Case 1 (Starbucks - Part 1)
a) The nature of Starbucks’ business is to generate income based on operating activities. When referencing the Statement of Cash Flows and looking at their operating activities, you can see that Starbucks generates $2,908.3M in net cash provided by operating activities. Investment is a significant item in this statement as well. The company spent $785.9M in investments in the year ending September 29th, 2013. Strong investment activities show that Starbucks is investing through buying and selling (Sales, maturities, and calls of investments $1,040.2M) and using their spare cash to invigorate future growth and fund future obligations.
There is also heavy investment in property, plant, and equipment with additions totaling $1,151.2M. This type of investment show us that Starbucks is focused on expansion using cash from operations. They have a significant amount of cash coming in from operations, and money going out in PP&E. The analyst should not be concerned that Starbucks is borrowing money for negative reasons, and they are looking very strong from an operating and investing standpoint. They are effectively earning income and turning it into cash.
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b) Commonly prepared financial statements for external reporting purposes are:
1) Balance Sheet
2) Income Statement
3) Statement of Stockholders’ Equity
4) Statement of Cash Flows
Starbucks Specific Financial Statements:
Consolidated Statements of Earnings
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.
Starbuck’s consolidated net revenue grew 17% to $19.2 billion, from 2014. Their non-GAAP (adjusted-generally accepted accounting principles) operating income was up 19% to $3.7 billion, over their 2014 total. Their non-GAAP operating margin was at 19%, which increased 50 basis points from 2014. Starbucks earnings per share also grew to $1.58, a $.25 (18.8%) increase from 2014. These increases and growth made it possible to return $2.4 billion to shareholders. This money was returned in the form of dividends and share buybacks, up 50% from 2014 (“Starbucks Fiscal”, 2016).
Starbucks Corporation is an international coffee company and coffeehouse chain with more than 23 thousand stores across the world. The company’s corporate strategy is presently focused on continued growth, with Starbucks planning on opening thousands of new stores in China in 2016 (Burkitt, 2016) and the long-term goal of establishing Starbucks high-end businesses like Roasteries, Reserve Stores, as well as a bakery chain named Princi (Tu, 2016). Furthermore, Starbucks is investing in sustainable coffee growth and trade projects. As Starbucks continues to grow, the company is currently considering opening up a new manufacturing plant in Augusta, Georgia. To evaluate whether the project would be profitable and should be accepted, a capital budgeting model that computes key metrics was constructed and the results were analyzed.
The determinants of Starbucks profitability over time are variable costs and fixed costs. “A variable cost is a cost that change in direct proportion to a change in the level of activity (dict). Variable costs for Starbucks would include labor, coffee beans, dairy, and plastic products. A fixed cost is indirect costs of business expenses that remain unchanged (dict). Fixed costs for Starbucks include rent, taxes, and insurance as well as advertising. In the figure below (fig 1) we have Starbucks financial data in millions for the year of 2015. This includes their operating expenses, net revenues, such as company-operated stores, licensed stores, CPG, food service. It also includes their total net revenues and their balance sheet. As we can see “Operating costs dropped in the fiscal year
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.
In this assignment, a savvy financial analyst researching companies in which to invest a U.S. publically-traded company that would be a good investment was chosen. After a lengthy search, a company that my family is unduly familiar with, Starbucks, was chosen and in the following pages a financial analysis will be described.
Starbucks’ Total fixed assets increased from $3,200.5 billion in 2013 to $3,519 billion in 2014. This was a 9.95% increase. As a percentage of total assets on the balance sheet, fixed assets increased from 27.79% to 32.73% (Starbucks,
Starbucks generates strong cash flows has solid liquidity. The company executes rigorous cost cutting initiatives to improve its bottom-line. However, throughout fiscal 2008, Starbucks continued to experience declining revenue, particularly in US operation. The decline is largely attributed to lower customer traffic.
Starbucks’ shares have grown more than 1500% over the past decade. Financially, it has been an oak tree in an ever changing economy with customers that have ever changing demands. However, there has been increased concern for the financial viability of the coffee shop a recently announced plan to close down over 600 stores that were said to be underperforming domestically. That means that more than 1,000 jobs will be eliminated. As scary as that is on the local front to top management, the executive staff feels that it is the only way to recover from it’s shocking $108.7M loss for the 2nd quarter this fiscal year.
business model may seem, there is plenty of hard work invested and financial risks taken to grow
The context change in form that Starbucks found itself competing with smaller chains that resembled its former pre-expansion model with competitors focusing in creating symbolic-expressive value and fast food restaurants that had started to offer specialty coffee with more aggressive advertisement at a lower cost. The competitive context changed for Starbucks because it’s focus in mass distribution channels and its retail footprint strategy stated its product within a standard performance product value; this affected the value perception of the product.
The horizontal analysis in the balance sheet reports that the amount and percentages from 2015 to 2016 increased in all but two assets. The cash and cash equivalents increased by 39%, total currents assets increased by $789.50 or 20%, and property, plant and equipment, net increased from $4,088.30 to $4,533.80, an increment of 11%. This indicates that Starbucks improved its ability to collect from its customers, while also expanding across the
Corporate Strategy fundamentally is concerned with the selection of businesses in which the company should compete and with the development and coordination of that portfolio of business.[1] In the case of Starbucks the corporate strategy they have implemented is unique to their industry which has allowed them to differentiate from their competitors and is summarized best by Howard Schultz CEO of Starbucks, “We’re in the people business serving coffee,[2]” high quality specialty coffee and related products in a European café environment. It is clear Starbucks is in a growth strategy utilizing three key techniques that support its Mission, “to inspire and nurture the human spirit – one person, one cup and
The company has both current and fixed assets. The total assets of the company increased in 2015 to $12,446.1 million from $ 10,752.9 in 2014. The company assets are based on both liabilities and equities (Starbucks, 2015). The company is dependent on both shareholder’s equity and debt for its investments and funds, where, 53% of total equity and liabilities is based on liabilities and 47% is accounted by equities.