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Strategies of Fiscal Management

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  • 1. Starbucks Corporation(Incorporated in State of Washington)2401 Utah Avenue South, Seattle, Washington, 98134(206) 447-1575(Principal executive offices)Financial Analysis by ABC CorporationApril 23, 2013Executive Summary:The time period of focused study and report is four year period for fiscal years 2009 through2012. The study and its findings were requested by William S. Hettinger, CEO in March 2013and produced by Deborah Adams on this date.The company for consideration of investment isStarbucks Corp. The company manufactures and sells coffee and tea as a premier roaster,marketer and retailer of specialty coffee operating in 60 countries, known as its flagshipStarbucks brand. Under the NASDAQ Global Select Market the company‟s common stocktrades under SBUX symbol. Starbucks was formed in 1985, purchases and roasts high-qualitycoffees sold with tea and other beverages along with food items, which are sold throughcompany-operated stores and licensed stores, grocery and national foodservice accounts. Inaddition to its flagship brand the company sells Tazo Tea, Seattle‟s Best Coffee, Starbucks VIAReady Brew, Starbucks Refreshers beverages, Evolution Fresh, La Boulange bakery brand andthe Verismo System. Coffee is the second-largest U.S. import and estimated to be worth $11billion a year in the specialty market. The national Coffee Association estimates that the U.S.coffee market will reach $29 billion. Starbucks with its model “Third place to work and relax”has no direct competitors putting them in a „blue ocean‟ strategic competitive advantage.According to investment banking firm Adams Harkness, Starbucks‟ holds dominant position inspecialty coffeehouse market with approximately 11,000 stores in the U.S., 2012 net income of$1,383.80b, revenue of $13,299.50b and equity of $5,109.00b. In comparison competitor
  • 2. 2 ABC Corporation – Financial Analysis of Starbucks CorporationCaribou Coffee (NASDAQ- CBOU) has approximately 415 U.S. stores, which are less than 5%of Starbucks, 2012 net income of $35.22m, revenue of $326.50m and equity of $101.13m.Another competitor at the low-end is McDonald‟s (NASDAQ – MCD) which caters to a widerdemographic and brews Seattle‟s Best coffee owned by Starbucks. It has 14,000 U.S. stores,$5,464.80b net income, revenue $27,567.00b and equity $15,293.60b. The final competitor isDunkin Donuts (NASDAQ – DNKN) which is considered to be more of a competitor ofMcDonald‟s because of its coffee-to-go model. Dunkin Donuts has 5,000 U.S. stores, $108.31mnet income, revenue $658.18m and equity $346.55m.Introduction:The report defines outlines and clarifies financial objectives along with the main points forcomprehensive understanding of the analysis process. Fundamental Analysis was the method ofanalysis used. It operates on the premise that a business‟s financial statements along with itsearning potential, past and present movements and future value of securities should be evaluatedby looking at the company‟s competitive advantage, earnings growth, sales revenue growth,market share, financial reserves and quality of management. All this data is said to be„fundamental information‟ and the true indicator of estimated future value. Looking at Starbucksand its competitor‟s financial statements (Income Statement, Balance Sheet, and Cash FlowStatement, etc.) provides information on debt, value, cash flow and ratios. The Return-On-Equity(ROE) calculation will provide information that is helpful in analyzing the company‟s true valuecompared to its market value.
  • 3. 3 ABC Corporation – Financial Analysis of Starbucks CorporationResources:In collecting data, CNN Money, Google Finance, industry analysis and company fiscal reportswere used and analyzed. The primary financials used were income statements, balance sheet andcash flow.Method of Collecting Data:Data found in Statement of Earnings, Balance Sheets, Cash Flow, and Income Statement in thecompany‟s annual reports -10K and NASDQ profiles/reports provideessential insight on netincome, owner‟s equity, net assets, and sales/revenue for calculation of the return on equity.Significant Financial Events:The period of up to four fiscal years (2009-2012) were compared and analyzed. During thisperiod the following is noted from Starbucks Annual Report and NASDAQ:As of 4/2/2013 NASDAQ opening price - $57.1552 Week High/Low - $62/$43.04Best Bid/Ask - $58.07/$58.081 Year Target – 61.5Between Fiscal Year End (Oct 3, 2010 – Sep 30, 2012) – Total net revenues, OperatingIncome and Cash dividends declared per share increased respectivelyTotal Shareholder Equity has increased 2009 – 2012 $3.0B to $5.BOperating income has increased $548M in 2012 over 2010 $1,419.4MDetailed Results:Net earnings per share – basic as of Fiscal Year Ended, Sep 30, 2012 is $1.83m over Oct 3, 2010$1.27M Earnings per share – diluted during the same time period is $1.79M over $1.24M. ROE
  • 4. 4 ABC Corporation – Financial Analysis of Starbucks Corporationcalculation for fiscal 2012 is 10.4% ($1,383.80B/net income divided by $13,299.50B/revenue).This is an increase over 2011 10.3% ($1,200.00B/net income divided by $11,700.00B/revenue).Analysis of Variance:In comparing 4-year-trend of the company‟s income statement and balance sheets there has beenincrease to the following:Revenue increase2009 2010 2011 2012$9.8B $10.7B $11.7B $13.3BOperating income increase2009 2010 2011 2012$772.0M $1.3B $1.5B $1.8BNet income increase2009 2010 2011 2012$390.8M $945.6M $1.2B $1.4BTotal assets increase2009 2010 2011 2012$5.6 B $6.4B $7.4B $8.2B
  • 5. 5 ABC Corporation – Financial Analysis of Starbucks CorporationTotal shareholder equity increase2009 2010 2011 2012$3.0B $3.7B $4.4B $5.1BObservations:There were no problems in collecting and analyzing data as financial reports were readilyavailable in electronic format on the company‟s website, NASDQ, and Google Finance. It shouldalso be noted that the Common Share Outstanding has increased from 742.9M in 2009 to749.3M in 2012. Based on the observations of consistent increase in revenues, operating income,and equity, compared to the company‟s market share and competitive advantage in the specialtycoffeehouse market it is recommended that we move forward with investment plans. If there areany questions about the recommendation or figures contained in this report, please address themto email dadams@baypath.edu.
  • 6. 6 ABC Corporation – Financial Analysis of Starbucks CorporationReferences:(2012). Starbucks Corporation Fiscal 2012 Annual Report.Caribou Coffee Company, Inc. Google Finance. Retrieved fromhttp://www.google.com/finance?q=NASDAQ%3ACBOU&fstype=ii&ei=ADx3UaulC6Ho0QGGmgEStarbucks Corporation. Google Finance. Retrieved fromhttp://www.google.com/finance?fstype=ii&q=NASDAQ:SBUXMcDonalds Corporation. Google Finance. Retrieved fromhttp://www.google.com/finance?fstype=ii&q=nyse:mcdDunkin Brands Group Inc. Google Finance. Retrieved fromhttp://www.google.com/finance?q=NASDAQ%3ADNKN&fstype=ii&ei=lkR3UbCQH9GL0QHKgAE(2012). Specialty coffee industry analysis (is starbucks still the king?). Retrieved frommeangreen.hubpages.com/hub/Specialty-coffee-industry-analysis(2007, March 15). Grinding Out Success Next to Starbucks. Retrieved fromhttp://money.cnn.com/magazines/business2/business2_archive/2006/10/01/8387114/(n.d.). SBUX – Starbucks Corp Sports Connection Profile. CNNMoney.com