2010 07 14 112846 ACC 230 Final Financial Analysis of Starbucks Myflowersr4me by k8326xD


									                              Financial Analysis of Starbucks   1

   Financial Analysis of Starbucks


Axia College of University of Phoenix
                                                              Financial Analysis of Starbucks       2

                                 Financial Analysis of Starbucks

       In 1971 located in Seattle a small coffee and tea café opened, Starbucks (Starbucks

Corporation, 2009). After a decade of service Seattle residents Howard Shultz took over the

position of director of retail operations and marketing in 1982, opening Starbucks coffee into the

world of restaurants (Starbucks Corporation, 2009). After only two years of employment Howard

Shultz convinced Starbucks to open their own chain of coffee houses. It was not till 1987 that

Starbucks opened a number of coffee houses and became a corporation (Starbucks Competition,

2009). As of today, Starbucks Corporation has expanded throughout every state in America and

has gone international. Aside from their original market of coffee products Starbucks also offers

a wide variety of products within Starbucks stores and supermarkets ranging from food and drink

items to Starbucks products and accessories.

       Starbucks Corporation fiscal year ended on September 28, 2009 (Starbucks Corporation,

2009). The Statement of Earnings displays a large decrease in the organizations net earnings

from the 2008 fiscal year by $360 million (Starbucks Corporation, 2009). Starbucks Coffee did

however have an increase in their cost of goods sold. The gross profit margin has dropped in

2009 to 2.25% though the grow profit margin was higher the previous year (Starbucks

Corporation, 2009). The Statement of Earnings provides information pertaining to the

organizations increase in their depreciation and their amortization expenses and a decrease in the

organizations operating income and their operating margin. The decrease in the organizations

operating income and operating margin is apparently caused by the decrease in the sales of

Starbucks in the previous years. The 2009 net profit margin has lowered by 4% since the 2008

year (Starbucks Corporation, 2009).
                                                               Financial Analysis of Starbucks      3

       The balance sheet for Starbucks Coffee displays a minor decline in their cash on hand in

the year ending 2009 while there was an increase in the net receivables. Starbucks Coffee did

however show a decline in the inventory that is on from 2008 to 2009 which suggests that

Starbucks Coffee is selling their on hand inventory before they are making purchases for more

inventories. With the struggling economy Starbucks coffee has closed stores throughout the year

which has impacted their current assets shown as a decrease. While the current assets decreased

the total assets increased $300 million as a result of the decreasing fixed assets and increasing

noncurrent assets (Starbucks Corporation, 2009).

       The Starbucks Coffee Statement of Cash Flow shows a $70 million dollar decrease in

cash flow for the 2009 fiscal year (Starbucks Corporation, 2009). At the same time the investing

cash flow for 2009 increased by $115 million (Starbucks Corporation, 2009). The financial cash

flow for Starbucks Coffee has an apparent decrease of $12 million (Starbucks Corporation,

2009). Based upon the Starbucks Coffee Statement of Cash Flow it is apparent that Starbucks

Coffee has attempted to lower their operating expenses along with lowering their cash flow.

       In the past few years Starbucks coffee has grown into an organization known for their

coffee, resulting in a strong company that has excelled within the industry. As the economy

begins to weaken and a number of companies join in the competition of coffee products

Starbucks falls victim to the competition. Instead of consumers shopping for quality of coffee

they are shopping based on cost. The market has slightly declined for Starbucks while

competition companies have increased their sales with a more cost efficient coffee. While

Starbucks continues to provide premium coffee their financial strengths of the company are

declining and their push to stay on top of their competition is as well. In an attempt to stay on top

of the competition Starbucks coffee needs to lower their standards to efficiently compete with the
                                                               Financial Analysis of Starbucks        4

lower costs of the competition. Starbucks debt to equity ratio is one point higher than that of the

competition. The current ratio for both Starbucks and the competition is at 0.9. Starbucks quick

ratio is one point lower than the industry, 0.6 compared to 0.7 (MSN Money Central, 2009).

Starbucks is on top of the competition with a leverage ratio of 2.1 compared to 1.7 for the

competition (MSN Money Central, 2009). Finally, the book value to share ratio is slightly lower

than the competition from 3.65 for the industry and 3.5 for Starbucks (MSN Money Central,


         Based on the annual reports for Starbucks Coffee the struggles of the economy have had

an impact on Starbucks success over their competition. Investing in new ideas is the best

opportunity for Starbucks to stay on top of the competition with new coffee blends that are not

provided elsewhere. The Starbuck product should also be expanded throughout stores, including

small convenience shops. As the economy strengthens the growth and financial strength of

Starbucks will once again expand to large profits and a great source for investment. Even with

the decline in the economy Starbucks Coffee has managed to stay in the top of the industry and

equally compete with its competitors who are selling a lower quality coffee for less cost. The

coffee products offered by Starbucks Coffee are unique and what keeps consumers coming back.
                                                            Financial Analysis of Starbucks   5


MSN Money Central. (2009). Starbucks Corporation: Company Report. Retrieved on July 14,

       2010 from http://moneycentral.msn.com/companyreport?Symbol-US%3aSBUX

Starbucks Corporation. (2009). Investors Relations. Retrieved on July 14, 2010 from


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