Group Members:

Shaarang Begani – 1155155892

XIAOQIN HUANG - 1155154182
Wei Yang – 1155152246
Zhenyu Zhang – 1155155887
Yutaro Goto - 1155138618

1. Calculate the percentage growth in net revenues for each of the three revenue categories1
on Starbucks’ income statement from 2016 to 2017 and from 2017 to 2018. For fiscal year
2018, what is the average revenue per company-operated store? Per licensed store? Briefly
comment on the relative magnitude of average revenue per type of store.

Case 3 - Question
1.xlsx

2. Estimate the amounts purchased by Starbucks’ customers for fiscal years 2016, 2017 and

2018, regardless of whether or not Starbucks recognized those customer purchases as

revenue in those years. Calculate the percentage growth in customer purchases from 2016

to 2017 and 2017 to 2018. How does the growth in customer purchases compare with the

growth in revenues? [Hint: Customer Purchases = Revenue + Change in Deferred

Revenue.]

in millions $

2016 2017 2018

Total net revenues 21,315.90 22,386.80 24,719.50

Change in Deferred Revenue 180.4 130.8 7,109.40

Total Purchase 21496.3 22517.6 31828.9

Revenue Growth / 5.02% 10.42%

Total Purchase Growth / 4.75% 41.35%

In 2017, Starbucks’ growth in customer purchases is close to growth in revenue.

In 2018, Starbucks’ total purchase growth is 4 times high as total revenue.

3
Q3. The table below provides Starbucks’ quarterly revenue and quarter-end deferred revenue liability
(both in $ millions) for the quarters shown. For each fiscal year from 2016 to 2018, calculate: (i) the
fraction of total revenue for the year that is earned in each fiscal quarter, (ii) the fraction of total
amounts purchased by customers for the year that are made in each fiscal quarter. Is there a
seasonal trend in Starbuck’s revenue and customer purchases? (A seasonal trend occurs when the
amounts are higher in one quarter when compared with other quarters of the year.)

Stored
(ii) the
value card
(i) the fraction of Change
liability and
Fiscal fraction of total amounts in Customer
Revenue current
Quarter total purchased by defered purchase
portion of
revenue customers revenue
deferred
for the year
revenue

FQ4
$4,914.80 $983.80 NA NA NA NA
2015

FQ1
$5,373.50 $1,448.80 0.25 0.27 $465.00 $5,838.50
2016

FQ2
$4,993.20 $1,203.50 0.23 0.22 ($245.30) $4,747.90
2016

FQ3
$5,238.00 $1,216.60 0.25 0.24 $13.10 $5,251.10
2016

FQ4
$5,711.20 $1,171.20 0.27 0.26 ($45.40) $5,665.80
2016

FQ1
$5,732.90 $1,578.30 0.26 0.27 $407.10 $6,140.00
2017

FQ2
$5,294.00 $1,339.70 0.24 0.22 ($238.60) $5,055.40
2017

FQ3
$5,661.50 $1,342.20 0.25 0.25 $2.50 $5,664.00
2017

FQ4
$5,698.30 $1,288.50 0.25 0.25 ($53.70) $5,644.60
2017

FQ1
$6,073.70 $1,668.00 0.25 0.26 $379.50 $6,453.20
2018

FQ2
$6,031.80 $1,484.00 0.24 0.23 ($184.00) $5,847.80
2018

FQ3
$6,310.30 $1,444.60 0.26 0.25 ($39.40) $6,270.90
2018

FQ4
$6,303.60 $1,642.90 0.26 0.26 $198.30 $6,501.90
2018
Regarding fraction of total revenue in each fiscal year, the values got from 0.23 to 0.27 and there is no
seasonal trend in 2016, 2017 and 2018 respectively. On the other hand, the seasonal trend has been
confirmed in terms of customer purchase and the value of FQ1 and FQ4 are slightly higher than that
of FQ2 and FQ3 from 2016 to 2018, and the value of FQ2 was always worst result in each fiscal year.

$10,000.00 Revenue
0.30
Customer Purchase
$9,000.00 Fraction of Revenue
0.28
Fraction of Customer Purchase
0.26
$8,000.00

0.24
$7,000.00
0.22
$6,000.00
0.20
$5,000.00
0.18
$4,000.00
0.16

$3,000.00
0.14

$2,000.00 0.12

$1,000.00 0.10
FQ1 FQ2 FQ3 FQ4 FQ1 FQ2 FQ3 FQ4 FQ1 FQ2 FQ3 FQ4
2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018

Q4. Compute the three components of the DuPont decomposition of Return on Equity (ROE) as well
as ROE for Starbucks for 2017 and 2018 using the expressions below. Include noncontrolling
interests in both Net Income and Equity (i.e., for Net Income, use “Net earnings including
noncontrolling interests” and for Equity use “Total Equity”). At the end of fiscal year 2016, Starbucks
had total assets of $14,312.5 million and total shareholders’ equity of $4,384.9 million.

　 2018 2017

Net Profit Margin 0.1828 0.1289

Asset Turnover 1.0233 1.5584

Leverage 20.5447 2.6325

ROE 3.8425 0.5287

The ROE of Starbucks has been increased significantly from 52.87% to 384.25% between 2017
and 2018. In both years, they greatly exceeded the index of 20% as a company in good
business condition, and it can be seen that Starbucks’ business situation is really doing well.
In this period, Starbucks has become a company with even higher management efficiency by
increasing financial leverage factor.

Q.5 What are the main expense categories reported by the two companies for fiscal 2018?

Starbucks

1) Cost of sales including occupancy cost : $10,174.5 in million

2) Store operating expense : $7,193.2

>>SUBX-2018-annual report F-10K(P.51)

Luckin Coffee

1) Sales and marketing expense : $104,372 in thousands

2) Store rental and other operating cost : $80,619

>> Luckin Coffee F-1(P.18)

6. Calculate the 2018 operating profit margins for the two companies. What are the main

factors explaining the difference in operating profit margins?

In million $
 Starbucks Luckin

Operating Income 3,883.30 -223.57

Operating Expense 21,137.40 341.19

Total Revenue 24,719.50 117.62

Operating profit Margin 15.71% -190.08%

The main factor that explaining the difference in operating profit margin is operating expense.
Starbucks’ operating expense is smaller than total revenue, so Starbucks has a positive
operating profit margin; Luckin’s operating expense is 3 times bigger than total revenue, so
Luckin has a negative operating profit margin.

7. What was the main reason for the large increase in net cash provided by operating activities
in 2018? Be specific about the nature of the transaction (i.e., just stating “because of deferred
revenue” is not sufficient).

Cash flow provided by operating activities increased from $4.3 billion in 2017 to $11.9 billion in
2018 primarily due to the upfront payment from Nestle on account of Global Coffee Alliance

8. What reason(s) does Starbucks’ management give for the new long-term debt issued in
2018?

9. What are the categories of intangible assets recognized on Starbucks’ balance sheet? For
fiscal year 2018, how much did Starbucks recognize as amortization expense on its
intangible assets?

The categories of intangible assets on the Starbucks’ balance sheet includes:

 1) Goodwill
2) Other Intangibles Assets
a) Indefinite-Lived Intangible Assets – Trade Names, trademarks and patents and
other Indefinite-Lived Intangible Assets
b) Finite – Lived Intangible Assets – Acquired and reacquired rights, Acquired trade
secrets and processes, Trade names, trademarks and patents, licensing
agreements and other Finite – Lived Intangible Assets

The amortization expense on the finite lives intangible assets was recognized as $186.5 million
in 2018

10. What is the approximate remaining weighted average useful life of its definite-lived
intangibles in years as of September 30, 2018?

The approximate remaining weighted average useful life of its definite-lived intangibles is
close to 4 years

11. What are Starbucks’ Asset Retirement Obligations (AROs) related to?

It’s a liability for the fair value of required asset retirement obligations (“ARO”) when such
obligations are incurred. Starbucks’s AROs are primarily associated with leasehold improvements,
which, at the end of a lease, they are contractually obligated to remove in order to comply with
the lease agreement. At the inception of a lease with such conditions, Starbucks records an ARO
liability and a corresponding capital asset in an amount equal to the estimated fair value of the
obligation.

12. How much total long-term debt did Starbucks issue in August 2018?

Starbucks issued 3000 billion long-term debt in August 2015, including 2025 notes 1250 billion,
2028 note 750 billion, and 2048 note 1000 billion

13. For each of the long-term notes issued in August 2018, determine if it was issued at a discount,
premium, or par.

There are 3 long term notes issued in August 2018

1) 2025 notes’ stated interest 3.8% VS effective interest rate 3.721%

It was issued at a premium

2) 2028 notes’ stated interest 4% VS effective interest rate 3.958%

It was issued at premium

3) 2048 notes’ stated interest 4.5% VS effective interest rate 4.504%

It was issued at discount

14. How many of its own shares did Starbucks repurchase during fiscal 2018? How many shares
remained available for repurchase under current authorizations at of September 30, 2018 and
December 31, 2018?

During fiscal 2018, Starbucks repurchased 131.5 million shares of common stock at a total
cost of $7.2 billion.
As of September 30, 2018, 48.8 million shares remained available for repurchase.