Question

Determine which of the ratios provide the most key insights into the Starbucks current level of performance. How can you assess whether the results of your calculations are positive or negative? Explain which of the ratios give you reason to be concerned with the organization's current strategy and why.

The ratios are:

Profitability Ratios

Liquidity Ratios

Leverage Ratios

Activity Ratios

Shareholders' Return Ratios

Answer 1

Profitability Ratios include gross margin ratio or net margin ratios and depicts firms gross margin and net margin. It doesn't depict anything about company's internal strategy but it shows how healthy the business is.

Liquidity Ratios include current ratio, cash ratio, quick ratio and it gives information on company's ability to generate cash to repay short term debt, inventory level, cash/cash equivalent in hand. This is a key ratio as it depicts company's ability to carry out operational expenses.

Leverage Ratio include debt-equity ratio. This depicts how much debt burden actually the company is. It shows company's overall financial condition but doesn't depict anything about internal strategy.

Activity Ratio includes average collection period ratio and average inventory ratio which shows how fast company is able to turn it's inventory into cash and how good is company's collection policy. This is a key indicator of company's policy.

Shareholders return Ratios depicts the share holders return on their investment and it does not depict anything about internal strategy.