Reference no: EM13339582

Starbucks Company

I have chosen Starbucks as it is an American global coffeehouse chain and coffee company based in Washington. It is the largest coffeehouse company in worldwide with 20891 stores in 62 countries with highest in the united Sates. The items which are served in Starbucks menu are cold and hot beverages, micro ground instant coffee, whole bean coffee, full-leaf teas, snacks and pastries with a quality which is preferred by all. The first store of Starbucks was opened on March 30, 1971 by three partners Jerry Baldwin, Zev Siegl and Gordon Bowker.

Financial Analysis is the analysis of the financial statements of the two or more companies or same companies for two or more years. It gives the flawless picture of the performance factors of any organization. It helps in comparing and evaluating the past as well as present performance.

It is important for investors, outsiders and management and gives a picture of how an organization is functioning and in what direction it is moving.

Financial analysis is the task of financial analyst and his role is to analyze whether the entity is solvent, stable, profitable or liquid enough to be invested in.

Competitor - Panera Bread Company

I have taken Panera bread Company which is a competitor of Starbucks. Panera bread is a chain of bakery-café quick casual restaurants in United States and Canada with its headquarters in sunset Hills, Missouri. Panera considers its legacy to have begun in 1981 with the original Au Bon Pain Co., co-founded by Ron Shaich, current CEO of Panera Breads.

Return on Assets

It is a financial ratio which shows how profitable are the assets in generating revenue for the company. It shows the percentage of profit earned in relation to the total resources of the company. It is key profitability ratio that measures the amount of profit made by the company per dollar of its assets. It shows the company's ability to generate profits before leverage.

            Return on assets = Net Income / Average Total Assets

Net Profit margin is the measure of the profitability of an enterprise. It is the ratio of net income to the revenue generated by the company. It is expressed in terms of percentage. It helps in determining as to how much of the company's revenue is kept in the form of net income

                        Net Profit Margin = Net Profit / Revenue     

 In the present case profitability of Starbucks is somewhere better than that of Panera breads. Better profitability ratios of Starbucks represent the higher efficiency in operations and proper utilization of assets for generating the return as compared to Panera breads

Asset Turnover Ratio is a financial ratio that measures the efficiency of company's assets in generating the sales income or sales revenue to the company.

                        Asset Turnover ratio = Sales/ Average Total Assets

Higher asset efficiency ratios represent the better and optimum utilization of resources by the Panera breads as compared to that of Starbucks. Efficiency in utilization of assets leads to higher market value and better profits thus leading to higher market capitalization.

Free Cash Flow of Company

Free Cash Flow is the difference of operating profit and capital expenditure. It represents the cash that company is able to generate after the capital acquisitions. Negative cash flow is not a bad sign always; it could be possible that company is making large investments.

Free Cash flow is important for the company because it is the amount that allows a company to pursue opportunities that increases the shareholder's value.

Free Cash Flow = EBIT*(1-tax rate)+ Depreciation-Change in Working Capital- Capital    Expenditure

Panera bread is having positive free cash flow which shows it has more opportunities to increase its shareholder's wealth. Starbucks on the other hand has negative free cash flows which show that company has made large capital investments.

Company's Cash position

Starbuck's cash during the year has increased as compared to previous year. The Company has invested in long term investments. On reviewing the cash flow statement of the company, major cash inflows from operating activities, although the change in working capital is negative but company has earned positive net income. The Company has incurred huge capital expenditure which is the major outflow of cash.

Revenue Recognition

Starbucks Corporation is earning revenue from various sources and it records revenue based on the nature of services provided. Company operated revenue is recognized when payment is offered at the point of sale. Sales of coffee, tea and related products are recognized upon shipment of licenses. Food services and sales of tea, coffee to grocery and warehouse club stores are recognized when received by the customer

Financial Analysis