This document analyzes the financial ratios of Starbucks Corporation from 2012-2013. It finds that the company's profitability declined over this period as return on equity and net profit margin decreased. However, the gross profit margin increased, indicating better control of costs of goods sold. Liquidity also weakened as the current ratio fell below the minimum requirement of 2:1. The document recommends against investing in Starbucks due to low profitability, stability, and an expensive share price with a high P/E ratio of 28.6.

1. SCHOOL OF ARCHITECTURE, BUILDING & DESIGN
Foundation of Natural & Built Environments (FNBE)
BASIC ACCOUNTING
Lecturer: Chang Jau Hau
Assignment: Financial Ratio Analysis
Company: Starbucks Corporation
Group Members: William Goh Ming Hann
Erik Ong Chia Hong
Tan Ken Ric
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2. Table Of Content
NO TITTLE PAGE
1 Tittle Page 1
2 Table Of Content 2
3 Company Background 3
4 Ratio Analysis 4-5
5 Appendix 1: P/E Ration 6
6 Appendix 2: Investment
Recommendation 7-8
7 Appendix 3:Starbucks
Corporation Balance
Sheet
9
8
Appendix 4: Starbucks
Corporation Statement
Of Earnings
10
9
Reference
11
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3. Company Background
Starbucks Corporation, doing business as Starbuck Coffee, is an
American global coffee company and coffeehouse chain. Starbucks is the
largest coffeehouse company in the world with 20737 stores in 63 countries.
The history of Starbucks starts back in 1971 when the first store opened in
Seattle, Washington. Jerry Baldwin, Zev Siegl and Gordon Bowker got the
idea from Alfred Peet (of Peet's Coffee fame). The store initially sold just
coffee beans and coffee making equipment rather than the drinks they have
become so famous. After about 10 years, Howard Schultz was hired as
Director of Retail Operations and came to the conclusion that they should be
selling drinks rather than just beans and machines. He couldn't convince the
owners, so he went his own way to start the Il Giornale chain of coffee bars
in 1986.
Starbuck’s mission is to inspire and nurture the human spirit. They will
always serve the best coffee possible. In the 1990s, Starbucks was offering
stock options to employees and went public. Today, Starbucks has expanded
to more than 17,000 stores in 55 countries around the world. Their biggest
presence is still in the United States, with 11,000 locations. You can find a
Starbucks in such diverse nations as Chile, Romania, Bahrain and Bulgaria.
The most recent expansion was to Budapest in June of 2010.
Starbucks went public on June 26, 1992.
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4. RATIO ANALYSIS
(In Millions)
Profitability
Ratios
2012 2013 Interpretation
Return on Equity
(ROE)
Net profit × 100%
Average O/E
= 1383.8 × 100%
4798.4
= 28.8%
Net profit × 100%
Average O/E
= 8.3 × 100%
4798.4
= 0.2%
During the 2012 to 2013 period,
the ROE has decreased from
28.8% to 0.2%.. This means that
the owner is getting less return
from his capital than last year.
Net Profit Margin
(NPM)
Net P rofit × 100%
Net Sales
= 1383.8 × 100%
13299.5
= 10.4%
Net P rofit × 100%
Net Sales
= 8.3 × 100%
14892.2
= 0.06%
During the 2012 to 2013 period,
the NPM has decreased from
10.4% to 0.06%. This means that
the business is getting worse at
controlling its overall expenses.
Gross Profit Margin
(GPM)
Gross P rofit × 100%
Net Sales
= 7486.2
13299.5 × 100%
= 56.2%
Gross P rofit × 100%
Net Sales
= 8509.9 × 100%
14892.2
= 57.1%
During the 2012 to 2013 period,
the GPM has increased from
56.2% to 57.1%. This means that
the business’s ability to control
COGS has become stronger.
Selling Exp
Ratio (SER)
Total S . E × 100%
Net Sales
= 4348.0 × 100%
13299.5
= 32.7%
Total S . E × 100%
Net Sales
= 4743.3
14892.×2 100%
= 31.9%
During the 2012 to 2013 period,
the SER has decreased from
32.7% to 31.9%. This means that
the business is getting better at
controlling its selling expense.
General Exp
Ratio (GER)
Total S . E × 100%
Net Sales
= 801.2 × 100%
13299.5
= 6.0%
Total S . E × 100%
Net Sales
= 937.9 × 100%
14892.2
= 6.3%
During the 2012 to 2013 period,
the GER has increased from 6.0%
to 6.3%. This means that the
business’s ability to control its
general expense has worsened.
Financial Exp
Ratio (FER)
Total F. E
Net Sales × 100%
= 32.7
13299.5× 100%
= 0.25%
Total F. E × 100%
Net Sales
= 28.1 ×100%
14892.2
= 0.19%
During the 2012 to 2013 period,
the FER has decreased from 0.25%
to 0.19%. This means that the
business is getting better at
controlling its financial ratio.
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5. (In Millions)
Profitability
Ratios
2012 2013 Interpretation
Working
Captital
Total Current Asset
Total Current Liabilities
= 4199.6
2209.8
= 1.90:1
Total Current Asset
Total Current Liabilities
= 5471.4
5377.3
= 1.02:1
During the 2012 to 2013 period,
the WC ratio has decreased from
1.90:1 to 1.02:1. This means that
the business ability to pay current
liability with current assets is
getting worse. In addition, it does
not sastify the minimum
requirement of 2:1.
Total Debt Total Liabilities × 100%
Total Asset
= 3104.7 × 100%
8219.2
= 37.8%
Total Liabilities × 100%
Total Asset
= 7034.4 × 100%
11516.7
= 61.1%
During the 2012 to 2013 period,
the Td ratio has increased from
37.8% to 61.1%. This means that
the business’s overall liability has
increased. In addition, It is still
above the 50% maximum limit.
Stock
Turnover 365÷ COGS
Average Inventory
5813.3
= 365÷ 1176.35
=73.9 days
365÷ COGS
Average Inventory
6382.3
= 365÷ 1176.35
=67.3 days
During the 2012 to 2013 period,
the ST ratio has decreased from
73.9 days to 67.3days. This
means that the business is selling
its product at a faster rate.
Debt Turnover
365÷ Credit Sales
Average Debtors
485.9
= 365÷ 523.65
=393.36 days
365÷ Credit Sales
Average Debtors
561.4
= 365÷ 523.65
=340.46 days
During the 2012 to 2013 period,
the DT ratio has decreased from
393.36 days to340.46 days. This
means that the business’s
effectiveness in collecting debt
is stronger.
Interest Coverage Interest Expense + Net Profit
Interest Expense
= 32.7+1383.8
32.7
= 43.3 times
Interest Expense + Net Profit
Interest Expense
= 28.1+8.3
28.1
= 1.30 times
During the 2012 to 2013 period,
the IC ratio has decreased from
43.3 times to 1.30 times. This
means that the business’s ability
to pay its interest expense
become weaker. In addition, the
IC ratio does not sastified
minimum requirement of 5
times.
*figure obtained from STARBUCKS CORPORATION CONSOLIDATED BALANCE
SHEET AND STATEMENT OF EARNINGS
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6. Appendix 1: P/E Ration
Price/ Earning or P/E Ratio
= Current share price
Earnings per share (in number of times)
= 77.79
2.72
= 28.60
This ratio measures how expensive a share is. The higher the P/E
ratio, the more expensive a share is. The P/E Ratio for Starbuck
Corporation is 28.599. It means that the investor need to wait for
28.6 years to recoup the investment.
*figure obtained from http://data.cnbc.com/quotes/SBUX
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7. APPENDIX 2: INVESTMENT RECCOMENDATION
(a)PROFITABILITY
Starbucks Corporation fairly demonstrated a good profitability. Based on
the ratio analysis, the company was not doing quite well from the period
2012 to2013. The return on equity has decreased for 28.6%. It means the
owner is getting lesser return from his/her capital than last year. Next, the
company is getting worse at controlling its overall expense as their net profit
margin decreased for 10.34%. However, the business’s gross profit margin
have increased for 0.9% which means the business is getting better at
controlling the COGS. Besides that, the business is getting better at
controlling its selling and financial expenses as they decreased for 0.8% and
0.06%. However, the business’s ability to control its general expense is
worsened as it has increased for 0.3%.
(b)STABILITY
Stability of Starbucks Corporation was quite low as the working capital
does not meet the minimum requirement of 2:1 ratio which means the ability
of the business to pay current liability with current assets is weak and has a
increase of 23.3% in total debt. However, its stock selling is getting better as
the stock turnover has decreased from73.9 days to 67.3 days. Besides that,
the business is collecting the debt faster as the debt turnover decrease 52.9
days. In addition, the company is weak in paying its interest coverage as it
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8. does not meet the minimum requirement of 5 times.
(c)SHARE PRICE
The price of Starbucks Corporation is considered expensive as its P/E
ratio exceeds 15. It is 28.60.
In conclusion, the investor should not invest in Starbucks Corporation
as it doesn’t have high profitability and stability. Also, the share price is
expensive which take longer time for the investor to take back its original
principal.
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12. REFERENCE
Starbucks (2012) (2013), Annual Report.
http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsannual
Starbucks (background)
http://www.organicconsumers.org/starbucks/coffback.htm
CNBC (share price and earnings per share)
http://data.cnbc.com/quotes/SBUX
Income Statement
http://www.nasdaq.com/symbol/sbux/financials?query=income-statement
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