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Michael Ferguson

Jin Kim

Julie Paulson

Jackie Cornwell

Jason Lee

5/ 27/ 2007
Pacific Lutheran University

Table of Contents

Executive Summary……………………..……………………………….….2

Introduction………………………………………………………………….3

Background………………………………………………………….……....3

Analysis / Interpretation………………………………………..…………....5

Risk Assessment.………………………………………..….………………18

Suggestions to Management…………...……………………….…………..23

Conclusion………….....................................................................................23

References……...……………………………………………………..……25

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Executive Summary

With the increasing numbers of coffee consumers, Starbucks has been

experiencing a phenomenal growth in their sales. The upscale experience, distinctive

scent, and eye pleasing décor that each location delivers differentiate them from all the

other competitors. Their increasing profitability has given them the opportunity to expand

world wide to pursue further business opportunities to extract new customers in a

different market.

Starbucks success can be greatly contributed from their name branding. They

have acquired contracts with TAZO tea, Albertsons, and they now produce products that

are sold at every location greatly contributing to their growth. But with major growth

comes major risks. Eventually Starbucks will be entering their maturity life cycle of the

business. This in fact, isn’t necessarily bad but will test Starbucks strategic planning so

they can find new and creative ways to be innovative. With increasing changes in the

market, Starbucks has changed their financial outlook. They have currently turned from

an external investment company to an internally invested company. This is mainly done

to help them expand and increase their ability to cover their liabilities.

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Introduction

In this report, we will be covering many aspects of Starbucks. This will include

our take on their financial securities. We will be analyzing their current status of some of

Starbucks present and future financial risk, and suggesting beneficial ways to of

reconstructing certain critical financial aspects to minimize risks. We will be also

providing suggestions to their management through the current financial reports and other

significant ratios. Our goal is to provide an accurate understanding on their financial

outlook and hope to offer a detailed report on the future business of Starbucks.

Background

In 1971, three friends, Jerry Baldwin, Zev Siegel, and Gordon Bowker decided to

open a coffee store at Pikes Place Market in Seattle, Washington. They named this store,

Starbucks Coffee, Tea and Spice. This store sold coffee beans and dependable, high

quality coffee making equipment. At this time, Starbucks was considered a private

company. In 1972, the trio hired Howard Schultz to manage the sales of retail and to take

charge of the marketing of the company. After a trip to Italy, Schultz opened another

store, called Il Giornale, which was eventually combined with Starbucks Coffee, Tea and

Spice. Once these two companies merged, they became known as Starbucks Corporation.

In 1992, Starbucks became a public company, partnering with other companies, such as

Barnes & Noble, Inc. and PepsiCo. Starbucks Corporation grew quickly, opening many

stores throughout the world. Starbucks Corporation seemed to be on its way to achieving

its goal of becoming the most well-known coffee company in the world. In 1999,

Starbucks acquired the tea company by the name of Tazo. Also in this year, Starbucks

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signed a contract with Albertsons that would allow them to open multiple coffee stands

inside of the grocery store. There, they would also sell their newer bottled drink, the

frappuccino, Tazo tea, and other Starbucks merchandise. Starbucks is the world’s largest

multinational chain of coffee shops. Since the company was found in 1971, the

corporation has experienced tremendous growth and has established stores all over the

world. As of March 17, 2007, the company has about 13,000 of total stores, and now

plans to have at least 40,000 stores worldwide. The company plans to attain this goal over

the next few years. Currently, there are 3,604 stores internationally in 36 different

countries including United Kingdom, Canada, Thailand, Australia, and Japan (Starbucks,

2007). Since the company’s inception in 1971, the Starbucks brand has expanded into

food, music, and entertainment. As one of the most recognized coffee brands, we as a

group thought it would be interesting to take a closer look at the actual numbers that

make this brand such a profitable success.

Analysis / Interpretation

Financial and branding success

For the most part it is common knowledge that the Starbucks Coffee Company is

a successful firm both in terms of revenues and branding. In North America alone the

Starbucks brand has enjoyed the benefits of its brand proliferation into the American

culture and market. Overseas it has enjoyed the initial success of its brand acceptance and

recognition throughout varying international markets. The Following is a financial

demonstration of the monetary success that Starbucks has enjoyed from its strong

branding and sales in May 10, 2007.

Market Cap: $22.41B

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Enterprise Value: $22.92B

Enterprise Value/Revenue: 2.67

Enterprise Value/EBITDA: 16.112

Profit Margin: 7.21%

Operating Margin: 10.19%

Return on Assets: 14.38%

Return on Equity: 27.46%

Revenue: $8.58B

Gross Profit: $4.61B

Total Cash: $343.83M

Total cash per share: 0.461

Total Debt (short term and long term debt): $849.32M

Book Value per Share: 2.965

Current ratio: 0.653

Operating Cash Flow: $1.11B

Levered Free Cash Flow: $47.51M

With an operating cash flow of 1.11 billion, we can observe the great financial

success that Starbucks has achieved. It is this great financial success and OCF that will

allow for our international and private equity strategic recommendation.

Annual report for 5years

Starbucks is a specialty beverage company based in Seattle, Washington that has

experienced great successes in its market place. Starbucks has reported high revenue

growth percentages every year since the company’s beginning. Starbucks has reported

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high revenue growth percentages every year. In 2006, the year over year growth was

20.3%, and the 2006 5-year average was 24.0%. Operating income year over year was

28.0% in 2006, and the 5-year average was 29.8%. Last year, Starbucks earned over

$564 million and generated revenues of over $7.7 billion. Both revenue and net income

regression below show almost 100% of R square. It means the result is almost 100 %

reliable.

Regression

Regression Statistics(Revenue)
Multiple R 0.995857675
R Square 0.991732508
Adjusted R Square 0.988976678
Standard Error 188198.8644
Observations 5
Regression Statistics(Net income)
Multiple R 0.993283
R Square 0.98661
Adjusted R Square 0.982147
Standard Error 19663528
Observations 5

Net income

$1,600,000,000
$1,400,000,000
$1,200,000,000
$1,000,000,000
$800,000,000
$600,000,000
$400,000,000
$200,000,000
$0
02
03
04
05
06
20
20
20
20
20

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Revenue

$25,000,000,000

$20,000,000,000
ROE of Starbucks and its competitors

SBUX McDonald’s Wendy’s Tim Holton’s

Dec 31 2006 25.32% 22.93% 10.88% 48.27%

Dec 31 2005 23.65% 17.18% 3.45% 20.07%

Dec 31 2004 15.79% 16.04% 16.94% N/A

In addition, according to the chart above, Starbucks’ last year’s return on equity,

which reveals how much profit a company earned in comparison to the total amount of

shareholder equity found on the balance sheet, has been above industries average.

$15,000,000,000
Starbucks’ main competitors are McDonald’s Corp, Wendy’s and Tim Holton Inc.

Starbucks stock is in an industry with a relatively large number of competitors. Looking

at its sales, it is a medium-sized player. However, Starbucks is one of the strongest

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performers in its industry. In terms of profitability, Starbucks has posted results that are

some of the industry’s best. The company has had very strong profit margins as well,

which are also key profitability measures.

As mentioned, the company plans to more than triple the number of stores to

40,000, with half in the U.S. and half over seas. This goal is part of Schultz’s vision to

challenge Tim Holton Inc. and McDonalds as the world’s largest restaurant chain.

Starbucks is currently ranked 4th in the industry, based on market capitalization.

According to these of data, we expect that the company will make more revenue

and net income in the future, and those of competitors’ ROE vary greatly, yet they are

still considered as direct competitors. Most stocks in the restaurants industry have seen

steadily growing revenue and impressive ROE over the past three years. The companies’

ROE have grown very rapidly over the past three years. Like its peers, this stock's

earnings per share have grown at a very high rate over the past three years, too.

Current Ratio

The current ratio is an indication of the company's ability to meet short-term debt

obligations; the higher the ratio, the more liquid the company is. Current ratio is equal to

current assets divided by current liabilities. If the current assets of a company are more

than twice the current liabilities, then that company is generally considered to have good

short-term financial strength. If current liabilities exceed current assets, then the company

may have problems meeting its short-term obligations. As for Starbucks it is the latter, it

has a higher liability than assets meaning it will be harder to meet short-term obligations,

except for the year 2004. (Investopedia, 2007).

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Current Ratio
Current
Year Assets Current Liabilities Outcome
2006 1,529,788.00 1,935,620.00 0.79
2005 1,209,334.00 1,226,996.00 0.985
2004 1,350,895.00 746,259.00 1.81

Acid Test

This test indicates whether a company has enough short-term assets to cover its

immediate liabilities without selling inventory. The acid-test ratio is far more strenuous

than the working capital ratio, primarily because the working capital ratio allows for the

inclusion of inventory assets. Companies with ratios of less than 1 cannot pay their

current liabilities and should be looked at with extreme caution. For Starbucks it is

looking towards the worse since each preceding year their outcome has been dropping

well below one. (Investopedia, 2007).

Acid Test
Year Current Assets - Inventory / Current Liabilities = Outcome
636,200.0
2006 1,529,788.00 0 1,935,600.00 0.46
546,299.0
2005 1,209,334.00 0 1,226,996.00 0.54
422,663.0
2004 1,350,895.00 0 746,259.00 1.24

Working Capital

The number one reason most people look at a balance sheet is to find out a

company's working capital (or "current") position. It reveals more about the financial

condition of a business than almost any other calculation. It tells you what would be left

if a company raised all of its short term resources, and used them to pay off its short term

liabilities. The more working capital, the less financial strain a company experiences.

By studying a company's position, you can clearly see if it has the resources necessary to

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expand internally or if it will have to turn to a bank and take on debt. As Starbucks is

growing it has less and less means to pay off short-term liabilities and is looking for

external funding and take on more debt. (Investopedia, 2007).

Working Capital
Year Current Assets - Current Liabilities = Outcome
2006 1,529,788.00 1,935,600.00 (405,832)
2005 1,209,334.00 1,226,996.00 (17,662)
2004 1,350,895.00 746,259.00 604,636

Net Profit Margin

The profit margin tells you how much profit a company makes for every $1 it

generates in revenue. Profit margins vary by industry, but all else being equal, the higher

a company’s profit margin compared to its competitors, the better. Starbucks makes about

7-8 cents on the dollar. This is about average for relative companies because they are a

low cost high turnover company and make all their money on quantity. (Investopedia,

2007).

Net Profit Margin


Year Net Income / Sales Outcome
2006 564,259.00 7,786,942.00 0.07
2005 494,467.00 6,369,300.00 0.08
2004 390,559.00 5,294,247.00 0.07

Return on Assets

An indicator of how profitable a company is relative to its total assets. ROA gives

an idea as to how efficient management is at using its assets to generate earnings. This is

calculated by dividing a company's annual earnings by its total assets, ROA is displayed

as a percentage. Sometimes this is referred to as "return on investment". ROA for public

companies can vary substantially and will be highly dependent on the industry. This is

why when using ROA as a comparative measure, it is best to compare it against a

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company's previous ROA numbers or the ROA of a similar company. Compared to the

other coffee companies, Starbucks is equal if not better than most others on their ROA.

(Investopedia, 2007).

Return on Assets
Year Net Income / Assets Outcome
2006 564,259.00 1,529,788.00 0.37
2005 494,467.00 1,209,334.00 0.41
2004 390,559.00 1,350,895.00 0.29

Return on Equity

ROE is simply a measure of a corporation's profitability that reveals how

much profit a company generates with the money shareholders have invested. IT is

calculated by net income divided by shareholders equity. Starbucks is relatively high

after looking at several different companies but this is not a bad thing. (Investopedia,

2007).

Return on Equity
Year Net Income / Shareholder' Equity Outcome
2006 564,259.00 2,228,506.00 0.25
2005 494,467.00 2,090,634.00 0.24
2004 390,559.00 2,474,218.00 0.16

Average Collection Period

Measures the average number of days customers take to pay their bills,

indicating the effectiveness of credit and collection policies of the business. This ratio

also determines if the credit terms are realistic (Investopedia, 2007).

Average Collection Period


Year Accounts receivable / Credit Sales per day = Outcome
2006 313,048.00 (636,222/ 365) 179.59
2005 261,570.00 (546,299/ 365) 174.76
2004 203,876.00 (422,663/ 365) 176.06

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Sales to Fixed Assets

Low sales to fixed assets ratio means inefficient utilization or obsolescence of

fixed assets, which may be caused by excess capacity or interruptions in the supply of

raw materials and high means the exact opposite. (Investopedia, 2007).

Sales to Fixed Assets


Year Sales / Fixed Assets Outcome
2006 7,786,942.00 2,899,153.00 2.68

2005 6,369,300.00 2,304,731.00 2.76


2004 5,294,247.00 2,039,653.00 2.59

Total Asset Turnover

The amount of sales generated for every dollar's worth of assets. It is calculated

by dividing sales in dollars by assets in dollars. Asset turnover measures a firm's

efficiency at using its assets in generating sales or revenue - the higher the number the

better. It also indicates pricing strategy: companies with low profit margins tend to have

high asset turnover, while those with high profit margins have low asset turnover.

Total Asset Turnover


Year Net Sales Total Assets Outcome
2006 7,786,942.00 4,428,941.00 1.76
2005 6,369,300.00 3,513,693.00 1.81
2004 5,294,247.00 3,386,266.00 1.56

Financial Statements

By analyzing its financial statements we can gain a greater knowledge into how

the company operates and also how they handle their debt and leverage in the current

market.

The first financial statement we will analyze of Starbucks is their balance sheet.

Investopedia defines the balance sheet for a company as the, “financial

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statement that summarizes a company's assets, liabilities and shareholders' equity at a

specific point in time,” (Investopedia, 2007). The book value is what in theory the

shareholders would receive if the company was liquidated at this time. It can also be a

valuable tool when you compare it to the market value of the stock. This will tell you if

the company is overvalued or not.

P/B=29.98/2.965=10.11

Starbucks Price to book value is relatively high. This could mean that they are

overvalued as a company by the market. However it could also mean that the market sees

them as becoming potentially even more profitable in the future and expects more high

returns. From our analysis we believe that the latter is the more accurate estimate of

Starbucks. Currently they are trying to expand into a more global market, specifically

China and India. These ventures could have potential to grow Starbucks into an even

larger provider of quality coffee, teas and merchandise.

As we continue our analysis of the balance sheet we must calculate how much

working capital is there. This will tell us Starbucks current short term financial health

situation. Since the number that we have calculated is negative we can conclude that

Starbucks sales could be slowing down which means that their accounts receivable

number is getting smaller. As of now we do not think that Starbucks is in danger of

bankruptcy or not being able to pay off its creditors. Its current debt is 849.32M with

operating cash flows of 1.11B and levered free cash flow of 41.63M. As Starbucks is

currently trying to expand into new markets we can assess that this negative number

could be due to that. We can also look at Starbucks financial health by analyzing their

debt to equity ratio. Since Starbucks does not have a ratio that is greater than one, we can

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conclude that they have more assets than debt, a very good thing. We can also conclude

from this that they may not be in the greatest financial shape from looking at their

working capital, but combined with their improving debt to equity ratio their risk of

bankruptcy is low.

Working Capital=1529788-1935620= -405832

Debt/Equity=.384

Starbucks are in a slow growth phase of their companies’ life, they are perhaps

hitting the beginning of their maturity stage. They are still growing as a company by

trying to expand into new global markets, and instead of paying out dividends they are

choosing to reinvest their revenues to finance new ventures. Their debt however is still

increasing every year, most likely from these new ventures into global markets.

Divulging into the income statement we go deeper into the current situation

Starbucks has with its debt and if it can in fact service its debt if need be. Let us first talk

about how Starbucks has done with its profits over the last few years. As mentioned

earlier, company’s revenue is increasing every year, so it seems that its ventures into new

markets have paid off for now.

Revenue from 2004 to 2006

Total Revenue 1-Oct-06 Total Revenue 2-Oct-05 Total Revenue 3-Oct-04

$7,786,942 $6,369,300 $5,294,247

We can see a steady increase from 2004 to 2006 for their revenues. This supports

Starbucks investing strategy over the last few years. Before the market downturn

Starbucks used to invest in companies like, Living.com, a furniture retailer and

Kozmo.com a delivery service.(findarticles.com) However, since the downturn we find

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that Starbucks has been pulling away from that strategy and pushing more towards and

inwardly focused one. They now are turning all of their attention to their own business

ventures and attempting to revitalize the market globally.

China for Starbucks is a success story. They are now operating over 100 stores in

that nation and hope to expand even more over the next few years. Their entry into India

however has not gone so easy. They perhaps need to view the consumers in that market

to better understand why they are not drinking as much coffee, or why it is harder for

them to be converted to coffee drinkers.

Starbucks is a growing company. They have expanded over the whole of Untied

States and into Canada at a rapid pace. Now they are breaking into the global market with

a force. Their debt is a concern to investors however. They seem to be over financed for a

company of their size. We can assess that they are moving into new markets and that

could have something to do with the high debt to equity ratio. We can also conclude that

because they are still growing and that their assets are more than their debt, we can feel

confident that they will not be leaving us anytime soon.

Pro forma Statement


Pro forma Statement
($ Million)
Year 2006 Actual 2007
Net sales $7,786.94

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Current assets $1,529.79
Current liabilities $2,200.43
COGS $5,866.60
Total assets $4,428.94
Admin expenses $473.02
Growth rate in net sales 19.6%
Cost of goods sold/ net sales 75.3%
Admin expenses / net sales 6.1%
Long -term debt $1.96 $0.41
Current position long term debt $1.55 $1.55
Interest rate 1.7%
Tax rate 37.16%
Dividend/earning after taxes 0
Current asset / net sales 19.6%
Net fixed assets $2,899.15
Current liabilities / net sales 28.3%
Owner's equity $2,228.51
Income Statement

Year Forecast 2007


Net sales $9,313.18
COGS $7,016.45
Gross profit $2,296.73
Admin expenses $565.73
Interest expense $0.03
Earning before tax $1,730.96
Tax $643.23
Earning after tax $1,087.74
Dividend paid $0.00
Additions to retained earning $1,087.74

Balance Sheet
Current assets $1,829.63
Net fixed assets $2,899.15
Total assets $4,728.78

Current liabilities $2,631.71


Long-term debt $0.41
Equity $3,316.25
Total Liabilities and shareholder's equity $5,948.37
External Funding Required ($1,219.59)

The amount of required external funding is negative $1,219.59. That means

currently Starbucks does not need any external funding. When analyzing the company’s

numbers further, we noticed that the company has relatively high equity. This is a good

indication that Starbucks could easily receive a loan if the company ever wants one.

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Risk Assessment

Starbucks, as well as most companies, is dependent upon customers, suppliers,

employees, competitors, innovations, market expectations, store openings, globalization,

stock prices, interest rates, and so many others. Each of these factors has a few things in

common. Starbucks has little or no control over them, and they can be huge risks for the

company.

Balance & Sustainable Growth

Starbucks depends on the sustainability of the Starbucks brand. The company

believes with good reason that they have a great reputation both within the U.S. and

internationally for providing quality products and a good customer experience.

Management feels that in order for the company to sustain growth, it is necessary to

preserve and grow the value of their brand. Starbucks’ goal is to continue supplying

quality products and services so that they ensure the sustainability of their brand image.

Right now market expectations for Starbucks financial performance are high.

Starbucks management believes that their current stock prices reflect high market

expectations for its future operating results. They think if Starbucks fails to meet the

markets high expectations for their comparable store sales growth rates, earnings per

share, and new store openings, it could cause the market price of Starbucks to drop

intensely.

Starbucks can construct forecasts and make educated predictions about their

future, but the company has to be aware that they are exposed to a lot of risk. Following

is a list of potential risks that I obtained from Starbucks’ 10-K:

 Potential declines in actual or estimated comparable store sales growth rates and
expectations.

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 Failure to meet annual targets for store openings, as a result of delays in store
openings or failing to identify and secure sufficient real estate locations.
 Negative trends in operating expenses or failure to continue to increase net
revenues and operating income in any or all of Starbucks United States,
International, and CPG operating segments.
 Failure to penetrate and expand into emerging International markets, such as
China.
 Opening less productive stores and cannibalizing existing stores with new stores.
 Higher costs associated with maintaining and refurbishing the company’s existing
bas of company-operated retail stores.
 Failure to anticipate, appropriately invest in and effectively manage the human,
information technology and logistical resources necessary to support the growth
of its business, including managing the costs associated with such resources.
 Failure to integrate, leverage and generate expected rates of return on
investments, including expansion of existing businesses and expansion through
domestic and foreign acquisitions.
 Failure to generate sufficient future positive operating cash flows and, if
necessary, secure adequate external financing to fund its growth.
 Declines in general consumer demand for specialty coffee products.
 Failure to meet customer demand efficiently during peak periods.
 Lack of customer acceptance of new products.
 Lack of customer acceptance of Starbucks products in new markets.
 Failure to consistently provide high quality products and innovate new products
and business processes to retain the company’s existing customer base and attract
new customers.
 Increases in the price of high quality Arabica coffee, dairy products, fuel, energy,
or other consumables, and the company’s inability to obtain a sufficient supply of
such commodities and consumable as its business grows.
 Failure to manage the impact of any adverse publicity regarding the company’s
business practices or the health effect of consuming its products.

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 Increased labor costs, including significant increases in health care benefits and
worker’s compensation insurance costs.
 Litigation against Starbucks, particularly any class action litigation.
 Unfavorable general economic conditions in the markets in which Starbucks
operates, including, but not limited to, changes in interest rate, unemployment
rates, disposable income and other events or factors that adversely affect
consumer spending.
 Unanticipated changes in executive management.
 Any material interruption in the company’s supply chain, such as material
interruption of roasted coffee supply due to the casualty loss of any of the
company’s roasting plants, or material interruption in the supply of fluid milk or
paper and plastic products such as cups, lids, napkins, straws, shopping bags, and
corrugated paper boxes in each case duet to the inability of one or more key
suppliers to fulfill the company’s requirements.
 The impact of initiatives by competitors and increased competition generally.
 Failure to manage the impact on Starbucks business of factors such as labor
discord, war, terrorism, political instability in certain markets and natural
disasters.
 Interruptions in service by common carriers that ship goods within the company’s
distribution channels.

Sensitivity to Interest Rates

“The Company’s available-for-sale securities comprise a diversified portfolio

consisting mainly of fixed income instruments. The primary objectives of these

investments are to preserve capital and liquidity. Available-for-sale securities are

investment grade and are recorded on the balance sheet at fair value with unrealized gains

and losses reported as a separate component of “Accumulated other comprehensive

income.” The Company does not hedge the interest rate exposure on its available-for-sale

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securities. The Company performed a sensitivity analysis based on a 10% change in the

underlying interest rate of its interest bearing financial instruments, including its short-

term borrowings and long-term debt, as of the end of fiscal 2006, and determined that

such a change would not have a significant effect on the fair value of these instruments,”

(Starbucks 10-K, 2006).

Foreign Currency Exchange Rates

Starbucks may undertake transactions with some derivative instruments, including

maturities within five years, to hedge assets, liabilities, revenues, and purchases

denominated in foreign currencies because they deal with transactions in several different

currencies, such as the Canadian dollar, the British pound sterling, the Euro, and the

Japanese Yen. “Under their umbrella risk management policy, the company has to

evaluate its foreign currency exchange risk by monitoring market data and external

factors that may influence exchange rate fluctuations,” (Starbucks 10-K, 2006). My

understanding is that Starbucks’ capital finances, their revenues and expenses have to be

transacted into U.S. dollars. This process could result in many errors and prove to be

very difficult.

Recommendations to Management

Threats

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Like any company, Starbucks has many competitors. Between the fast food

industry (McDonald’s in particular, as they have started selling iced coffee), donut shops

that serve coffee, small coffee houses, and larger coffee chains, Starbucks needs to be

aware of their competition. They have to continue finding ways to sustain competitive

advantage.

There is an expected slow in the United States economy, and it is being

anticipated that American spending will slow down. For most people, the first thing that

will be eliminated from their budgets will be the extras, like going out to dinner or

purchasing coffees each morning.

One of the last threats that Starbucks will face is volatility in coffee markets.

“The supply and price of coffee is subject to a high level of volatility. The company’s

quality requirements for standard coffee exposes it to multiple risk factors in the

producing countries, including weather, political and economic conditions which may

adversely affect the company’s business,” (Datamonitor, 2005).

Weaknesses

Starbucks has both weaknesses and threats that are potential concerns. It heavily

relies on the U.S. market. In 2005, Starbucks approximately 84% of its revenues were

obtained from the U.S. market. The company is opening stores in more than 30 countries

and needs to start generating a more significant profit from their markets.

Starbucks also has a low variety of product mix. The majority is beverages. This

might cause problems in the future if the demand for the company’s drinks decrease.

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“The company generates lower revenues and income per employee compared to

the industry average. Its revenue per employee was $55,385 during fiscal 2005; the

industry average was $120,464” (Datamonitor, 2005).

International Culture

Starbucks really needs to continue its growth internationally. Management could

decide to advertise more or have promotional sales, but we think in order for the

company to be truly successful internationally they need to appeal to each country or

region’s culture and customer wants. For example, we believe when Starbucks

implemented their Tazo Tea line, they were successful in appealing to a new group of

people.

Finances & Investing

Starbucks total assets surpass their total liabilities. This means that management

could invest more in a new product mix or in the opening of new stores. They could

spend it on advertising or on research. We concluded that, in order for Starbucks to

sustain growth, the company needs to continue investing. This is the best way for them

to maintain their competitive advantage and market share.

Conclusion

Our group thinks that Starbucks has just recently reached its maturity stage. They

have basically exploited all of their investment options. The company’s only new

investments are periodically introducing new products, and opening new stores globally.

The company is still growing rapidly, but there are many risks, such as those mentioned

above that could change Starbucks’ growth very easily. Because the have slowed the

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introduction of new products, now it is mostly seasonal changes, they are counting on

sustainability within the U.S. market as well as a huge increase in the international

markets.

Through our analysis, we feel that investing in Starbucks would be a wise

decision. Although the company does have its risks, so does all of its competitors.

Starbucks has been growing exponentially for several years, and many companies use

Starbucks as a model for their business strategies.

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References

Horovitz, Bruce. Starbucks Aims Beyond Lattes to Extend Brand. (2006, May 18).
USA
Today. Retrieved May 21, 2007, from http://www.usatoday.com/money/
industries/food/2006-05-18-starbucks-usat_x.htm

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