Over twenty-five years ago, in Seattle's Pike Place Market, was the first Starbucks coffee bar was established. This business now has over 15,000 stores in 43 countries. This company was built "on trust - a trust we have created as the result of the way our partners work together, our relationships with our customers, the respectful way we treat coffee farmers, and our contributions to the communities we serve. This has made us a highly successful organization. In fiscal 2007, we generated $9.4 billion in revenues and we reported net earnings of $673 million, or $0.87 per share." (Schultz, 2007)
Starbucks Coffee Company is the leading retailer, roaster and brand of specialty coffee in the world, with over 9,000 retail locations in North America, Latin America, Europe, the Middle East and the Pacific Rim . (Cooking.com, 2009). In addition to having so many retail operations, the company also produces and sells bottled Frappuccino® coffee drinks a. Along with what they call Starbucks DoubleShot® coffee drink. Let's not forget the super premium ice creams through its joint venture partnerships. Starbucks Company's seems to have a wide variety in their portfolio including the Tazo Tea's line of innovative super premium teas. No one would have guessed it they also are part of the "Hear Music's exceptional compact discs enhance the Starbucks Experience through best-of-class products." (Cooking.com, 2009)
Beginning in 2007, the company started to see a customer slow down in their U.S. stores. The company took dramatic steps to address the issues but found it still necessary in results in a bureaucracy. At one point, the company started to lose sight on the focus of the customers. As a company, they needed to make several adjustments in order to continue to be a successful business. They did implemented several switches, making created new positions, and even hireding new people to continue to make the right decisiontheir momentum to of havinge theis business continue to grow with successtheir successful expansion. The company started introducing new, exciting products and programs for their partners and store enhancements to increase their focus on the customers.
At one point the company had to close several under-performing locations in the U.S. Starbucks started to accelerate expansion and while increasing the profitability of Starbucks outside the U.S. "We will reignite our emotional attachment to our customers and restore their connections with our coffee, brand, partners and stores. And we are building for the long-term-both in ensuring our support functions are focused fully on advancing the customer experience, and expanding our exceptional international success story." (Schultz, 2007)
The Company is committed to offering the highest quality coffee and the Starbucks Experience while conducting its business in ways that produce social, environmental and economic benefits for communities in which it does business . (Cooking.com, 2009). Starbucks will continue to give back to the communities and neighborhoods in which they do business and the countries where they purchase coffee. Starbucks is very community and employee oriented and even to their employees. Starbucks are is also committed to treating their partners and with respect and dignity along with providing health care and Bean Stock for all of our eligible full- and part-time partners. They seem to care for the environment as well. Starbucks seem attempts to build awareness of their climate change and much more through giving and volunteering.
In order to continue to do this paper, the first thing to figure out was what didthe true definition of ratio analysis really mean. After self-exploration, I concluded that So asking a friend, this is what he had to say "tThis particulare accounting data helps to know the performance of the organization. Accounting Basically, accounting is the means by which information about an enterprise is communicated and, thusas such, is sometimes called the language of business. " (P., 2009) For this paper it has been broken down to to the following ratios: liquidity, asset utilizatior leverage, and profitability .
In this paper itThis paper will discuss the different liquidity ratios, which means is basically short term solvency along with efficiency in managing cash. For the Starbuck Company their current ratio in 2006 was .79 and in 2007 was .76 and is comparable to the industry. As such, i, so its liquidity position seems to be stronger; but if we see the analyze the quick ratio which for 2006 is was .46 and 2007 is .47, is it becomes evident that it is not up to markmarket par value. It's less than industry average. ThusTherefore, near term liquidity of Starbucks is less than adequate. Another liquidity ratio for short term solvency that should be mentioned would be the cash flow ratio which for Starbucks for 2006 is was .82 and in 2007 it dropped to .81. Onto theOther liquidity ratios that affected the efficiency in managing cash in 2006 and 2007 are the following: for the years 2006 and 2007: Net Trade Cycle 50.73 and 48.54, Average Collection Period 10.51 and 10.64, Days Inventory Held is 86.65 and 84.46 and the last one would be Days Payable Outstanding 46.43 and 45.12.
For aAsset utilization ratios: will measure how productive the assets are in terms of generating sales for the company. To start with tThe accounts receivable turnover it shows that in 2006 it was 5.37 but jumped in 2007 to 10.11. Inventory turnover, which measures how quickly inventory is converted into sales, is was 4.21 and 13.29 which measures how quickly inventory is converted into sales. Even though Starbuck in considered slightly lower in the industry is still in good shape. Other turnovers for 2006 and 2007 are the following for 2006 and 2007include: accounts payable turnover 7.86 and 7.12, fixed asset turnover is 3.40 and 3.27, and the last one to mention is total asset turnover is 1.76 and 1.98.
Leverage ratios has seven different ratioscan be broken down into multiple components but are broken down underand even split into two different categories. The first one would be to address extent of firm's financing with debt. Debt ratio wasis 49.7 in 2006 is 49.7 and 51.31in 20077 was 51.31. This group of ratios, the solvency ratios, measures the company's ability to meet its long-term obligations as they become due. Creditors prefer to see a low debt ratio because there is a greater cushion for creditor losses if the firm goes bankrupt. The long-term creditor is concerned with both the near-term and the long-term ability of a firm to meet its commitments. Long-term creditors are usually protected to some degree by restrictive covenants, or rules, in loan agreements that restrict the firm's ability to take actions that are not in the best interests of the creditors. It appears that the Starbucks solvency position is relatively high as it has low debt ratio of .5 and higher interest coverage ratio of more than 100 times. This is also higher than the industry average. The other two listed in this group would be long-term debt to total capitalization and the ratios for this were .09 and .10 for 2006 and 2007. The last one would be debt to equity which in 2006 was .99 and in 2007 was 1.21. The next four have to do withpertain to address their ability ability to service debt and other long- term cash needs. Again, these are for 2006 and 2007 for leverage ratios. The first is times interest earned ratio; in 2006 it was 106 and fell to 97 in 2007. As the reader it is obvious that in 2006 was a better year than 2007, but not by much. Cash interest coverage is 134 and 108
The profitability ratios, indicates a company's financial health and how effectively the firm is being managed to earn a satisfactory profit and return on investment. Starbucks' net profitability has declined lately and is considered poor. Similarly, its return on asset needs improvement. However, the company's return on equity is higher as compared to the desired level - which is very good. Here are the ratios for 2006 and 2007 (respectively): For the seven ratios that address overall efficiency and performances. Gross profit margins is was 59.2 and 52.3, Operating profit margin is 11.5 and 9.95, net profit margin are 7.2 and 6.28, cash flow margin are 14.5 and 14.3, ROI is 12.7 and 12.46, return on equity (ROE) is was 25.3 and 27.24 and last one is cash return on assets are was 25.6 and 24.9.
The tTrend analysis contains , will have three more important informationadditional vital data that is needed to analyzesis this company. The end share price in 2006 is was $34.05 and in 2007 it was downdropped to $29.90. Earnings per share were $.71 in 2006 and up to $.84 for 2007. The price-earnings ratio is widely used by investors as a general guideline in gauging stock values. If the ratio is unusually high or low for a firm in relation to its industry, an analyst is likely to suspect that the stock is overvalued or undervalued. Price to earnings ratio was 48 in 2006 and in 2007 it was 39.
One question that can be asked is what the recommendations are on whether as an investor should buy this company's stock and why. As a classmate looking to invest in a company, this would be one that I would choose. In my figures, I didMy figures included the years 2005 through 2007, showing and proved that the ratios changed less betweenthan one percent 1% up toand ten percent10% - which is not a lot in my eyesvery significant. This shows medemonstrates that the company seems stable and very focus on staying a very successful company. It has shown profitable ratios are at decent percentages and have not fallen through the years by much at all. With all the research , which was done on this company, it was found that they are very much forvery loyal to their customers, employees, and the environment. They do not seem to be out for themselves as a lot ofmost companies are.
Starbucks is one of the most successful organizations in the world due to its strategy, which is in harmony with the prevailing culture. The impressions that I get from this company would be that the customers matter. The business started small and had grew to great numbers. I think that they have a good head on their shouldersmake great business decisions, because once as soon as they noticed that there was problemsany issues or concerns, they came come up with solutions to fix the problems them in order for the business continue to succeeding. Starbucks has several strengths that include adequate solvency, and high return on equityequity, which are two very important strengths to have in a business. Just like all business, there is are always some weaknesses. For Starbucks, these i, not all bad but a weakness. These include: low net margin ratio, low return on assets, low inventory turnover ratio, and high price to earn ratio.
As stated already this company started in Seattle's Pike Place MarketFrom the data presented above, it is certain believable that Starbucks has expanded on a global scale, and has grown to all over the world.. This company is very dedicated to their customers, environmentally conscious and, and employee friendly. They found discovered that when things started to slow down for them business that they had to revise the company to continue to grow. By showing the reader the ratios from 2006 and 2007, they can clearly see that the company did go down but not by muchnot suffer too much.