FINANCIAL STATEMENT ANALYSIS: A CASE

STUDY OF STARBUCKS

Project Report submitted to Birla Global University

In part of course curriculum of the paper Financial Management (2019-24)
for the course

BBA_LLB

Submitted By
Sashikant Majhi
ROLL NO- 051901028
Session- 2019-24

Under the Guidance of

Mr. Sakti Ranjan Dash
Guest Faculty
School of Law, Birla Global University

SCHOOL OF LAW, BIRLA GLOBAL UNIVERSITY

BHUBANESWAR, ODISHA -760007
2021
 CONTENTS

CERTIFICATE__________________________________________________1

DECLARATION_________________________________________________2

ACKNOWLEDGEMENT__________________________________________3

INTRODUCTION________________________________________________4

LITERATURE
REVIEW_______________________________________________________5

DATA AND
METHODOLOGY_______________________________________________7

RESULTS AND
DISCUSSIONS__________________________________________________9

CONCLUSION_________________________________________________12

-From Mr. Sakti Ranjan Dash

 CERTIFICATE

This is to certify that the project entitled “RATIO ANALYSIS OF A

COMPANY(STARBUCKS)” is a record of Bonafide work carried out by SASHIKANT
MAJHI under my supervision and guidance. It embodies the result of his original
contribution. The project has reached the standard of fulfilling the requirements of the course
curriculum of Financial Management for the BBA-LLB(19-24) , Birla Global University. No
part of this project has been submitted to any other University / institution for the award of
any degree. I wish them all the best and success in future endeavors.

Date -04/05/2021 Mr. Sakti Ranjan

Dash

DECLARATION
I do hereby declare that the project entitled “RATIO ANALYSIS OF A COMPANY
(STARBUCKS)” submitted by me as a part of course curriculum of the paper financial
management for the course BBA-LLB (19-24) to Birla Global University. It is the original
piece of project work done by SASHIKANT MAJHI under the guidance of Mr. Sakti
Ranajan Dash as my faculty guide and has not been submitted to any University / institution
for the award of any other degree elsewhere in full or in part

Date: 04/05/2021 Name- Sashikant Majhi

Roll no. 051901028

ACKNOWLEDGEMENT
I would like to express my special thanks of gratitude to my faculty(MR. SAKTI RANJAN
DASH ) who gave me the golden opportunity to do this wonderful project on the topic
(RATIO ANALYSIS OF A COMPANY (STARBUCKS), which also helped me in doing a
lot of Research due to which I came to know many things about the financial statements of
BMW.

Date: 04/05/2021 Name- Sashikant Majhi

Rollno.051901046
Introduction

Starbucks, an American company founded in 1971 in Seattle, Washington, and incorporated

on November 4, 1985, to be listed as a public corporation. It is the premier roaster and retailer
for specialty coffee all around the world. The corporation employees are around 182,000
people in 19,767 company-operated and licensed stores in around 62 countries in total. It
initially focused on the US’s domestic market; however, in 1996, the company started its
operations outside the USA, and since then its footprints are all over the globe. The company
serves in Canada, Australia, China, Japan, UK, etc. Their offerings for the customers include
roasted, high-quality coffee, tea, a variety of fresh-baked items, and also some other
beverages depending on the weather of the country. Along with this, the company sells its
coffee and tea products by licensing its trademarks in other channels, that includes grocery
stores, licensed stores, etc. Starbucks is so successful in the US and some key international
markets that the primary concern they are facing is how to increase revenue healthily.
However, it is still managing this challenge as the revenue in the fiscal year – September
2019 raised to 7.2% .i.e. $ 26.5 billion as compared to the previous year. (Farley, 2020)

Literature Review
A literature review is a finding of results of different analysis that is related to contemporary
research. The report is primarily the consideration of past analysis which is further linked
with current studies in a more dependable technique. The following are some reviews from
the earlier analysis that related to a recent research study. A researcher named Dr. M
Ravichandran studies the financial performance of several companies that could be ranked
within the market industry according to the effectiveness of multiple financial tools, for
example, the researchers examined the profitability ratio, solvency ratio, and comparative
statement. According to the researcher on the finding analysis, any business must arrange
sufficient capital to satisfy its debts & liabilities, and, the income statement of the corporation
that presents the transactions carried by the company.

Along with this, the increased flow of transactions during the entire year that matters because
of the reasonable price leading to an increase in the profitability of the company. Another
research MS Ganga took into consideration of the evolution of the financial performance of
large corporations in Asian countries. The researcher concluded that for all extensive
business ratio analysis are incredibly significant to plan and control the financial resources.
In-depth analysis results that the companies focus on researching numerous techniques to
evaluate the financial performance of the organization during every quarter of the year. This
resulted in finding that the executives of the organization focus on the grey areas of the
financial statements which are helpful for the planning for future growth and probability of
any company. If the managers of the companies realize the significance of the ratio analysis
that fundamentally leader any company towards its success with time [ CITATION Sar15 \l
1033 ]. The researcher stresses on the ratios analysis, which fluctuates during the whole year
as per the sale of the production. Depending upon the variation of the sale and purchase the
ratio increased or decrease. The increase in the ratios rates indicates that the company is in a
good position of financial status. In addition to this, the study also means that existing
customers are satisfied as compared to the previous year’s satisfaction of customers, and the
company can expect a potential number of customers due to the comfort of the existing ones.
The ratios analysis is also dependent on the situation of shareholder equity of the company.
The ratios analysis is also reliant on the status of shareholder equity of the company which
when increases; means that the potential and existing investors are willing to float more
capital in the company due to outstanding financial performance. (Prof. (Dr.) Kapil Khatter,
2018)
Data & Methodology
Table 1 FINANCIAL DATA (STARBUCKS COMPANY)

Item/Year 2019 2018 2017 2016

Current Assets 5,653,900 12,494,200 5,283,400 4,760,500
Current
6,168,700 5,684,200 4,220,700 4,546,900
Liabilities
Inventories 1,529,000 1,400,500 1,364,000 1,378,500
Cash 2,686,600 8,756,300 2,462,300 2,128,800
Receivables 879,200 693,100 870,400 768,800
Total Assets 19,219,600 24,156,400 14,365,600 14,329,500
Total Liabilities 25,450,600 22,980,600 8,908,600 4,546,900
Total Equity (6,232,000) 1,169,500 5,450,100 5,884,000
Sales 26,508,600 24,719,500 22,386,800 21,315,900
Cost of Goods
19,468,900 17,367,700 15,531,500 14,575,400
Sold
EBIT 4,797,200 5,950,300 4,410,000 4,279,900
Interest 96,500 191,400 275,300 108,000
Net Income 3,599,200 4,518,300 2,884,700 2,817,700
[ CITATION fin201 \l 1033 ]

The data has been collected for Starbucks for the last four financial years 2016 to 2019. The
data has been collected from the secondary source from Yahoo Finance. The data has been
collected for different variables extracted from the income statement and balance sheet of
Starbucks Company. Different ratios are used in the analysis like:

 Liquidity Ratios: these ratios are used to measure the ability of an organization in
dealing with its short term liabilities with the help of current assets. The ratios that
have been calculated to evaluate the liquidity position of Starbucks Company are
current, quick, and cash ratio.

 Activity ratios: it helps in determining the efficiency of a company in which an

organization can utilize its operating assets that are reflected in the balance sheet and
then convert them into sales or cash. The ratios that are calculated to evaluate the
activity of Starbucks are inventory, receivable and total asset turnover.

 Debt Ratios: it helps in the measurement of organization leverage. It is the ratio of

debt to assets. It helps to evaluate the sources of finance used by the company in
 running operational activities. The ratios calculated under this particular head are debt
ratio, and the time's interest earned ratio[ CITATION Pře19 \l 1033 ].

 Profitability Ratios: it helps in measuring the ability of a company in generating profit

by generating more sales from its business activities and by selling its services in the
target market. The ratios calculated to measure the profitability of the company are
return on equity, return on total assets, and profit margin.

Results & Discussions

Table 2 Liquidity Ratios of Starbucks Company

Ratio/Year 2019 2018 2017 2016

Current Ratio 0.92 2.20 1.25 1.05
Quick Ratio 0.67 1.95 0.93 0.74
Cash Ratio 0.44 1.54 0.58 0.47
Table 3 current ratio of Starbucks

Current Ratio
2.50
2.00
1.50 Current Ratio

1.00
0.50
0.00
2019 2018 2017 2016

Table 4 Quick ratio of Starbucks

Quick Ratio
2.50
2.00
1.50 Quick Ratio

1.00
0.50
0.00
2019 2018 2017 2016
 Table 5 Cash ratio of Starbucks

Cash Ratio
1.80
1.60
1.40
1.20 Cash Ratio
1.00
0.80
0.60
0.40
0.20
0.00
2019 2018 2017 2016

The overall liquidity position of the company has decreased from 2016 to 2019. The current
fiscal year position of the company reflects that company is not having enough cash and
current assets to pay its current liabilities. The company does not have a strong liquidity
position to deal with its short term obligations[ CITATION ESU19 \l 1033 ].

Table 6 Activity Ratios of Starbucks

Ratio/Year 2019 2018 2017 2016

Inventory
12.73 12.40 11.39 10.57
Turnover
Receivable
30.15 35.67 25.72 27.73
Turnover
Total Asset
1.38 1.02 1.56 1.49
Turnover

Inventory Turnover
14.00
12.00
10.00
8.00 Inventory Turnover
6.00
4.00
2.00
0.00
2019 2018 2017 2016

Figure 1 Inventory turnover of Starbucks

 Receivable Turnover
40.00
35.00
30.00
25.00 Receivable Turnover
20.00
15.00
10.00
5.00
0.00
2019 2018 2017 2016

Figure 2 Receivable turnover of Starbucks

Total Asset Turnover

1.80
1.60
1.40
1.20 Total Asset
1.00 Turnover
0.80
0.60
0.40
0.20
0.00
2019 2018 2017 2016

Figure 3 Total Asset turnover of Starbucks

The activity ratio shows a decrease in the performance of the company from 2016 to 2019.
The decrease indicates that assets are not being used effectively for the generation of sales.
The management needs to revise its business policies and must effectively use its assets.

Ratio/Year 2019 2018 2017 2016

Debt Ratio 1.32 0.95 0.62 0.32
Times Interest Earned Ratio 49.71 31.09 16.02 39.63
Figure 4 Debt Ratios of Starbucks
 Debt Ratio
2016

2017 Debt Ratio

2018

2019

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40

Figure 5 Debt ratio of Starbucks

Times Interest Earned Ratio

2016

2017 Times Interest Earned

Ratio

2018

2019

Figure 6 Interest Earned ratio of Starbucks

The debt ratio is increasing from 2016 to 2019 and that shows management is using more of
debt to run its operational activities. Moreover, the time's interest earned ratio has shown that
management has earned more of EBIT against its interest income in the current fiscal year. it
shows a moderate sign of health for Starbucks management[ CITATION Dia181 \l 1033 ].

Ratio/Year 2019 2018 2017 2016

Return on Equity -0.58 3.86 0.53 0.48
Return on Assets 0.1873 0.1870 0.2008 0.1966
Profit Margin 13.58% 18.28% 12.89% 13.22%
Figure 7 Profitability ratios of Starbucks
 Return on Equity
5.00
4.00
3.00 Return on Equity
2.00
1.00
0.00
2019 2018 2017 2016
-1.00

Figure 8 Return on Equity of Starbucks

Return on Assets
0.2050
0.2000
0.1950 Return on Assets

0.1900
0.1850
0.1800
2019 2018 2017 2016

Figure 9 Return on Assets of Starbucks

Profit Margin
20.00%
18.00%
16.00%
14.00%
12.00% Profit Margin
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2019 2018 2017 2016

Figure 10 Profit Margin of Starbucks

The ROE is negative in the current fiscal year and that shows a negative sign for the investors
as they are losing more money against their investments being made in the Starbucks
Company. The ROA is less than 1 in all financial years and that shows the management is not
working properly for the generation of revenue with the help of its assets [ CITATION Muh201 \l
1033 ]. The management needs to utilize its assets effectively. The profit margin of the
company has decreased and that shows management is not generating enough sales and has
poor control over its overhead expenses.

Conclusion
It can be concluded from the above discussion that the management of Starbucks needs to
work harder for its survival in the target market. the need of revelation of manageability
reports, putting together monetary choices with respect to corporate maintainability in capital
planning and related angles and the estimation too moderation of supportability dangers and
with that being said that Starbucks need to implement some of the sustainability and growth
to see the development and to achieve its growth as well, as here will give a few ways to gain
the growth they need. The financial statement framework is meant to help with the
economical monetary administration engaging condition, social and administration
perspectives in the dynamic the strategy for interests in destroying environmental change,
lessening imbalance, diminishing ozone harming substance outflows and upgrading vitality
viability and social consideration.[CITATION Placeholder1 \l 1033 ] Here with the working
capital gives Starbucks an opportunity to arrange and guarantee growth, by making sure that
the productivity is full on ranged, and they are receiving the highest return to catch up with
the shortage that they are suffering with. Working capital administration takes a shot at
improving the benefit of the corporate while moreover guaranteeing that the corporates are in
the situation to take care of their obligations while keeping up their liquidity viewpoint.
[CITATION Placeholder1 \l 1033 ] The management needs to purchase more of current assets and
to maintain its inventory level management to make sure it has a strong liquidity position to
deal with its short liabilities. The business manageability dangers can be cultivated and
facilitated through the execution of arranged maintainability chance administration which is
empowering organizations to excel the method of change by thoughtful the drawn out
disclosure including quiet submission with the supportability philosophies and abstaining
from concerning pressures yet additionally progressively misuse business prospects that are
obvious in the advancement. improving the dynamic procedure through adjusting money
related systems of associating feasible issues with financial decisions and basic worth drivers.
[ CITATION AlM19 \l 1033 ] The management needs to implement effective policies to utilize its
assets properly to enhance its sales margin. The management needs to implement cost-
effective strategies that can have sound control over the expenses, money related execution
focusses on by an alternate organization partners, there is likewise more worth creation
through an increasingly ensured condition. [ CITATION Alk19 \l 1033 ]These expenses result in
the understatement of net profit margin and shareholders' wealth.