netrashetty
Netra Shetty
Starbucks Corporation (NASDAQ: SBUX) is an international coffee and coffeehouse chain based in Seattle, Washington.
Starbucks is the largest coffeehouse company in the world,[2] with over 16,858 stores in 50 countries, including over 11,000 in the United States, over 1000 in Canada, and over 700 in the UK.[3][1]
Starbucks sells drip brewed coffee, espresso-based hot drinks, other hot and cold drinks, coffee beans, salads, hot and cold sandwiches and panini, pastries, snacks, and items such as mugs and tumblers.
Through the Starbucks Entertainment division and Hear Music brand, the company also markets books, music, and film. Many of the company's products are seasonal or specific to the locality of the store. Starbucks-brand ice cream and coffee are also offered at grocery stores.
From Starbucks' founding in later forms in Seattle as a local coffee bean roaster and retailer, the company has expanded rapidly. In the 1990s, Starbucks was opening a new store every workday, a pace that continued into the 2000s. The first store outside the United States or Canada opened in the mid-'90s, and overseas stores now constitute almost one third of Starbucks' stores.[4] The company planned to open a net of 900 new stores outside of the United States in 2009,[5] but has announced 900 store closures in the United States since 2008.
Starbucks has been a target of protests on issues such as fair-trade policies, labor relations, environmental impact, political views, and anti-competitive practices.
- Financial analysis -
Some of the company’s historical ratios show departure from the industry average
Parameter
Starbucks outlook
(1999-2001)
Industry average
Beta 1.24 0.51
Cost of Capital 10% 8%
Market Rate 6%
Return on Equity (ROE) 19% 13%
Market to Book Ratio 10.55 2.23
Net Profit Margin 7% 5%
Gross Profit Margin 58% 40%
Financial Leverage 2.09 1.98
Interest Coverage 17.10 4.46
Current Ratio 1.33 2.25
Asset Turnover 1.19 1.49
Days Receivable 11.49 32.19
Inventory Days 69.36 43.19
Payable Days 33.06 31.93
Operating Cycle 80.85 75.37
Cash to Cash 47.79 43.45
Return on Asset (ROA) 9% 10%
Comments on historical ratios:
Starbucks stock appears to be more volatile than the general stock market (Beta>1), and
much more volatile than the industry.
Its Cost of Capital is a little higher than the average of the industry, an indication that the
level of risk for the company is higher than the industry average.
The Return on Equity (ROE) is higher than the rest of the industry and indicates a better
than average investment for this industry.
The Market to Book ratio is more than 4 times that of the rest of the industry, indicating
that Starbucks operates on the high growth side.
Its Profit Margins (both Gross and Net) are higher than the industry, a sign of good
financial health.
The Financial Leverage goes along with the rest of the industry, and the Interest
Coverage, much higher than the industry, indicates a strong ability of the company to
meet its interest payments on outstanding debt.
Starbucks appears to get payment from its customers sooner than the rest of the
industry (Days Receivable much lower), while Days Payable are comparable.
Starbucks Corporation appears strong today, with financial parameters well above the average
of the industry. Financial analysts recommend to either hold on to the stock (53%), or buy
(40%):
Starbucks Stock (SBUX)
Recommendation (December 2004)
(Source: Yahoo Finance and Vanguard)
Strong Buy or Buy 40%
Hold 53%
Strong Sell or Sell 6%AmbaiU MBA Graduation Paper Starbucks Corporation Case Study
Hervé R. AUCH-ROY AmbaiU PEN: 1207HA 19
- Competition - lists three major companies competing with
Starbucks, plus a list of 21 other competitors:
Caribou Coffee owns and operates the second largest non-franchised coffee chain in the US
(behind Starbucks), with more then 290 stores in nine states.
Diedrich Coffee is the second coffeehouse company (behind Starbucks) with 515 coffeehouses
in the US and 13 in other countries.
Dunkin’ Brands (formerly Allied Domecq Quick Service Restaurants) franchise more than
12,000 quick-service eateries in the world, including Dunkin’ Donuts, Baskin Robins and Togo’s.
Other retail companies like AFC Enterprises, New World, Panera Bread Co. and Tulley’s are
also competing against Starbucks.
In Asia, five major companies compete with Starbucks (as cited by Valerie Darguste, Ana Su,
Ai-Lin Tu, and Peggy Wei of Stern School of Business at New York University and Sonia Ketkar
of the Fox School of Business and Management at Temple University - 2003):
Spinelli Coffee Company: licensed by Equinox, a joint venture between Golden Harvest and
Singapore Technologies Industrial Corp.
Suntec Dome Holdings: modeled on European, with a growth strategy based on expanding into
several Asian countries (Malaysia, Indonesia, Thailand, Hong Kong and China)
Coffee Club: a sixty years old trading company which opened its first outlet in 1991.
Coffee Connection: the latest and trendier incarnation of Suzuki Coffee House, started in 1980.
Burke’s Coffee: a Seattle-style café in Singapore.
Other international competitors like Java the Hut propose online
coffee beans and equipment.
Counteracting competition, Peter Maslen, president of Starbucks Coffee International says “It’s
very easy to copy the superficiality of the brand; in other words, the look and feel of the store,
but it’s very hard to get beyond a few stores and retain the experiential part of our brand. The
most important thing is how welcome people feel and the connection they make. It’s really a
contradiction in terms – intimacy on a mass scale. But Starbucks is a very intimate brand.”
The general financial performance for Starbucks in 2008 was declining from the previous years dramatically. The following analysis will show this fact.
Investment Returns % Company Industry Return On Equity 12.6 25.8 Return On Assets 5.6 13.2 Both the ROE and ROA are lower than the industry’s average, which
means that the company is not using both the equity and their assets
properly to increase their revenue.
Profit Margins % Company Industry Gross Margin 16 27 Pre-Tax Margin 4.4 13.2 Net Profit Margin 3.03 8.5 Starbucks margins are lower also that the industry’s average,
especially in 2008 where the net profit margin reduced to 3.03 from
6.3 in 2007
Financial Condition Company Industry Debt/Equity Ratio 0.40 0.46 Current Ratio 0.80 1 Quick Ratio 0.48 0.7 Starbucks generally manages their debs and liabilities wisely, and this considers a financial strength for the company. Year 2008
Although the total sales was increased in the last 4 years, the net
income was reduced, especially in 2008 when it reached almost half
2007.
Management Efficiency Company Industry 9
Inventory Turnover 12.
6 20.6 Asset Turnover 1.83 1.
Starbucks is the largest coffeehouse company in the world,[2] with over 16,858 stores in 50 countries, including over 11,000 in the United States, over 1000 in Canada, and over 700 in the UK.[3][1]
Starbucks sells drip brewed coffee, espresso-based hot drinks, other hot and cold drinks, coffee beans, salads, hot and cold sandwiches and panini, pastries, snacks, and items such as mugs and tumblers.
Through the Starbucks Entertainment division and Hear Music brand, the company also markets books, music, and film. Many of the company's products are seasonal or specific to the locality of the store. Starbucks-brand ice cream and coffee are also offered at grocery stores.
From Starbucks' founding in later forms in Seattle as a local coffee bean roaster and retailer, the company has expanded rapidly. In the 1990s, Starbucks was opening a new store every workday, a pace that continued into the 2000s. The first store outside the United States or Canada opened in the mid-'90s, and overseas stores now constitute almost one third of Starbucks' stores.[4] The company planned to open a net of 900 new stores outside of the United States in 2009,[5] but has announced 900 store closures in the United States since 2008.
Starbucks has been a target of protests on issues such as fair-trade policies, labor relations, environmental impact, political views, and anti-competitive practices.
- Financial analysis -
Some of the company’s historical ratios show departure from the industry average
Parameter
Starbucks outlook
(1999-2001)
Industry average
Beta 1.24 0.51
Cost of Capital 10% 8%
Market Rate 6%
Return on Equity (ROE) 19% 13%
Market to Book Ratio 10.55 2.23
Net Profit Margin 7% 5%
Gross Profit Margin 58% 40%
Financial Leverage 2.09 1.98
Interest Coverage 17.10 4.46
Current Ratio 1.33 2.25
Asset Turnover 1.19 1.49
Days Receivable 11.49 32.19
Inventory Days 69.36 43.19
Payable Days 33.06 31.93
Operating Cycle 80.85 75.37
Cash to Cash 47.79 43.45
Return on Asset (ROA) 9% 10%
Comments on historical ratios:
Starbucks stock appears to be more volatile than the general stock market (Beta>1), and
much more volatile than the industry.
Its Cost of Capital is a little higher than the average of the industry, an indication that the
level of risk for the company is higher than the industry average.
The Return on Equity (ROE) is higher than the rest of the industry and indicates a better
than average investment for this industry.
The Market to Book ratio is more than 4 times that of the rest of the industry, indicating
that Starbucks operates on the high growth side.
Its Profit Margins (both Gross and Net) are higher than the industry, a sign of good
financial health.
The Financial Leverage goes along with the rest of the industry, and the Interest
Coverage, much higher than the industry, indicates a strong ability of the company to
meet its interest payments on outstanding debt.
Starbucks appears to get payment from its customers sooner than the rest of the
industry (Days Receivable much lower), while Days Payable are comparable.
Starbucks Corporation appears strong today, with financial parameters well above the average
of the industry. Financial analysts recommend to either hold on to the stock (53%), or buy
(40%):
Starbucks Stock (SBUX)
Recommendation (December 2004)
(Source: Yahoo Finance and Vanguard)
Strong Buy or Buy 40%
Hold 53%
Strong Sell or Sell 6%AmbaiU MBA Graduation Paper Starbucks Corporation Case Study
Hervé R. AUCH-ROY AmbaiU PEN: 1207HA 19
- Competition - lists three major companies competing with
Starbucks, plus a list of 21 other competitors:
Caribou Coffee owns and operates the second largest non-franchised coffee chain in the US
(behind Starbucks), with more then 290 stores in nine states.
Diedrich Coffee is the second coffeehouse company (behind Starbucks) with 515 coffeehouses
in the US and 13 in other countries.
Dunkin’ Brands (formerly Allied Domecq Quick Service Restaurants) franchise more than
12,000 quick-service eateries in the world, including Dunkin’ Donuts, Baskin Robins and Togo’s.
Other retail companies like AFC Enterprises, New World, Panera Bread Co. and Tulley’s are
also competing against Starbucks.
In Asia, five major companies compete with Starbucks (as cited by Valerie Darguste, Ana Su,
Ai-Lin Tu, and Peggy Wei of Stern School of Business at New York University and Sonia Ketkar
of the Fox School of Business and Management at Temple University - 2003):
Spinelli Coffee Company: licensed by Equinox, a joint venture between Golden Harvest and
Singapore Technologies Industrial Corp.
Suntec Dome Holdings: modeled on European, with a growth strategy based on expanding into
several Asian countries (Malaysia, Indonesia, Thailand, Hong Kong and China)
Coffee Club: a sixty years old trading company which opened its first outlet in 1991.
Coffee Connection: the latest and trendier incarnation of Suzuki Coffee House, started in 1980.
Burke’s Coffee: a Seattle-style café in Singapore.
Other international competitors like Java the Hut propose online
coffee beans and equipment.
Counteracting competition, Peter Maslen, president of Starbucks Coffee International says “It’s
very easy to copy the superficiality of the brand; in other words, the look and feel of the store,
but it’s very hard to get beyond a few stores and retain the experiential part of our brand. The
most important thing is how welcome people feel and the connection they make. It’s really a
contradiction in terms – intimacy on a mass scale. But Starbucks is a very intimate brand.”
The general financial performance for Starbucks in 2008 was declining from the previous years dramatically. The following analysis will show this fact.
Investment Returns % Company Industry Return On Equity 12.6 25.8 Return On Assets 5.6 13.2 Both the ROE and ROA are lower than the industry’s average, which
means that the company is not using both the equity and their assets
properly to increase their revenue.
Profit Margins % Company Industry Gross Margin 16 27 Pre-Tax Margin 4.4 13.2 Net Profit Margin 3.03 8.5 Starbucks margins are lower also that the industry’s average,
especially in 2008 where the net profit margin reduced to 3.03 from
6.3 in 2007
Financial Condition Company Industry Debt/Equity Ratio 0.40 0.46 Current Ratio 0.80 1 Quick Ratio 0.48 0.7 Starbucks generally manages their debs and liabilities wisely, and this considers a financial strength for the company. Year 2008
Although the total sales was increased in the last 4 years, the net
income was reduced, especially in 2008 when it reached almost half
2007.
Management Efficiency Company Industry 9
Inventory Turnover 12.
6 20.6 Asset Turnover 1.83 1.
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