Embed Size (px)
Citation preview
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
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
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 theUnited States, 1,716 inChina, 1,330 inCanada, 1,079 in Japan and 808 in the United Kingdom.
3
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
2. Financial Annual Report of Starbucks
2.1 Income Statement 2013 and 2014
5
2.2 Balance Sheet 2013 and 2014
6
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
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
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
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
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
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
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/starbucksandoprahwinfreycometogethertocreateteavanaoprahchaitea
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/5millionraisedforeducationthroughteavanaoprahchai
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/starbucksnamedoneofthetop10placestoworkincanada
13
