Starbucks Corporation is an American global coffee
company and chain. Starbucks locations serve hot and cold
beverages, whole-bean coffee, micro ground instant coffee,
full-leaf teas, pastries, and snacks. Most stores also sell a
combination of packaged food items, hot and cold
sandwiches, and items such as mugs a new product that I
will talk about later for my current event.
Starbucks first opened in 1971 as a single store in Seattle
Washington’s famous Pike Place Market.
A year later in 1981, a man named Howard Schultz
had first walked into the Starbucks store. From his first cup
of Sumatra, Howard was drawn into Starbucks and joined a
year later, 1982. The year of 1983, Howard traveled to
Italy. During this trip he was instantly fascinated with the
Italian coffee bars’ vibe. He loved the romance of the
Italian coffee experience. He had a vision to bring the
Italian coffeehouse back to the United States. Howard
envisioned a place between work and home. He left
Starbucks for a short period of time to start his own
coffeehouse and returned in August 1987 to purchase
Starbucks with the help of local investors. The company
started to grow at a rapid rate. In the 1990s, Starbucks was
opening a new store every workday, a pace that continued
into the 2000s.
Balance Sheet
Assets:
Starbucks Corp. has handled its’ cash well. With only a
slight decrease in Cash and Cash Equivalents from 20102011 and an increase from 2011-2012. As we all know
growing cash reserves often signal strong company
performance, but dwindling cash is unfavorable because it
is not being put to use. This is a favorable trend because it
shows that they are generating and maintaining their cash.
There was a huge jump in 2010-2011 in short-term
investments and this is very favorable but it decreased the
fallowing year.
There was a large increase through all three years in
inventory. This is not that favorable because it shows that
the company has too much money tied up in items that
haven’t been sold. Later you’ll see how this affects the
inventory turnover rate.
Total current assets have been increasing all three years and
this looks very favorable for the company.
Liabilities:
Current and Total liabilities have increased all three years
and this generally isn’t very favorable.
Stockholders Equity:
The last section in the balance sheet is the Shareholder’s
Equity section, which is currently showing favorable trends
for Starbucks. Retained Earnings in this section of the
balance sheet are increasing each year shown, which is
favorable trend for the company because it shows that the
company has been profitable over those years.
Income Statement
The most positive thing observed from the Income
Statement is that the company is operating and earning a
large Profit for all three years presented. The best way for a
company to improve profitability is by increasing sales
revenue. For instance, Starbucks Coffee has aggressive
long-term sales growth goals that include a distribution
system of 20,000 stores worldwide. Consistent sales growth
has been a strong driver of Starbucks' profitability.
Cost of Goods Sold has increased every year and this is
unfavorable because it decreases the companies earning.
But the Company’s sales are increasing faster so this is
good.
The income and Earnings per Share (EPS) are positive and
this reflects a positive trend for all years.
Statement of Cash Flows
Operating activities:
Starbuck’s net cash flows from operating activities
significantly decreased from 2010 to 2011 but then
increased from $1,612,400 million in 2011 to $1,750,300
million in 2012. This is favorable because it shows that
Starbucks has the ability to generate cash internally.
Investing Activities:
Starbucks’ net cash flows from investing activities
decreased from 2011 to 2012. This decrease is due to the
large decrease in capital expenditures and other cash flows
from investing activities. This is favorable because a
negative amount of cash flows from investing activities
indicate that the company is investing in capital assets
therefore its future earnings are expected to grow.
Financing Activities:
Starbucks net cash flows from financing activities has
increased each of the three years. This increase is mostly
from paid dividends means the Starbucks is making
dividend payments and stock repurchases, which you as a
potential investor might be pretty stocked to see.
Overall Starbucks Statement of Cash Flows is favorable,
shows they can increase their cash on hand.
Ratios
Current:
This shows the company’s current ratio is increasing every
year. This is favorable because it shows the higher the
current ratio, the less risky it would be to lend money or
invest into this company because of its ability to meet its
short-term obligations.
Quick:
To measure whether or not a company could pay off its
current liabilities if they were to come due “today”. So the
slight decrease in the quick ratio from 2011 to 2012 shows
an unfavorable trend. However, since the ratio is still
showing more profitability compared to the industry, this is
also considered a favorable trend.
Total Debt Ratio:
This ratio is used to measure a company’s ability to
meet long-term obligations. The total debt has decreased
every year, which shows a very favorable trend.
Times Interest Earned:
There has been an increase every year. This shows a very
favorable trend because the ability to meet an interest
payment is significantly increasing every year. However,
Starbuck’s ratio has been lower than the industry every
year, which is unfavorable because it shows that Starbuck’s
could make their interest payment less than the rest of the
Industry.
Inventory Turnover:
Inventory turnover rates for Starbuck’s have slightly
decreased every year. This shows that sales were
decreasing because Starbuck’s had to replenish inventory
less often. The lower the rate shows the longer that
inventory had to sit. Along with this information the rest of
the Industry has a much higher turnover rate. This shows an
unfavorable trend.
Days sales in inventory:
Days in inventory increases every year, so this shows an
unfavorable trend. The increase in the ratio implies that
inventory is sitting for a longer amount of time.
For Profitability Measures:
As a whole, all ratios are larger than the industry and are
mostly all favorable trends
Notes to Financial Statement
-
It is important for investors to know how much money
a company is directing at advertising. It shows how the
company is expanding and trying to attract customers and
what all the company has to offer.
Historical
Starbucks (SBUX) during the past two years has
fluctuated, but at an upward incline pattern. Especially
between September 2011 and May 2012 there was a
dramatic increase in stock value. That period is a very
favorable to Investors. After that peak in early 2012, there
was a sudden fall in value later that year. Similar to the
NASDAQ after September of 2012, there seems to be a
steady upward fluctuation. An over all comparison to the
NASDAQ economy, SBUX is doing extremely well. This
shows that the value of their company is very high and
should attract all of you as investors.
Current Event:
In the late fall of 2012 Starbucks released a Home Espresso
Machine. I believe this was a good marketing idea by
Starbucks. There are many different brands out there that
sell home espresso machines, but people really trust
Starbucks and are very loyal to the brand. This item will
also expand the type of service Starbucks offers to its
customers. The current price for one of these models is
$199. You also need to buy from the selection of
Verismo™ pods to flavor and make your espresso. I find
this to be a reasonable price when looking up home
espresso machines.
Weaknesses:
Inventory Turn Over
Day’s Sales in Inventory
Strengths:
The consistency in the Cash and Cash Equivalents shows
good cash management in all three current years.
Profitability Measures
Current & Quick Ratio
Stock Value
Conclusion:
Starbucks is an aggressively expanding and profitable
company. I personally enjoy their coffee and if I had any
money I would invest in them. I welcome you to do the
same. Thank you!