is reason for concern. Starbucks reported their current assets as $2,035.8M and $1,581.0M in 2009. Using these numbers show a ratio of 1.287; this number is also considerably low but does show improvement from 2009 to 2010. Starbucks acknowledges the need for liquidity but comply with federally limits and believes the credit risk to be very minimal (Starbucks Corporation, 2010).

Starbucks financial statements were analyzed for the fiscal year ended September 27, 2015. Like all public companies, annual and quarterly financial statements are required to allow regulators and other interested parties to analyze the financial status and management decision making of the company. This analysis focuses on the results of Starbucks most recent published annual report containing their balance sheets, statement of earnings and cash flows. These statements will be analyzed against the results of one of its competitors, Dunkin Donuts, to investigate how the two companies compare to each other. It was noted that Starbucks and Dunkin Donuts do not have corresponding fiscal year ends. The data therefore is not directly comparable since the reports do not reflect the same time period of data but should provide additional insight. The paper will attempt to provide a brief analysis of Starbucks operations in terms of its liquidity, leverage, activity, profitability and growth ratios used by analysts in the industry.

2) Garthwiate, Craig; Busse, Meghan; Brown, Jennifer; Merkley, Greg “Starbucks: A Story of Growth” Harvard Business Publishing, July 2012.

Despite the recent downturn in revenue, the Coffee and Snack Shops industry is mature. For these reasons, industry research firm IBIS World has updated a report on the Coffee & Snack Shops industry in its growing industry report collection. According to IBIS World Industry Report, in the five years to 2014, industry revenue is expected to increase an annualized 2.7% to $30.2 billion. This trend is expected to continue into 2014, with an expected growth of 1.4%. Major operators like Starbucks and Dunkin ' Donuts are expected to expand their menus in the five years to 2019 in order to increase sales and access higher profit margins. Both Starbucks and Dunkin ' Donuts plan on rolling out hundreds of new stores over the next five years, making up for lost ground they experienced during the recession. Dunkin ', which is highly concentrated in the east, is aiming to expand westward to steal market share from local competitors. The major chains are also expected to invest more in international growth as part of a long-term strategy, because many larger players view emerging economies as markets with huge potential for growth and long-term profitability. (Lauren Robi, An Analysis of Starbucks as a Company and an International Business, 2011)

Since January 2008, Starbucks has taken steps to address the deterioration in the US retail environment revitalize its global support structure. These steps have been designed to structure the company’s business for long-term profitable growth. Because of the continued weak economy and decreased customer traffic, as well as the cost associated with the store closures and other actions in its transformation strategy, the company’s fiscal 2008 results were impacted negatively in the following ways:

Even so, just two weeks earlier Howard Schultz announced that the company will be expanding internationally. The plan is to open more than 1500 stores in Germany, France, and Britain over a 3-year span (Forbes, 2008). It is estimated that this expansion will boost revenue by more than 20 percent (MSN Money, 2008). In spite of Starbucks’ struggle among its love-hate relationship between customers and protesters, one thing that Starbucks

business model may seem, there is plenty of hard work invested and financial risks taken to grow

Earnings before income taxes also increased from $3,903.00 to $4,198.60, an increase of 8%. Both net earnings including noncontrolling interests and net earning attributable to Starbucks saw a small percentage increase at 2%. Examining the vertical analysis of the income statement, one can see that all three net revenue categories – company-operated stores (79%), licensed stores (10%), and CPG (11%) – have the same percentage from both years. Similar to net revenues, the 2016 expenses and net earnings have very similar percentages to those of 2015.