Starbucks Financial Analysis
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[pic 1][pic 2]Starbucks Financial AnalysisTable of ContentsHistory Overview Strategy S.W.O.T. Starbucks Ratios Balance Sheet Analysis Profitability Ratios Activity Ratios Investment Returns Comparative Analysis Profitability Management Effectiveness Valuation Measures Share statistics Stock Price History Dividends & Splits Balance Sheet Ratios Conclusion References Electronic Sources Bibliographic Sources Appendix [pic 3][pic 4]HistoryThe first Starbucks affiliate opened in 1971 in Seattle. The company focused on selling roasted gourmet coffee beans and coffee accessories. The name originates from a character in the novel Moby Dick from Herman Melville. In 1982 Howard Schultz joined the foundation-team of Jerry Baldwin, Zev Siegel and Gordon Bowker as the Director of Retail Operations and Marketing. Inspired by his personal experiences of Italy´s coffee tradition, Schultz proposed to change the company´s strategy and create a coffee chain where customers enjoy their coffee and meet friends. His idea was to transform the coffee shop to be a central meeting and socializing point. As Schultz was not able to convince the founders to switch the company into a concept coffee shop he started his own coffee shop, Il Giornale. Due to his success with his own coffee shop and the support of local investors, he was able to acquire Starbucks in 1987 from its founders.Schultz overtook the name and started a progressive expansion. Within five years Starbucks was listed in NASDAQ.OverviewNowadays Starbucks is an upmarket coffee shop chain. With more than 18.000 retail stores in more than 60 countries and more than 170.000 employees worldwide, Starbucks is the biggest coffee retailer in the world (numbers from July 1st, 2012). The product range includes coffee, handcrafted beverages, fresh food, consumer products such as coffee beans and tea and merchandise articles. Starbucks’ marketing strategy focuses on the image as a responsible company, respecting and caring about ethical, environmental and communal values. Starbucks names its employees as partners and lets them participate on the company´s success by including discounted stock purchase plans into the payment conditions.StrategyStarbucks focuses on selling high-class products and creating a socializing point for its customers to meet and greet their friends. Following Porter´s definition of successful generic strategies, Starbucks momentary strategy shows most similarities with the strategy of differentiation. This strategy involves the creation of a unique selling proposition (USP) that may justify having higher prices than their competitors. This USP is reached via a good brand image, high customer awareness, features and customer service. Starbucks has always been known for their high qualitative products that they focused on since its foundation in 1971. Due to Starbucks’ gains in their brand image and the successful expansion, they continuously developed into new target groups. From wealthy, educated and quality-aware customers in the first years, the target group broadened and also includes nowadays students with different financial backgrounds and younger customers in general.
[pic 5]S.W.O.T.StrengthsWeaknessesSize Market knowledge Strong supplier relationsEstablished logo, developed brand, copyrights, trademarks, website and patentsCompany operated retail stores, International stores (no franchises)Valued and motivated employees, good work environmentSize → decreased flexibilityLack of internal focus (too much focus on expansion)High density of Starbucks affiliates in the USA → dependent on domestic marketOpportunitiesThreatsContinuous expansionNew productsEmerging international marketsNew Trends (organic) Increased competition from coffee shops and others (restaurants, street vendors, supermarkets)Coffee price volatility in supplying countriesConsumer trends toward a healthier lifestyle with less caffeine Cultural and Political issues in foreign countriesGreen washing publicity (Fair Trade)The table above shows the major strengths, weaknesses, opportunities and threats for the Starbucks Company. It has to be mentioned, that Starbucks remains to be the market leader and continues its expansion, which decreases its dependence on the American market. Starbucks has reached an outstanding market position that it uses to analyze the market and to early adjust to changing demands of the customers. Starbucks underlined their market dominance within the last years and has all chances to sustain their position in the modern coffee market.[pic 6]Starbucks RatiosBalance Sheet AnalysisTo better understand the financial structure of Starbucks, an important step is the analysis of the balance sheet; this is done through calculating certain ratios. These ratios explain how the company finances its assets and better explains the operating cycle of the company through the operational current assets and liabilities. We have therefore calculated and analyzed various ratios.Market to Book Ratio = Market value of equity/book value of equityMarket capitalization on 25 October 2012 = 34 398 994 000 $Book value of equity 2011 = 4 387 300 000Market to Book Ratio = 7,84If the ratio is higher than 1 then the company is undervalued, this means that the market value is much higher than the book value. This is clearly the case for Starbucks, its market value is 7,84 times higher than its book value. But this is often the case of fast growth index listed companies.