Starbucks: Debt Ratio and Debt-to-Equity Ratio

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Starbucks Debt Ratio & Debt to Equity Ratio Parameters Used Starbucks' Short Term Liabilities $2, 075, 800, 000 Starbucks' Long Term Liabilities $899, 700, 000 Starbucks' Market Value of Equity (Market Capitalization) - $39, 980, 000, 000 a) Debt Ratio Debt Ratio = Total Liabilities/Total Liabilities + Equity Using Total Liabilities Debt Ratio = $2, 975, 500, 000/$2, 975, 500, 000 + $4, 384, 900, 000 = 0.40 Using Short-Term Liabilities Debt Ratio = $2, 075, 800, 000/$2, 075, 800, 000 + $4, 384, 900, 000 = 0.32 Using Long-Term Liabilities Debt Ratio = $899, 700, 000/$899, 700, 000 + $4, 384, 900, 000 = 0.17 b) Debt to Equity Ratio Debt to Equity Ratio = Total Liabilities / Total Equity Using Total Liabilities Debt to Equity Ratio = $2, 975, 500, 000/$4, 384, 900, 000 = 0.68 Using Short-Term Liabilities Debt to Equity Ratio = $2, 075, 800, 000/$4, 384, 900, 000 = 0.47 Using Long-Term Liabilities Debt Ratio = $899, 700, 000/$4, 384, 900, 000 = 0.21 Recommendations When it comes to the debt ratio, it is important to note that it remains one of the ratios lenders take a special interest in. Indeed, according to Brigham and Ehrhardt (2010), "creditors prefer low debt ratios because the lower the ratio, the greater the cushion against creditors' losses in the event of liquidation." Ideally, a company's debt ratio should be less than 1 as this would be an indicator that the company has a lower proportion of debt relative to its assets. In the above scenario,

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