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ACC REPORT

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ACC REPORT

  1. 1.     School Of Architecture, Building & Design  Foundation In Natural & Built Environment  Group Members :   NAME  STUDENT ID  OOI YIN JI  0319962  LING SUE ER  0321683  LILLIAN TAN AI JUN  0320087    Module  : Basic Accounting [ACC30205]  Assignment title  : Financial Ratio Analysis Report (Starbucks)  Lecturer  : Mr. Chang Jau Ho  Submission Date : 4th June 2015            1 
  2. 2. Table of Content  No.  Content  Page Number      1.  Details of the company           1.1 History         1.2 Recent Developments        3­4    2.  Financial Annual Report           2.1 Income Statement 2013 and 2014         2.2 Balance Sheet 2013 and 2014      5­6    3.  Financial Ratio Analysis            3.1 Profitability Ratios          3.2 Stability Ratios      7­10  4.  Price/Earning Ratio  11  5.  Investment Recommendation  12  6.  References  13                  2 
  3. 3. 1. Details of the company ­ Starbucks  1.1 History of Starbucks  Starbucks Corporation, an American global ​coffee company and ​coffeehouse chain based in                        Seattle​, ​Washington was founded in the year 1971. ​Founders Jerry Baldwin, Zev Siegl and                            Gordon Bowker from the University of San Francisco had drawn the theme of their new coffee                                company from the nautical mythology and later picked a name out of ​Herman Melville’s                            Moby­Dick​, ​Starbucks, the name which people are familiar with these days.      In 1971, Starbucks opened the first store in Seattle’s Pike Place Market. A few years later, in                                  1982, ​Howard Schultz joined Starbucks as the director of retail operations and marketing and                            Starbucks began providing coffee to fine restaurants and espresso bars. In 1983, on a trip to Italy,                                  Schultz was impressed with the popularity of espresso bars in Milan. He saw the potential to                                develop a similar coffeehouse culture in the United States. However, he failed to convince                            Starbucks’ founders of the viability of a concept as novel as coffee bars in Seattle. He then left                                    the company in 1985.      The next year, Schultz opened a coffee bar of his own, named “Il Giornale” after one of the                                    Milan’s newspapers. Two years after that, he had successfully found enough local investors to                            purchase Starbucks outright, which put him in a position as the CEO of the firm. At the same                                    time, he changed the name to Starbucks Corporation and began his primary goal by adopting the                                concept of coffee bars in his operating store in Seattle. Over the years, he expanded the firm                                  throughout the ​United States​, Canada and all over the world.     Starbucks’ greatest period of expansion began in the early 1990s. In spite of having opened                              money­losing branches in the US­midwest and British Columbia, it moved profitably into                        California in 1991, making its initial public offering on the stock market the following year.                              Starbucks continued to expand throughout the decade by opening on average two new stores                            every day. Until today, it is reported that Starbucks has a total number of 21,878 stores in 66                                    countries and territories, including 12,218 in the ​United States​, 1,716 in ​China​, 1,330 in ​Canada​,                              1,079 in ​Japan​ and 808 in the ​United Kingdom​.            3 
  4. 4. 1.2 Recent Developments of Starbucks    Since 1971, Starbucks Corporation has been committed to ethically sourcing and roasting the                          highest­quality arabica coffee. Today, with stores around the globe, the company is the premier                            roaster and retailer of specialty coffee in the world.    In fiscal 2013, Starbucks has opened 1,701 net new stores across the globe and at the same time                                    having its first stores opened in India, Vietnam and Monaco, and later announced the plan to                                enter Colombia in 2014. Besides, Starbucks had hit a record of $14.9 billion in revenue and                                ranking as FORTUNE Magazine’s 5­digit shareholder returns.     In February 2014, Starbucks has marked its two significant milestones in Southeast Asia,                          opening its first store in Brunei and its 100th store in Singapore, marking its 15th market in the                                    Asia Pacific region and its 64th market globally. The company is on track to expand its footprint                                  by adding approximately 750 stores across China and Asia Pacific within the year 2014.     Later in March, Howard Schultz, chairman, president and CEO of Starbucks, together with                          Oprah Winfrey, the global media leader and philanthropist, had announced the collaboration to                          co­create Teavana Oprah Chai Tea which will be sold in Starbucks and Teavana stores across the                                U.S. and Canada. In addition, Starbucks will be making a donation for each product sold to the                                  Oprah Winfrey Leadership Academy Foundation, which provides funding and educational                    opportunities for the youth.    This year, on the 6th of April, 2015, Starbucks had announced that through its partnership with                                Oprah Winfrey, the sales of Teavana Oprah Chai have raised more than $5 million for the youth                                  organizations in the U.S. and Canada. Apart from that, recently, Starbucks has also made a                              commitment to hire 10,000 young people who are not in school or are unemployed over the next                                  3 years, and at the same time making college education possible for thousands of employees                              through the Starbucks College Achievement Plan, which has 2,000 partners enrolled in the                          program, with a goal to graduate 25,000 partners by 2025.     Besides, Starbucks has also successfully verified 99% of its coffee as ethically sourced this year                              and meanwhile on the 16th of April, Starbucks is named as one of the “Best Workplaces in                                  Canada" for the fifth­consecutive year and at the same time being one of the highest ranking                                publicly­traded retailer on the list of top 50 large and multinational companies.        4 
  5. 5. 2. Financial Annual Report of Starbucks   ​2.1 Income Statement 2013 and 2014            5 
  6. 6.  2.2 Balance Sheet 2013 and 2014          6 
  7. 7. 3. Financial Ratio Analysis  3.1 Profitability Ratio  *in million  Profitability  Ratio  Formula  2013  2014  Interpretation  Return on  Equity (ROE)  (Net Profit /  Average  Owner  Equity)   x 100%    [8.3/  (4482.3+5114.5)]  x 100%    = (8.3/4798.4)   x 100%    = ​0.2%  [2068.1/  (5273.7+4482.3)]  x 100%    = (2068.1/4878)   x 100%    = ​42.4%  During the 2013 to 2014  period, the ROE has  increased from 0.2% to  42.4%. The owner is  getting more return from  his capital as compared  to last year.    Net Profit  Margin (NPM)  (Net Profit /  Net Sales)   x 100%  (8.3/14866.8)   x 100%    = ​0.1%  (2068.1/16447.8)  x 100%    = ​12.6%  During the 2013 to 2014  period, the NPM has  increased from 0.1% to  12.6%. The ability of  the business to control  its expenses is getting  better as compared  to  last year.    Gross Profit  Margin (GPM)  (Gross Profit /  Net Sales)   x 100%  [(14866.8­6382.3)  /14866.8] x 100%    = (8484.5/14866.8)  x 100%     = ​57.1%  [(16447.8­6858.8) /16447.8] x 100%    = (9589/16447.8)  x 100%    = ​58.3%  During the 2013 to 2014  period, the GPM has  increased from 57.1% to  58.3%.The ability of the  business to control its  cost of goods sold  expenses is getting  better as compared to  last year.  Selling  Expenses  Ratio (SER)  (Total Selling  Exp. / Net  Sales)   x 100%  [(4286.1+431.8) /  14866.8)] x 100%    =(4717.9/14866.8)  x 100%    = ​31.7%  [(4638.2+457.3) /  16447.8)] x 100%     =(5095.5/16447.8)  x 100%    = ​31%  During the 2013 to 2014  period, the SER has  decreased from 31.7%  to 31%. The ability of  the business to control  its selling expenses is  getting better as  compared to last year.  7 
  8. 8. Profitability  Ratio  Formula  2013  2014  Interpretation  General  Expenses  Ratio (GER)  (General Exp.  / Net Sales) x  100%  [(621.4+937.9)/  14866.8]  x 100%    =(1559.3/14866.8)  x 100%    = ​10.5%  [(709.6+991.3)/  16447.8]  x 100%    =(1700.9/16447.8)  x 100%    = ​10.3%  During the 2013 to 2014  period, the GER has  decreased from 10.5%  to 10.3%. The ability of  the business to control  its general expenses is  getting better as  compared to last year.    Financial  Expenses  Ratio (FER)  (Financial  Exp. / Net  Sales) x  100%  (28.1/14866.8)   x 100%    = ​0.2%    (64.1/16447.8)   x 100%    = ​0.4%  During the 2013 to 2014  period, the FER has  increased from 0.2% to  0.4%. The ability of  business to control its  financial expenses is  getting worse as  compared to last year.                                           8 
  9. 9. 3.2 Stability Ratios    *in million  Stability Ratios  Formulae    2013  2014  Interpretation    Working Capital  (Total Current  Asset / Total  Current  Liabilities)  (5471.4/5377.3)    = ​1.02 : 1  (4168.7/3038.7)    = ​1.37 : 1  During the 2013 to  2014 period, the  business’s working  capital has increased  from 1.02:1 to 1.37:1.  The business’s ability  to pay off its current  liabilities is getting  better. However, it  does not satisfied the  minimum ratio of 2:1.      Total Debt  (Total  Liabilities /  Total Assets)   x 100%  (7034.4/11516.7)   x 100%    = ​61.1%  (5479.2/10752.9)  x 100%    = ​51%  During the 2013 to  2014 period, the  business’s total debt  has decreased from  61.1% to 51%. This  means that the  business’s total debt  has decreased.  However, it does not  satisfied the 50%  limit.      Inventory  Turnover  365   (Cost of÷   Goods  Sold/Average  Inventory)  365 ÷ (6382.3/1111.2)     = ​63.5 days  365 ÷   (6858.8 / 1090.9)     = ​58.1 days  During the 2013 to  2014 period, the  business’s inventory  turnover has  decreased from 63.5  days to 58.1  days.This means that  the business sells its  goods faster than last  year.    9 
  10. 10. Stability Ratios  Formulae    2013  2014  Interpretation    Debtor Turnover  365   (Credit÷   Sales/Average  Debtor)  365÷  [ ​7433.4÷  [(561.4+485.9)/2] ​]    = 365 ÷  (7433.4/523.7)    = ​25.7 days  365 ÷  [​ 8223.9÷  [(631+561.4)/2] ​]    = 365 ÷   (8223.9/596.2)    = ​26.5 days      During the 2013 to  2014 period, the  business’s debtor  turnover has  increased from 25.7  days to 26.5 days.  The business takes a  longer time to collect  its debt as compared  to last year.    Interest Coverage  (Interest  Expenses +  Net Profit) ÷ (Interest  Expenses)  (28.1 + 8.3)    28.1÷      = ​1.3 times  (64.1 + 2068.1)    64.1÷      = ​33.3 times  During year 2013 to  2014, the business’s  interest coverage has  increased from 1.3  times to 33.3 times.  The ability of the  business to pay its  interest expenses is  getting better. In  addition, it satisfies  the minimum  requirement of 5  times.                     10 
  11. 11. 4. Price​/​Earning Ratio      Share price of Starbucks Corporation as at 1st of June in 2015 : $51.96  Earning per share of Starbucks Corporation as at 1st of June in 2015 : $1.70    P/E ratio = Current share price  Earnings per share   (in number of times)  =  ​$51.96     $1.70  = 30.56 times    Interpretation :     Based on calculation, the company’s price/earning ratio is 30.56 times. This means that the share  price of the company is high and the investor will have to wait for a period of about 31 years to  recoup his investment.                                                11 
  12. 12. 5. Investment Recommendation    Based on calculation, it is concluded that the business’s profitability was getting better over the                              period from 2013 to 2014. The Return on Equity (ROE), Net Profit Margin (NPM), Gross Profit                                Margin (GPM), Selling Expenses Ratio (SER) and General Expenses Ratio (GER) over the                          2013­2014 period have shown that the business is generating revenues and profit in which the                              owner is getting more return from his investment and the business’s ability in controlling its                              overall expenses are also getting better as compared to last year. However, there is an increase in                                  the Financial Expenses Ratio (FER) whereby the business’s ability in controlling its financial                          expenses is getting worse as compared to the year in 2013.      Besides, the stability ratios which includes the company’s working capital, total debt, inventory                          turnover and interest coverage are achieving a satisfactory result such that the business’s                          performance was getting better over the 2013­2014 period. However, there is an increase in the                              debtor turnover ratio in which the business is taking a longer time to collect its debt as compared                                    to last year.     On the other hand, the P/E ratio of Starbucks Corporation calculated based on the current share                                price and earning per share is 30.56 times. This means that if an investor were to purchase the                                    shares of Starbucks Corporation, he would have to wait for a period of about 31 years to recoup                                    his investment. Besides, a conservative investor would most probably purchase only a share with                            a P/E ratio of 15 times or below.    In conclusion, the Starbucks Corporation’s shares are not suitable for investment as the current                            share price is high such that it comes with a P/E ratio of more than 15 times. In other words, if a                                            person were to invest in the company’s shares, he or she will have to wait for a long time to                                        claim back his or her original principal. Hence, it would be wise not to invest in the company.                          12 
  13. 13. 6. References    1.  Profitability Ratio: Definition, Formula, Analysis & Example. (n.d.). Retrieved June 1,  2015, from  http://study.com/academy/lesson/profitability­ratio­definition­formula­analysis­example. html     2.  Starbucks Corporation (SBUX). (n.d.). Retrieved June 1, 2015, from  http://www.nasdaq.com/symbol/sbux      3. Starbucks Coffee Company,.(2015). Retrieved 1 June 2015, from  http://globalassets.starbucks.com/assets/5deaa36b7f454011a8597d271f552106.pdf    4. Starbucks Coffee Company,. (2015). ​Company Information​. Retrieved 1 June 2015, from  http://www.starbucks.com/about­us/company­information    5. Inside Retail Asia,. (2014). ​Starbucks hits milestone in Singapore ­ Inside Retail Asia​.  Retrieved 2 June 2015, from  http://insideretail.asia/2014/02/16/starbucks­hits­milestone­in­singapore/    6. Starbucks Newsroom,. (2015). ​Starbucks and Oprah Winfrey Come Together to Create  Teavana Oprah Chai Tea | Starbucks Newsroom​. Retrieved 2 June 2015, from  https://news.starbucks.com/news/starbucks­and­oprah­winfrey­come­together­to­create­t eavana­oprah­chai­tea    7. Starbucks Newsroom,. (2015). ​Starbucks Announces $5 Million Raised for Youth  Education and Mentorship through Teavana Oprah Chai | Starbucks Newsroom​.  Retrieved 2 June 2015, from  https://news.starbucks.com/news/5million­raised­for­education­through­teavana­oprah­ch ai    8. Starbucks Newsroom,. (2015). ​Starbucks Named One of the Top 10 Places to Work in  Canada | Starbucks Newsroom​. Retrieved 2 June 2015, from  https://news.starbucks.com/news/starbucks­named­one­of­the­top­10­places­to­work­in­c anada          13 

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