84345
2/14/2012
ACC 807
Starbucks Case Financial Ratios
How profitable is Starbucks: Starbucks to date is becoming the hallmark of coffee around the nation and even the world. Currently, Starbucks focus is on product growth and expansion across the globe looking to dominate its industry.
Keeping its current ratio at and above one, Starbucks does not seem to pose any threat to its short term obligations. Across time Starbucks consistently holds this ratio above one with a good number of 1.83 in 2011. However, the quick ratio incorporating the most liquid assets would say otherwise since it is below one. This ratio across time for Starbucks is very volatile and does not portray any constancy. This is due to the volatility in their short-term investments, as well as an upward trend in accounts payables from 2001 to 2011, 127905 and 540000 respectively. This questions the future financial stability of the company especially with its expansion plans internationally in the future.
Starbucks notably possesses a fairly low inventory turnover rate. From 2001 to 2011 they seem to have increased the turnover although not by much (5.56 in 2001 to 6.56 in 2011). In 2010 inventory turnover for Starbucks and Panera Bread (Panera) were 7.38 and 88.81 respectively. One would have to question this difference seeing as though Panera is a competitor. This also brings up real risk when thinking about the increased product line strategy that Starbucks wants to incorporate. Starbucks may want to consider what is actually selling fairly consistently and what is not before they begin to implement this strategy.
Starbucks also needs to focus on the long-term especially when considering their debt and asset acquisitions. Two important ratios that come up in relations to debt and assets are the liabilities to assets and liabilities to equity ratios. There is an upward trend in both ratios when comparing Starbucks and Panera in both companies. Though, Starbucks shows a bit more risk in their ratios when considering the actual numbers versus the trend across time. There is a significant spike in the long-term debt of the company that relates to both ratios which heighten the company’s future risk. Although the numbers may not seem to pose a real threat now, the trend just shows a bit of a risk that may be incurred in the future. Again, going back to the strategy that Starbucks plans to incorporate with the expansion overseas, and the growth in their product line this trend may have the creditors hanging over Starbucks back. On the other hand, Starbucks does effectively use their assets as a tool for generating themselves a bit of profit in comparison to Panera with a steady increase in ROA across time. However, 2008 and 2009 ROA is low compared to the other years which can be attributable to restructuring expenses during those years. Essentially without restructuring expense the numbers can still be compared over time.
All in all, Starbucks seems to be in good standing in relation to its ratios over the ten year span. However, the ratios specified above really pose some substantial risk when thinking about the growth and expansion strategy that Starbucks plans to incorporate.