This business valuation report values Starbucks Corporation as of November 29, 2016 using two methods. The discounted cash flow method values Starbucks at $56.15 billion. The relative valuation method values Starbucks between $67.15-$80.86 billion based on comparable company multiples. By weighting the DCF 50% and relative values 25% each, the final fair market value is estimated to be $65.07 billion. The report also examines Starbucks' financials, industry, and capital structure to support the valuation.

1. Business Valuation Report
Starbucks’ Corporation
November 29, 2016
Prepared by:
Micah Cabagbag
Brennan Castro
Alex Liu
Bommie Quynh Nguyen

2. TABLE OF CONTENTS
I. ​Executive Summary 3
II.​ Understanding the Business and Industry 5
Economic Environment 5
Industry Analysis 5
Company Description 6
III. Valuation Techniques 8
IV. ​ Discounted Cash Flow Method 10
Capital Structure 10
I. Value of Debt 10
II. Value of Equity 11
Cost of Capital 11
I. Cost of Debt 12
II. Cost of ​Equity 12
III. Weights/Tax 1​2
IV. Cost of Capital 1​3
Base Year Free Cash Flow 1​4
I. Cash Earnings 1​4
II. Investments 14
III. Change in Working Capital 1​5
IV. Base Year Free Cash Flow Calculation 1​5
DCF Valuation, Enterprise Value 1​6
I. Starbucks Metrics 1​6
II. Growth Metrics 1​6
III. Store Revenue Projections/CF Projections 1​7
IV. Economy Growth 1​8
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3. V. Future FCF/5 Year Projections 1​8
VI. Final Enterprise Value (DCF Analysis) 1​9
V. Relative Valuation 20
Choosing Comparable Companies 20
I. Valuation Metrics 20
II. Adjustments 21
Overall Relative Valuation 2​2
VI. Summary of Valuation 2​4
APPENDIX A: Altman’s Z-Score 2​6
APPENDIX B: Interest Coverage Ratio 2​7
APPENDIX C: Calculating Starbucks’ Z-Score 2​8
APPENDIX D: ​Value of Debt 30
APPENDIX E: ​Change in WC 31
APPENDIX F: ​Comparable Ratios 32
APPENDIX G: 5Y Projections 33
APPENDIX H: Valuation Multiples From 5 Comparable Companies 34
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4. I. Executive Summary
We are given the task to determine the fair market value of Starbucks’ Corporation as of
November 29, 2016. This report utilizes two approaches, the discounted cash flow method
(DCF) and the relative valuation method, to establish an independent assessment of the
company’s value for purposes such as mergers and acquisitions. This report can also be served as
a business appraisal, which is required of the company to obtain loans.
Using COMPUSTAT, we obtained credit ratings for all industrial firms and computed the
interest coverage ratios as well as the Z-Scores for each company (See Appendix A and B). With
an ICR of 51.08 and a Z-Score of 11.09 (See Appendix C for Z-Score’s detailed calculation), we
matched Starbucks with the best suitable debt rating of AA+ and derived at a value of debt of
$7.56 million.
Debt Rating
Debt Rating
ICR 51.08 AA+
Z-Score 11.09 AA-
The fair market value of a company is the present value of all future free cash flows. Using the
discounted free cash flow method, we estimate that the enterprise value of Starbucks is equal to
$56.15 billion. After determining five comparable companies based on size (Sales) and growth
(Sales/EPS), the relative valuation method provides us with two enterprise values. In terms of
revenue, Starbucks’ value is equal to $67.15 billion. In terms of EBITDA, the value is $80.86
billion. Given each of these relative values a 25% weight and the DCF value a 50% weight, we
concluded that the final fair market value for Starbucks Corporation is ​$65.07 billion​.
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5. As Starbucks Corporation embarks on its new era of growth, we are optimistic that it can
continue to simultaneously execute its strategy to: (1) drive strong same-stores sales, (2) expand
internationally, and (3) build a global consumer packaged goods business with a critical level of
scale. Overall, we believe Starbucks is positioned strongly for future growth and we believe there
is upside that is not reflected in other current valuation. The company’s momentum continues
and we think substantial upside potential exists globally as Starbucks is on the cusp of its next
great inflection point. Analysts continue to hold an Outperform rating for Starbucks with a
valuation midpoint of $70, reflecting a 17.4x forward EV/EBITDA multiple and a 30.6x forward
P/E multiple.
Summary Table: Starbucks Corporation’s Valuation (in thousands)
Value of Debt $7,558
Value of Equity $59,658
DCF Enterprise Value $56,145
Relative Enterprise Value (Revenue) $67,150.87
Relative Enterprise Value (EBITDA) $80,856.79
Enterprise Value $65,074
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6. II. Understanding the Business and Industry
Economic Environment
The U.S. economy remains the largest and most important in the world. Despite a disappointing
first half, the economy strengthened in Q3. Economic analysts have a positive outlook on the
U.S. economy, suggesting a growth of 1.5% for the remaining of 2016 (FocusEconomics) .1
Consumer spending has been solid over the years. Next year, it is expected to increase by 2.1%.
With the Republican Party controlling the House of Representatives, the Senate and the Oval
Office, close monitoring of potential economic policies from the new administration of
President-Elect Donald Trump will be crucial. The U.S. economy, nevertheless, will continue to
expand steadily.
Industry Analysis
NAICS Code: 722515. SIC Code: 5812.
The major coffee shop companies include International Coffee & Tea (The Coffee Bean & Tea
Leaf), Peet’s Coffee & Tea, Starbucks, Caffe Nero and Costa. The U.S. coffee shop industry
operates more than 22,000 stores with a combined annual revenue of $12 billion. This is a subset
of the specialty eatery industry, which also consist of retailers specializing in food such as
donuts, bagels and ice cream. The competitive landscape for the coffee shop business largely
depends on consumer taste and personal income drive demand. Therefore, securing prime
locations that guarantee busy store traffic is crucial. The U.S. industry is heavily concentrated
with the top 20 companies generating more than 70% of all sales. So, the barriers to entry are
very high, preventing startups from easily entering the industry.
1
​http://www.focus-economics.com/countries/united-states
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7. The average consumers spend approximately 5.2% of their annual household expenditures on
food and beverages outside of their home. With stable growth in disposable income in the recent
years, consumers are spending more money at coffee shops. The industry is projected to expand,
reaching $46.2 billion in 2021 (IBISWorld). Intense competition among major companies will
continue, driven by the pressure for competitive pricing, introduction of new products that appeal
to the ever-changing lifestyles of the consumers.
Throughout 2016, coffee prices have been rising, 4% YOY. In addition, the cost of dairy has also
grown 12% YOY. If this trend continues, the margins for coffeehouse chains will certainly
reduce.
Company Description
Founded in Seattle, Washington in 1971, Starbucks Corporation is a global retailer of coffee, tea
and spices, with more than 24,000 locations in 70 countries. Starbucks’ mission “to inspire and
nurture the human spirit - one person, one cup and one neighborhood at a time” speaks true to
the company’s high quality of coffee and exceptional customer service. Starbucks takes pride in
being an ethically sourced coffee chain. The company offers a range of products: more than 30
blends of premium coffees, handcrafted beverages, Ready-to-Drink (RTD) beverages,
merchandise and fresh food. Starbucks went public on June 26, 1992 at a price of $17 per share,
under the ticker symbol SBUX. The company continues to take full advantage of its international
expansion strategy, with the goal of generating half of its total revenue outside the U.S.
There are four main sources of revenue for Starbucks: company-operated stores, licensed stores,
consumer packaged goods (CPG) and foodservice operations. In 2015, company-operated stores
generated 79% of total net revenues. Beverages continue to lead retail sales at 73%, followed by
food at 19%, packaged and single-serve coffees and teas at 3%. The last 5% is for other items
including merchandise, serveware, etc. Licensed stores accounted for 10% of total net revenues
last year. Under this model, Starbucks receives reduced share of the total store revenues in the
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8. forms of loyalties and license fees, with minimal share of costs as costs are primarily incurred by
the licensees. Another way Starbucks makes money is by selling equipment to the licensees.
America has the most licensed stores, followed by Asia and lastly EMEA. Sales of CPG account
for 8% of total net revenues. Revenues from food service accounts for 3% of total net revenues.
In this model, Starbucks sells its products to institutional foodservice companies that service
many different retailers.
Despite the rising cost of dairy and coffee prices, Starbucks has been successful at minimizing
price fluctuations as about 90% of its coffee are already locked at slightly-favorable price. The
company just recently introduced their Fall menu, with new food and beverage options that have
been be well-received by customers thus far. Furthermore, Starbucks has also revised their My
Starbucks Rewards program from being frequency-based to spending-based, which encourages
customers to spend more money at each visit. This has led to higher revenue streams for the
company as they are able to retain their loyal customers and get them to spend more, on average,
per each visit.
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9. III. Valuation Techniques
To value Starbucks Corporation, we utilized two approaches: Discounted Cash Flow Analysis
and Relative Valuation Analysis.
In order to value Starbucks using the Discounted Cash Flow technique, we first had to look at a
lot of their numbers located in its 10-K. These numbers included metrics such as revenue,
number of company-owned/licensed stores, and subsequent sales from both types. From there,
we were able to project how these would perform 5 years in the future, as well as key metrics
like adjusted operating income, net capital expenditure and change in working capital. Once we
had best predicted what will happen to Starbucks, we discounted its free cash flows from each
year, in order to find the total enterprise value of the company. This number gives us the best
estimate as to how Starbucks should be valued when looking internally at their fiscal values.
The Relative Valuation Analysis method is a process in which we found companies similar to
Starbucks in terms of size and expected growth. In our analysis, we determined five companies
deemed most comparable to Starbucks according to these metrics, provided an effective
valuation for them, then calculated multiples that gave us a representation of these valuations in
terms of the company’s yearly sales and operating income (EBITDA). The median for both of
these multiples were used to calculate two possible valuations for Starbucks, with considerations
to minor adjustments that needed to be made to take into account the differences between the
comparable companies and Starbucks.
After finding three valuations for Starbucks, one through the DCF method and two through the
Relative Valuation method, we utilized all three to arrive at one valuation for Starbucks. To do
so, we applied weighted assumptions to each method based on which method we believed
provided a more accurate valuation for Starbucks. Since we believe the DCF valuation delivers
the most accurate estimate to value a company, we applied a 50% weight to this value and 25%
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10. to the valuations provided by the Relative Valuation analysis in order to arrive at our final
valuation of Starbucks.
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11. IV. Discounted Cash Flow Method
Capital Structure
A firm’s capital structure is how a firm finances its operations and growth. In order to calculate
Starbucks’ capital structure we looked mainly at its 10-K forms and the Federal Reserve
Economic Data (FRED) for government information. Using the information available on the
10-K we were able to calculate the value of debt and equity, and their weighted adjustment
percentages - all of which will be discussed in more detail in the following paragraphs.
I. Value of Debt
To find Starbucks’ value of debt we first had to figure out their cost of debt, or the interest rate
on any debt instrument they claimed. To find the cost of debt we took the risk free rate from a
10yr US bond which was 2.17%. ​On the 2015 10-K, Starbucks reported an EBIT of $3.60
million and an interest expense of $70.50. Dividing the EBIT by the interest expense, Starbucks’
ICR is 51.08. With this value, we matched ​Starbucks with a AA+ bond rating​ (See Debt Rating
Table in Executive Summary)​. Using this we found the appropriate risk premium for Starbucks
which was 1.07%. We then added the risk free rate to the risk premium to get Starbucks’ cost of
debt: 3.24%.
Risk Free Rate 2.17%
Risk Premium 1.07%
Cost of Debt 3.24%
Using Starbucks’ 10-k form we found the face value of Starbucks’ long term debt issuances and
the interest rates of those notes. Their long term debt included 2yr (face value 350 million), 6yr
(face value 500 million), 7yr (face value 750 million), and 29yr (face value 350 million)
issuances with interest rates of 2%, 2.7%, 3.85%, and 4.3% respectively. They also had debt that
matured this year worth 400 million that we added into the final present value of their long term
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12. debt. Using these interest rates and the cost of debt, we discounted the long term debt. Then we
added in interest paid on the long term debt to get the present value of long term debt, which was
$2,565.36. Starbucks also has lease obligations in 2016, 2017, 2018, 2019, 2020, and 2022. The
face value of these lease obligations are $1,032.4, $892.5, $739.8, $624, $548.9, and $1,831.9
(all in millions) with the same interest rates as long term debt. Using these values we found the
present value of their lease obligations to be $4,992.39. Then we added the two present values to
get Starbucks’ value of debt which was $7,557.75 (See Appendix D).
Present Value of Long Term Debt $2,565.36
Present Value of Lease Obligations $4,992.39
Value of Debt $7,557.75
II. Value of Equity
The value of equity will be calculated at the very end of our analysis once we determine a
valuation for Starbucks. Since our total valuation is the sum of the total value of debt and total
value of equity (less cash), the equity value will be calculated through a simple formula of
adding cash to the derived valuation, then subtracting the value of debt calculated above.
Cost of Capital
The cost of capital is the minimum rate of return that an investor should expect when investing in
a certain company. When calculating Starbucks’ cost of capital, or more specifically their
weighted average cost of capital (WACC), we looked through their 10-K and the FRED. Using
these two data sources we were able to calculate the cost and weight of debt, the cost and weight
of equity, Starbucks’ beta, and the appropriate tax rate. Using all of that information we
calculated their WACC to be 7.09%.
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13. I. Cost of Debt
The cost of debt was previously calculated in the “Capital Structure” section above to be 3.24%.
II. Cost of Equity
Cost of equity is calculated by adding the risk free rate to the product of a company’s beta and
the market risk premium. First we got the risk free rate by taking the interest rate on a 30yr
government bond which was 2.46%. The next step was to calculate Starbuck’s beta. We did this
by using several analyst calculations. We used Finviz, Yahoo Finance, Google Finance, and
Reuters. The betas that they had calculated for Starbucks were 0.76, 0.66, 0.79, and 0.78
respectively. We took the median of these four numbers to get our beta of 0.77. Finally, we took
the 90yr market risk premium from a data sheet that was provided for us. With all of this data we
were able to calculate the cost of equity to be 7.77%
30yr US Treasury rate 2.46%
Beta 0.77
90yr Market Risk Premium 6.90%
Cost of Equity (K​e​) 7.77%
III. Weights/Tax
The final step in calculating Starbucks’ WACC was to calculate the weight of their debt and
equity and to find their tax rate. We used the information from their 10-K to find all of this
information. First we found the weight of their debt (W​d​) by calculating their debt to capital
ratio. We found this to be 0.12 or 12%; then to find the weight of their equity (W​e​) we subtracted
their weight of debt from 1 to get a weight of equity value of 0.88 or 88%. Finally, Starbucks
stated in their 10-K that they predicted their tax rate for 2016 to be between 34 and 35%, so we
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14. used an average of the two to get a tax rate of 34.5%. Using this information and the information
above we calculated Starbucks’ WACC, which can be seen in the chart in the section labeled
cost of capital.
Cost of Debt (Kd)
Estimated cost of debt 3.24%
Effective tax rate 34.50%
Cost of Debt (Kd) 2.12%
Cost of Equity (Ke)
30-Year US Treasury Yield 2.46%
Beta 0.77
Market risk premium (90 Yr) 6.90%
Cost of Equity (Ke) 7.77%
Weighted Percentage of Capital
Debt/Capital Ratio 0.12
Equity/Capital Ratio 0.88
WACC 7.09%
IV. Cost of Capital
The following table highlights the final calculation for WACC utilizing the calculated cost of
debt, cost of equity, their weighted percentages, and the tax rate:
Cost of Debt (K​d​) 3.24%
Weight of Debt (W​d​) 12%
Tax Rate (T) 34.5%
Cost of Equity (K​e​) 7.77%
Weight of Equity (W​e​) 88%
WACC= K​d​*W​d​*(1-T) + K​e​*W​e 7.09%
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15. Base Year Free Cash Flow
When finding Starbucks’ cash flow for 2015, we had to go through and calculate other metrics in
order to best estimate this number. This meant finding the individual values for its cash
earnings, investments, and change in working capital (WC). Finding these numbers allowed us
to find its total free cash flow for the year. (All numbers in millions)
I. Cash Earnings
To find the cash earnings for Starbucks, we first took their Earnings Before Interest and Taxes
(EBIT), which we had found off of its 10-K, added back their financing charges as well as
investment charges. To calculate its financing charges, we first took $5,669.5, which is
Starbucks’ operating lease obligations and multiplied it by 3.24%, which is its cost of debt as a
percentage, and we had found that previously in our assignment. For the investment charges, we
were given the number to work with. Once we added all the numbers up, this gave us our
Adjusted EBIT, after which we just subtracted its taxes, and that final value gave us Starbucks’
After Tax Cash Earnings, equalling $2,994.42.
EBIT $3,903
Add financing charge $183.69
Add investment charge $51.4
Minus Taxes -$1,143.7
After Tax Cash Earnings $2,994.42
II. Investments
In order to find out the total investments for Starbucks, we had to normalize the values for its
capital expenditure, depreciation, and acquisitions. We normalized these numbers by taking
their values for these categories of the past 5 years and taking them as a percentage of that year’s
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16. total revenue. Once we got all these values, we subtracted depreciation from capital expenditure,
and when we had that number, we added up that, the normalized acquisitions, the change in the
value of the lease (yr 2015-yr2014), and the investment charge in order to find our Net Capital
Expenditure.
Capital Expenditure $1,248.47
Depreciation $877.33
(Capital Expenditure-Depreciation) $371.13
Acquisitions $269.43
Change in Value of Lease $568.81
Add Back Any Investment Charge $51.43
Net Cap Ex $1,260.80
III. Change in Working Capital
To calculate the change in WC that Starbucks had, we had to look up the 5 year values of its
inventories, accounts receivable and accounts payable. After adding all these numbers up for
each year, we found the change year over year by seeing the difference of the new year
subtracted by the value of the previous. After that, we took the total revenue for each of those
years and found what percent of revenue the change in WC was. We then averaged those
numbers and multiplied it by the revenue for 2015 to find our normalized change in WC, which
worked out to be $236.44. ​(See Appendix E for full calculation)
IV. Base Year Free Cash Flow Calculation
After finally finding all of these values, they all came together by taking our Adjusted EBIT
value, and subtracting Investments and then Change in WC, which gave us the free cash flow for
Starbucks. (For final calculations and comparable ratios, see Appendix F)
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17. Adjusted EBIT $2,994.42
Minus Investments $1,260.80
Minus Working Capital $236.44
Free Cash Flow $1,497.18
DCF Valuation, Enterprise Value
I. Starbucks Metrics
When calculating the metrics for Starbucks’ company-owned and licensed stores, we first
created a table for the last 5 years running of the company’s revenue, EPS, and total number of
stores, which we broke down further into company-owned or licensed.
2010 2011 2012 2013 2014 2015
Revenue $10,707.4 $11,700.4 $13,299.5 $14,866.8 $16,447.8 $19,162.7
Company-
Owned
8,833 9,031 9,405 10,194 10,713 12,235
Licensed 8,025 7,972 8,661 9,573 10,653 10,808
II. Growth Metrics
After collecting all of the data from the previous 10-Ks, we then found the growth of each value
by looking at the current year’s numbers compared to the previous year. These were expressed
as percentages, and we proceeded to compute the average percent change for the total number of
stores, both company-owned and licensed individually, and finally, the same-store sales that
were also taken from each year’s 10-K.
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18. Growth % 2011 2012 2013 2014 2015 Average
Revenue 9.27% 13.67% 11.78% 10.63% 16.51%
Company-
Owned
2.24% 4.14% 8.39% 5.09% 14.21% 6.81%
Licensed -0.66% 8.64% 10.53% 11.28% 1.45% 6.25%
III. Store Revenue Projections/CF Projections
When finding the numbers to see revenue per store, and project the number of new stores,
projected revenue and expected revenue growth, we further separated the company-operated and
licensed stores by finding these projections separately. To find revenue per store, we took the
total revenue that came from each type of store, and divided by the number of old stores.
For the projections, we first looked at how many new stores of each kind would be opened in the
new year, which we found by multiplying the number of old stores by the average new stores
growth we found in the ​Growth Metrics. Next, we projected revenue for both types of stores by
taking last year's revenue per store and multiplied it by 1 plus the same store sales growth as well
as the number of old stores when added to the number of new stores, divided by 2. We did this
to factor in the revenue added from existing stores as well as the potential new stores to be added
this year, and divided by 2 to reflect that stores open up different times of the year and wanted to
average out those potential sales. Lastly, we projected expected revenue growth for both kinds
of stores by taking our projected revenue, dividing by the current year’s revenue and subtracting
one, to show what total growth will be.
(in millions) Revenue/Store # of New Stores Projected
Revenue
Expected
Revenue Growth
Company-
Owned
$1.24 834 $16,815 10.65%
Licensed $0.17 675 $2,054 10.34%
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19. IV. Economy Growth
When projecting the growth of the total economy via real GDP growth, we found projections for
both nominal GDP growth, and adding that to the inflation rate. These numbers were averaged
over a 6 year future projection in order to show what the market should grow by each year.
2015 2016 2017 2018 2019 2020 Average
Nominal 2.60% 2.80% 2.80% 2.70% 2.20% 2.00% 2.52%
Inflation 0.12% 0.82% 1.54% 2.37% 2.49% 2.34% 1.61%
Real 2.72% 3.62% 4.34% 5.07% 4.69% 4.34% 4.13%
V. Future FCF/5 Year Projections
To project the future free cash flows for 5 years into the future, we took the revenue, adjusted
operating income, net capital expenditure, and change in WC to look at. First, to project
revenue, we took the sales growth rate for the first two years, and after that, decreased the rate at
which revenue increased by taking the sales growth rate, subtracting the economy rate, and
dividing by 3, the number of years left to project. We did this to reflect the way in which
companies tend to hover near how the economy performs in the future.
For adjusted operating income, we projected this by looking at what percent of Starbucks’
revenue could be accounted for by adjusted operating income, which came out to be 7.8%. We
assumed that this number would stay constant for the future, and that is how we projected the
adjusted operating income for Starbucks in the next 5 years.
Net capital expenditure was projected by looking using the same first step as adjusted operating
income, and looking at its percent compared to total revenue. When extrapolating that number
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20. for the future, we reduced that percent by 1.32% per year, because that is how we would get to a
net capital expenditure of 0 in the future, as that is what should happen.
Finally, for change in WC, we used a similar first step, by taking this current year’s value and
dividing by the change in revenue from Starbucks’ current year subtracted by its previous year.
After that, we kept that value constant for the future, as WC isn’t expected to change in the
future.
VI. Final Enterprise Value (DCF Analysis)
After calculating all these values until 2021, we were able to find Starbucks’ free cash flow for
each year, by taking the adjusted operating income and subtracting by both net capital
expenditure and change in WC. We did this for each year as well as finding the present value of
each of the values by dividing by 1 plus Starbucks’ WACC, which was calculated earlier in the
assignment, taken to the power of whatever year in the future it was. We found Starbucks’
terminal value by taking the FCF in 2021 and dividing by the WACC minus the perpetual growth
rate, which was taken from an online source. The present value of the terminal value was also
found using the same method as before. Once this was done, the sum of the present values from
2017 forward as well as the present value of our terminal value is what is known as the enterprise
value of Starbucks when looking 5 years into the future. (See Appendix G for full projections)
2017 2018 2019 2020 2021 Terminal Enterprise
FCF $710.8 $1,143.1 $1,612.3 $2,094.8 $2,181.4 $70,482.3
PV $663.7 $996.6 $1,312.6 $1,592.5 $1,548.4 $50,030.6 $56,144.5
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21. V. Relative Valuation
The second method we used to determine the value of Starbucks was through a Relative
Valuation analysis. During this process, we found five companies who were similar to Starbucks
based on growth and sales. Based off the comparable companies, we calculated effective
multiples and adjustments to determine Starbucks’ relative enterprise value through its most
recent yearly revenue and EBITDA. EBITDA is a company’s operating profit before interest
expenses, taxes, depreciation, and amortization are taken out.
Choosing Comparable Companies
Using financial data from the Wharton Research Data Services (WRDS) and Yahoo Finance, we
compiled a list of 70 companies within the same industry as Starbucks. From this list, and after
reading analyst reports from NASDAQ, Macroaxis, and the University of Oregon Investment
Group, we were able to find five companies that were the most similar to Starbucks in terms of
sales and growth. The five companies were: ​Aramark, McDonald’s Corporation, Chipotle
Mexican Grill Inc., Yum Brands Inc., ​and​ Bloomin’ Brands Inc.
I. Valuation Metrics
After choosing the comparable companies, we calculated two multiples for each. The two
multiples were a measure of each company’s enterprise value in relation to their 1) sales and 2)
EBITDA.
To calculate the enterprise value for each of the five comparable companies, we used a simple
equation of adding the market value of equity and book value of debt, then subtracting current
cash holdings. The market value of equity was calculated by multiplying each company’s current
share price by the number of shares outstanding, both of which were found on Yahoo Finance.
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22. The book values of debt and cash data were found by looking at each company’s most recent
10K report.
After calculating the enterprise values for each comparable company, we found two multiples
based on Enterprise Value-to-Sales and Enterprise Value-to-EBITDA. The sales and EBITDA
data were found by adding up the last four quarters of revenues and EBITDA from each
company’s most recent 10Q. We took the median of both multiples to use in our relative
valuation, as shown below:
Valuation Multiples Median based off Comparables
Enterprise Value / Sales 2.7
Enterprise Value / EBITDA 17.2
Appendix H explains how we arrived at these two multiples based off the five comparable
companies.
II. Adjustments
Since the five companies do not exactly match Starbucks in terms of enterprise value, sales, and
EBITDA, we calculated an estimated adjustment percentage to account for the dissimilarities. To
calculate the adjustment percentage, we compared Starbucks’ Revenues, expected one-year
earnings growth (from nasdaq.com), and operating margins (EBITDA/Revenue) to the medians
of the comparable companies. Large variances were given a ten percent adjustment, while
smaller variances were given an additional 5 percent adjustment.
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23. Companies Revenue Expected Growth Operating Margins
Starbucks 20,520 18.13% 19.07%
Aramark 14,418 12.80% 4.92%
McDonalds 25,125 9.62% 30.05%
Chipotle 3,867 14.67% 2.78%
Yum Brands 12,894 10.98% 16.67%
Bloomin' Brands 4,319 11.39% 3.95%
Median 13,656 12.10% 10.80%
Adjustment 5.00% 5.00% 10.00%
After comparing Starbucks’ revenues, expected growth, and operating margins to the medians of
all comparable companies, we determined that an ​additional 20% adjustment​ was necessary to
apply when calculating Starbucks’ relative valuation.
Overall Relative Valuation
Once the multiples and adjustments were calculated, we could find two estimates for Starbuck’s
relative enterprise value based on its revenues and EBITDA:
Enterprise Value (EV) based off Revenue
Starbucks Revenue
(thousands)
EV based off
2.7x Multiple
EV after
20% Adjustment
$20,519.5 $55,959.06 $67,150.8​7
Enterprise Value (EV) based off EBITDA
Starbucks EBITDA
(thousands)
EV based off
17.2x Multiple
EV after
20% Adjustment
$3,913.90 $67,380.66 $80,856.79
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24. Starbucks Enterprise Value through Relative Valuation Method
Relative Enterprise Value (Revenue) $67,150.8​7
Relative Enterprise Value (EBITDA) $80,856.79
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25. VI. Summary of Valuation
Once the three calculations for Starbucks Inc.’s total value were computed, we decided to
incorporate all three by finding a weighted enterprise value for Starbucks. The two values found
through the relative valuation method were each given a 25% weight in the overall calculation.
The value found through the discounted cash flow method was given a 50% weight since we
believe this is a more accurate way of figuring out a company’s true value.
After applying the weighted percentages to each of the three values, we arrived at an ​overall
valuation for Starbucks Inc. to be $65.07 billion​.
Method Calculated Valuation
(thousands)
Weighted Percentage
DCF Valuation $56,144.47 25%
Relative Valuation (Sales) $67,150.87 25%
Relative Valuation (EBITDA) $80,856.79 50%
OVERALL VALUATION $65,074.15 100%
​Value of Equity
To find Starbucks’ equity value, we simply added the existing cash balance to the $65.07 billion
valuation, then subtracted the value of debt amount calculated previously in the report. The cash
balance was $2.14 billion while the value of debt was $7.56 billion.
Starbucks’ Valuation Cash Value of Debt Value of Equity
$65,074.15 $2,141.80 $7,557.75 $59,658
Therefore, Starbucks’ ​value of equity is $59.66 billion​.
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26. Overall Valuation
After analyzing Starbucks Inc. through the DCF and Relative Valuation Method, and applying
stated assumptions/adjustments, we have arrived at the following calculations for Starbucks’
Enterprise Value, Value of Debt, and Value of Equity:
Starbucks Inc. Valuation (in thousands)
Enterprise Value $65,074
Value of Debt $7,558
Value of Equity $59,658
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27. APPENDIX A: Altman’s Z-Score
26

28. APPENDIX B: Interest Coverage Ratio
27

29. APPENDIX C: Calculating Starbucks’ Z-Score
Variable Inputs and Sources:
Input Value Sources
Current Assets $4,352.70 2015 10-K
Total Assets $12,446.10
2015 10-K
Retained Earnings $5,974.80 2015 10-K
EBIT $3,601.00
2015 10-K
Current Liabilities $3,653.50 2015 10-K
Total Liabilities $6,626.30 2015 10-K
Net Sales $19,162.70 2015 10-K
Basic Shares Outstanding $1,495.90 2015 10-K
Share Price (on Sep 27, 2016) $57.99 Yahoo Finance
Calculations:
Working Capital = Current Assets - Current Liabilities
Current Assets 4,352.70
Current Liabilities 3,653.50
Working Capital 699.2
Market Value of Equity = Basic Shares Outstanding * Share Price
Basic Shares Outstanding 1,495.90
Share Price (on Sep 27) 57.99
Market Value of Equity 86,747.24
Variables:
X1 = Working capital/ Total assets
X2 = Retained earnings/ Total assets
X3 = Earnings before interest and taxes/ Total assets
X4 = Market value of equity/ Total liabilities
X5 = Net sales/ Total assets
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30. Z-Score Calculation:
Z-score = 1.2 X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 + 1.0 X5
X1 0.06
X2 0.48
X3 0.29
X4 13.09
X5 1.54
Z-Score 11.09
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31. APPENDIX D: Value Of Debt
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32. APPENDIX E: Change in WC
31

33. APPENDIX F: Comparable Ratios
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34. APPENDIX G: 5Y Projections
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35. APPENDIX H: Valuation Multiples from 5 Comparable Companies
Starbuck's
Comparable
Companies
MV of
Equity
BV of
Debt Cash
Enterprise
Value Revenue EBITDA
EV/
Sales
EV/
EBITDA
Aramark $8,920 $$5,433 $197 $14,156 $14,418 $710 1.0 19.9
McDonald's Corp $95,909 $26,010 $3,128 $118,791 $25,125 $7,549 4.7 15.7
Chipotle Mexican Grill
Inc $10,701 $0 $154 $10,547 $3,867 $108 2.7 98.0
Yum Brands Inc. $30,530 $9,167 $3,021 $36,676 $12,894 $2,150 2.8 17.1
Bloomin' Brands Inc. $1,802 $1,239 $103 $2,938 $4,319 $171 0.7 17.2
EV / Sales Median 2.7
EV / EBITDA Median 17.2
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