II. Assessment of Starbucks’ Financial Condition
We evaluated the financial performance of Starbucks by computing various ratios based on the company’s most current audited financial statements. Specifically, we evaluated the firm’s liquidity, operating profitability, capital structure, and market value. Additionally, we identified Starbucks’ competitors and benchmarked the company’s performance against the peer group. Finally, we defined what we believe the key factors are causing the current condition. Our assessment and results are presented below.
A. Liquidity
In measuring the firm’s overall liquidity, we used the current and acid-test ratios to analyze its ability to pay bills on time. The current ratio compares the company’s
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This suggests that Starbucks operating expenses are quite high. Operating Profit Margin = Net Operating Income / Sales = $1,271 mil. / $10,707 mil. = 12% Net profit margin considers how much of the company’s revenue it keeps when all expenses or other forms of income have been considered, regardless of their nature. Net Profit Margin = Net Income / Sales = $ 946 mil. / $ $10,707 mil. = 8.8% This indicates that for every dollar of sales, Starbucks keeps $0.088 in profits. The company’s operating efficiency and its cash conversion cycles were measured by computing AR Turnover, Inventory Turnover, and Total Assets Turnover, which are 35.34, 8.21, and 1.68, respectively. The low total assets turnover indicates that total assets are not utilized very efficiently. However, the company has more efficient use of accounts receivable and inventory. C. Capital Structure The company’s capital structure was evaluated through measuring Debt to Equity Ratio and Times Interest Earned. The Debt to Equity Ratio is used for measuring solvency. This measure indicates how much the company is leveraged in debt by comparing what is owed to what is owned. In other words, it measures a company’s ability to borrow and repay debt. Starbucks financed 42.5% of its assets with debt. Debt Ratio = Total Debt /Total Assets = $2,711 mil. / $6,386 mil. = 42.5% Times Interest

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