Financial Research Report – Starbucks

For the purposes of the completion of this paper, the company of focus will be Starbucks Corporation that has been in operation in the United States of America since the year 1971. The Company was first established to serve as a coffee company that would serve millions of Americans on a daily basis. The focus and determination of the company officials and directors has enabled the organization to grow and become one of the largest coffeehouse within America. It currently ranks as the top most coffee house in America, ahead of the UK’s best coffee house known as Costa Coffee. It is approximated that the current number of stores that are run by starbucks are about, twenty one thousands, five hundred and thirty six. Out of those stores, twelve thousands, two hundred and eighteen of them are located within the United States. Moreover, it is approximated that close that one thousands, eight hundred of those stores are found within the people republic of China. There are also one thousands three hundred stores that are found within Canada, while one thousand and seventy nine stores are located within Japan. Finally, the company also has a number of stores in the territory of their main rival in the United Kingdom, where they currently have eight hundred and eight stores.

Rationale for selection

Starbucks Company will therefore be selected for this assignment for a number of rational reasons. The firm has been able to exhibit constant and continuous growth ever since its establishment took place. As a result of that, the company has been able to dominate the American market without getting any major competition from their rivals within the same industry. Moreover, it has also been noted that the company has been able to grow over the years as a result of their massive increase in the levels of sales. Everyone in America gives so much recognition and respect to the company due to what it has been able to achieve over the years.

As a manager, the primary reasons that would result in the choosing of Starbucks Corporation for investment is due to its innovation capabilities. Over the years, the company has been able to introduce new and fresh products in the market every few years, thereby making it possible for the competitors to rival them. It is so difficult for a company to keep on changing products every now and then but still manage to meet the desires and needs of the customers. Therefore in terms of innovativeness, starbucks will be the company to look out for. Moreover, it is through such innovation that companies can be able to compete effectively in most upscale markets. Additionally, the company recently made announcements that it will be creating a new system where it will be serving wine as well as other alcoholic beverages to its customers. The number of stores that the organization will begin with is approximated to be close to one thousands, so that they will serve as the pilot tests destinations. If the project succeeds as the management is currently wishing for, then the company will have become successful in initiating a multi billion project. Starbucks will also become the first American company to set such a trend that has never been witnessed before. As a financial manager, starbucks will be a company to take into consideration in terms of investment opportunities because it is able to set trends in a market rather than follow trends that have already been set by others. Such an organization will, in most cases grow to become a winner in the long run.

The second reason as to why the firm would be chosen for investment purposes is due to its ambitious nature of capturing almost every single market within and outside the American borders (McBride, 2014). For instance, the organization has an intention of launching the “Fizzio” bottled drink. The drink is a cold-carbonated beverage that is liked by so many especially young ones. The launch process is expected to take place this coming summer in the United States. Thereafter, the process will proceed to take place in other regions such as Singapore, China as well as Korea. If the process becomes successful, then most probably the company will generate billions of dollars out of the business within the next financial quarter. Every financial manager would be interested in investing their money in such a business venture since it has a number of unlimited chances to grow beyond the unimaginable.

Another valid reason as to why the organization would be considered for investment purposes is due to the mastery of the sales of its products. One area that the management and the executive team at starbucks has been able to achieve over the years is to make billion of sales in regions beyond the boundaries of its mother country. For instance, one of the factors that has enabled the organization get several customers is due to its ability to offer free Wi-Fi to its customers. That alone has attracted over thirty thousand young customers who visit the premises whenever they want to browse over the internet. Additionally, businessmen who conduct their businesses online have also been attracted to Starbucks due to the free Wi-Fi that is offered by the company. It therefore becomes easy for such businessmen to conduct their businesses online as they sip a cup of coffee. Even if someone had visited the premises without the intention of getting something to drink, they just find themselves ordering for coffee to drink as they continue doing whatever business brought them at the place. Finally, the organization has been successful in attracting all gender of customers without having any form of segregation. Moreover, the company crosses every border within its means, thereby not limiting itself to within any demographics boundaries. That alone has enabled it to grow beyond the unimaginable regions, thereby making billions of dollars out of its business.

Apart from the above mentioned factors, Starbucks will also attract the attention of any financial manger due to its financial growth that it has exhibited over the years. For instance, in the financial year ending 2011, the company was able to make a revenue generation worth eleven million, seven hundred thousand and four hundred. The following year, the company made sure that it increased the amount of revenue generation to anew value worth thirteen million, two hundred and seventy six thousands and eight hundred.  For the financial year ending 2014, the company increased its efforts and thereby managed to increase the revenue that it generated during that year to a new value that it had not achieved in the first two years mentioned above. For the year 2014, the firm was able to get a revenue collection of sixteen million, four hundred and forty seven thousand and eight hundred. It can therefore be seen that the company has been able to achieve a significant financial growth over the years (McBride, 2014). Every year, the company generates more finances as compared to what it was able to generate in the previous years. As a result of that, it therefore, means that Starbucks has been making enough profits over the years that have been mentioned above.

In terms of the gross profits that the firm has been generating from the year 2011, it can also be seen that the profits have been growing steadily over time. In the year 2011 alone, the company y was able to make a profit of six million, seven hundred and eighty four thousands and nine hundred. That profit was able to be increased in the following year where it increased  to a new value of seven million, four hundred and sixty thousands and five hundred. It therefore means that the company increased its profits by a margin of six hundred and seventy eight thousands, and six hundred, within a span of one year. For the financial year that ended 29/9/2013, the firm was able to further increase its financial profits to a new level worth eight million, four hundred and eighty four thousands, and five hundred. It therefore means that the organization increased its net worth by one million, two hundred and ten thousands within a period of one year. Finally, for the financial year that ended 29/9/2014, starbucks managed to make a profit worth nine million, five hundred and eighty nine thousands. That amount of profit means that the company made an improvement from its previous financial performance by a margin of one million, one hundred and four thousands and five hundred.  It can therefore be seen that this firm has constantly been generating profits over the years, and that may be one of the reasons as to why it has been able to grow all over the world. Any investor who would want a good return on their money would never shy away from putting their money in the stocks of such a company.

Every rational investor would of course look at both the profits generated by a company as well as the amount of net income that the company allocated for the shareholders. The first one has already been discussed above. The second option shows that starbucks allocated one million, two hundred and forty five thousands and seven hundred to the shareholders during the financial year that ended 2011.   In the next financial year, the organization managed to increase the amount of money that they allocated for the shareholders to a new amount that is worth one million, three hundred and eighty three thousands and eight hundred. The value however dropped significantly for the year that ended in 2013, thereby making the shareholders to remain with only eight thousands, three hundred dollars. During that year, the shareholders received very little amount of money in terms of their shares amount. However, for last year (2014), the company made so much profit thereby allowing more money to go to their shareholders. In the financial year that ended 2014, a total of two million, sixty eight thousands and one hundred was able to be given off to the company’s shareholders. Therefore the shareholders of the company can be said to be a happy lot because at the end of very financial year they are able to get good returns. Not all companies pay their shareholders at the end of every financial year because of the limited amount of profits that the company ies make each single year. As a new investor in the company, there would be every valid reason to join the group of starbucks shareholders.

Another factor as to why the company would picked for investment purpose is due to the resilience that it has been able to show even during bad weather conditions. Its customers have equally been resilient and loyal enough to keep attending their normal sessions at the company even during difficult weather. A a result of that, the organization has been able to increase its amount of sales and thereby maintain its revenue growth overtime. Because of that excellence performance, the company has been able to experience a 5% growth from time to time due to such resilience. Therefore as a new investor, that would be a great concern because it one of the determinants as to whether the company will be able to survive in the long run or fail as well. However, since the customers keep on pouring in for coffee drinks even during such difficult times, it mean that the company will be able to survive all economic times, no matter how difficult such economic periods may be. Therefore as an investor, one should always expect to get good returns from the amount of money they invest in the company.

Profile of Investor in Company

For an investor who is interested in joining starbucks, he or she must first make sure that they have enough money in their accounts so as to be able to purchase the stock shares. Currently, there are several investors who have shown intense interest in joining the organization. As a result of that, the organizations share prices have sown up significantly. Therefore it would require any investor to have a good account balance in their banks for them to be able to purchase enough shares that can give them good returns. It is estimated that the current share prices have risen by a margin of 31%, up from their ever lowest price within the last five years alone. That alone is enough to show how competitive the share prices of the company have become within the last few years alone.

Pressure resistance

An investor who wants to get into starbucks must know that starbucks is currently one of the top most companies in America. Therefore the company is always under intense pressure to perform exceptionally well at all times. The pressure eventually trickles down to the investors who invest their money into the company. The nvestors will be required to give financial help to the company from time to time so that the organization can be in a position to maintain its financial course.

Long term perseverance

An investor who wishes to place their investments on the company must always be ready to focus on their long term achievements rather than the short-term ones. As had already been mentioned before, the company does work with a lot of long term goals from time to time. For instance, it had already been mentioned how the company keeps on diverting their products variety so as t give their customers a variety of options from which they can choose from. Such strategies may either work or fail in the short run. It therefore requires the investors to have a long-term patience so that the company is given time to achieve its intended goals with such a new product. For the financial year 2013, the company allocated only eight thousands, three hundred dollars to the shareholders as opposed to the other years when it allocated million of dollars. Such a significant drop may perhaps be able to have been caused by a change in the products that was offered during that year. Therefore any investor must be willing and prepared to meet such challenges from time to time.

Current ownership

The current ownership of the organization shows that institutional ownership is the main form of ownership at the organization. 72.30% of the company is actually owned by institutions the total value of the share holdings currently stand at fifty five thousands, eight hundred and thirteen dollars. On the other hand, the outstanding share holdings is at one thousands, five hundred dollars. Currently there are a total of one thousands, two hundred and eighteen share holders who hold a total of one billion, eighty four million, one hundred and seventy six thousands, one hundred and fifty seven shares. The current investors at the company are so many as has already been mentioned; therefore just a few of them will be mentioned. The first investment institution that owns starbucks is the FMR LLC institution that holds one hundred and eight million, three hundred and twelve thousand, three hundred and seventy shares. The total worth of the shares that the organization owns is five million, five hundred and seventy five thousands, nine hundred and twenty one. The second group that has ownership at starbucks is the Vanguard Group Corporation that owns a total of seventy nine million, nine hundred and ninety seven thousands and seventy six shares. The total worth of those shares is estimated to be four million, one hundred and eighteen thousand, and two hundred and forty nine. Vanguard is one of the largest investment companies that exist in the whole world. Its primary goal is to serve individual investors so as to help them achieve their financial goals and desires.

Next on line is the state street corporation that owns shares estimated to be sixty million, six hundred and forty eight thousand, and nine hundred and seventy six. The total worth of those shares is approximated to be worth three million, one hundred and twenty two thousand, two hundred and nine. State Street is an international organization that is based in the United States of America. The corporation works as a financial services holding company within the United States (NASDAQ). The company was first established in the year 1792 and it has since grown to become the second oldest institution within the finance sector.

Apart from the state street company, there is also T. Rowe Price Company that also has shares at starbucks. The current number of shares held by state street company amounts to a total of forty seven million, three hundred and twenty one thousand five hundred and eight. The total worth of those shares is approximated to be two million, four hundred and thirty six thousand, one hundred and eleven dollars. T. Price is one of the publicly traded companies that exist in America. It serves as an investment firm that has its headquarters based in Baltimore region oif Maryland. The company is known majorly form its mutual funds as well as its sub advisory services. Moreover, it also offers account management services for individuals as well as institutions. Additionally, the organization also offers retirement benefit plans for the retirees as well as offering investment planning for their customers.

Financial ratio analysis

Financial ratio analysis is a method through which the analysis of a company’s financial performance can be evaluated. It is through the ratios that one can be able to know whether the company performs well or otherwise. The analysis of Starbucks Corporation will be conducted using the following ratios:

Working capital

This ratio is used to measure the capability of a company to meet its current financial obligations. Companies that are capable of meeting its obligations must at all times ensure that its assets exceed the liabilities. If the converse happens, then such a company may not e in a position to meet its financial obligations. The formula that is used to derive the value is given as:

Working capital = current assets – current liabilities

For the year 2011, the value of the current assets was $ 3,794,900 while the current liabilities were $ 2,975,500. The working capital for that year was $ 819, 400 (3,794,900 – 2,975,500). For the year 2012, the value of the current assets was $4,199,600 while the value of the liabilities was $2,209,800. Therefore the value of the working capital for that year was $1,989,800. It can therefore be seen that the company had a high amount of working capital which means that it was always in a position to take care of its bills/ liabilities.

Debt to equity ratio

This ratio is normally used to calculate the amount of a company’s leverage for every year. It measures the proportions of the company’s equity and debt that is used to run the company. A company that relies mostly on its shareholders to finance its operations is better off than that which relies on its debtors to finance on its operations (Pamela, 1999). A general formula is used to calculate the ratio as shown below:

Debt to equity ratio = total liabilities/total stockholders’ equity

For the year 2011, the liabilities value was at $2, 975, 500 while the value of the stockholders equity was at $ 4,384,900. The value of the ration was 0.6785. It therefore means that in this case, the debtors supplied $ 0.6785 dollars for every single dollar that was supplied by the shareholders. The ratio is therefore quite balanced giving an implication that the company was run by a small percentage of contribution from the creditors while the majority of the funding came from the shareholders.

Return on Assets

This ratio is used to show the relative position of the company in relation to its assets. It also shows how efficient a company’s management is at utilizing the assets in generating profits for the company (Pamela, 1999). The following general formula is used to calculate the ratio:

Return on assets = net income/total assets

Total assets for 2014 were $10,752,900 while the net income was $2,068,100. The value of the return on assets was therefore 0.19232 = 19.23%. The company can therefore be seen to be converting the assets into profit at a good rate.

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