Financial Analysis of Starbucks

Overview Industry and Market Commodity Starbucks is only global chain Dominated by single or small chain retailers Global demand Market Elasticity

Overview Coffee Industry

Overview Starbucks Strategy High Margin Specialty Products Franchising Global Expansion

3 Years Summary Ratios

Balance Sheet Proportions Historical Balance Sheet Proportions

5 Year Projection

Ratios by categories

Liquidity Ratios Short-term solvency Current Ratio Quick (Acid Test) Ratio Cash Flow Liquidity Ratio

Liquidity Ratios Starbucks 2007 2006 2005 Current Ratio 0.76 0.79 0.99 Quick (Acid Test) Ratio 0.47 0.46 0.54 Cash Flow Liquidity Ratio 0.81 0.82 1.00

Liquidity Ratios

Liquidity Ratios (continued) Efficiency in managing cash Net Trade Cycle Average Collection Period Days Inventory Held Days Payable Outstanding

Liquidity Ratios (continued) Starbucks 2007 2006 2005 Net Trade Cycle (days) 48.54 50.73 65.19 Average Collection Period (days) 10.64 10.51 10.93 Day Inventory Held 84.46 86.65 91.12 Days Payable Outstanding 45.12 46.43 36.86

Liquidity Ratios (continued)

Asset Utilization Ratios Address efficiency of business operations Accounts Receivable Turnover Inventory Turnover Accounts Payable Turnover Fixed Asset Turnover Total Asset Turnover

Asset Utilization Ratios Starbucks 2007 2006 2005 Accounts Receivable Turnover 10.11 5.37 5.12 Inventory Turnover 13.29 4.21 4.01 Accounts Payable Turnover 7.12 7.86 9.90 Fixed Asset Turnover 3.27 3.40 3.46 Total Asset Turnover 1.98 1.76 1.81

Asset Utilization Ratios

Leverage Ratios Address extent of firm’s financing with debt. Debt Ratio Long-term Debt to Total Capitalization Debt to Equity

Leverage Ratios Starbucks 2007 2006 2005 Debt Ratio 51.31% 49.7% 40.5% LT Debt to Total Capitalization 0.10% 0.09% 0.14% Debt to Equity 1.21 0.99 0.68

Leverage Ratios

Leverage Ratios (continued) Address ability to service debt and other long term cash needs Times Interest Earned Cash Interest Coverage Fixed Charge Coverage Cash Flow Adequacy

Leverage Ratios (continued) Starbucks 2007 2006 2005 Times Interest Earned 97 106 600 Cash Interest Coverage 108 134 1,087 Fixed Charge Coverage 2.56 2.75 2.86 Cash Flow Adequacy 1.24 1.25 1.37

Leverage Ratios (continued)

Profitability Ratios Address overall efficiency and performance Gross Profit Margin Operating Profit Margin Net Profit Margin Cash Flow Margin Return on Total Assets (ROA) / Return on Investment (ROI) Return on Equity (ROE) Cash Return on Assets

Profitability Ratios Starbucks 2007 2006 2005 Gross Profit Margin 52.3% 59.2% 59.1% Operating Profit Margin 9.95% 11.5% 12.3% Net Profit Margin 6.28% 7.2% 7.8% Cash Flow Margin 14.3% 14.5% ROA or ROI 12.46% 12.7% 14.1% Return on Equity 27.24% 25.3% 23.7% Cash Return on Assets 24.9% 25.6% 26.3%

Profitability Ratios

Trend Analysis Starbucks 2007 2006 2005 Ending share price $29.90 $34.05 $31.93 Earnings per share $0.84 $0.71 $0.61 Price to earnings ratio 39 48 52

Trend Analysis

Starbucks Summary Based on entrance of strong competitors, such as Java the Hut More pessimistic Sensitivity Analysis: Revision with lower growth, margin, and profit than original forecast

Starbucks Summary The effect of competition on strategy and profitability Impact of high/low leverage The value of the ratio analysis