Question

Using your Starbucks' latest financial data (2017 or the latest quarter for 2018 that’s available), present the data and identify the company’s cost structure:

1. What percentage is variable cost (to sales?)

2. What percentage is fixed cost (to sales?) 3. What is the gross margin?

4. Is breakeven point predictive from the info you see in the financial statements? If yes, show computations and provide a short form (2 or 3 statements) analysis.

5. Is degree of operating leverage predictive from the financial statements? If yes, show computations and provide a short form (2 or 3 statements) analysis.

Answer 1

Calculating as per data of 2017,

1. Variable Cost-

2. Fixed Costs%-

3. Gross Margin = (sales revenue-cost of goods sold)/sales revenue *100

= ($22.38 billion- $17.04 billion)/$22.38 billion * 100

=23.86%

Gross Margin represents the portion of each dollar that the company retains as gross profit after incurring expenses and costs. To determine the value of the incremental sales and guide the promotion and sales decisions. The company is a good amount as a part of each dollar to cover its expenses and debt.

4. Breakeven Point-

5. degree of operating leverage = % change in Earning before interest and taxes/ % change in sales

% change in EBIT = (4410000-4279900)/4279900 = 3.04%

% change in Sales= (8440400-7970300)/7970300 = 5.89%

Degree of operating leverage = 3.04/5.89 = 0.52

Degree of operating leverage tell us about the relation between sales and earnings, how change in sales can effect the earnings of the company. The company is a conservative firm as it sales results in a small change in earnings.