Starbucks : Financial Analysis Part 2

1234 Words5 Pages
Starbucks: Financial Analysis Part 2
Anna Gallagher
American Public University
Price earnings (P/E) ratio is considered to be the most valuable tool for investors in determining which stock investments from comparable industry will most likely yield higher growth earnings in the future. Price earnings ratio is calculated by dividing the company’s price per share by its earnings per share (Yahoo Finance, 2015). The higher the ratio, the better because investors can use this ratio as an indicator of how well a company will do in the future. The objective of this paper is to help analyze and assess the P/E ratio of Starbucks and its two major competitors, McDonalds and Dunkin’ Donuts. Below are the comparable data of Starbucks and its
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Investors are risk-takers. They certainly know the diamond in the rough in the security market. Companies that grow faster than average generally enjoy higher price-to-earnings ratios (Lewis, 2014). Historically, newer companies in the market have tendencies to have a higher growth rate in the first few years until they reach the plateau stage. Some companies are fortunate to continuously have an upward growth rate even after the plateau stage. Starbucks (founded in the 1970’s) is a great example of a faster growing company especially that among the three companies it is the newest company. In today’s modern world, Starbucks became a trend around the world. Many customers seek and prefer this brand of coffee than any other else. No wonder why many investors buy more Starbucks share because of the perception that the mighty green mermaid logo will be prosperous for many, many years.
Return on Assets, Profit Margin and Asset Utilization Rate Return on assets, also known as return on investments, measures how efficient management is at using its own assets to generate income. It is calculated by dividing the company’s net income by its total assets. Profit margin is a useful tool to measure a company’s profitability and knowing how much the company actually kept as earned income against all the dollars spent in production of goods or rendering of services. It is calculated by dividing net income to revenues. Asset utilization ratio is a measure that determines
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