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In: Accounting

COMPANY STARBUCKS Using the financial statements, answer the following questions: Look at the income statement and...

COMPANY STARBUCKS

Using the financial statements, answer the following questions:

  1. Look at the income statement and comment on the company’s profitability. What is basic earnings per share? It may be listed on the income statement itself, or you might have to calculate it.

  2. Look at the balance sheet. Calculate the current ratio and comment on the company’s liquidity. Calculate the debt-to-total-assets ratio and comment on the company’s solvency.

  3. Look at the statement of cash flows Comment on the results of the three sections (operating, financing, investing). Do you think the results are positive or negative? Why?

  4. Based on your answers to the first three questions, would you invest in this company?  

Solutions

Expert Solution

Hi ,

I have taken the financials from SEC filing-

https://investor.starbucks.com/financial-data/sec-filings/default.aspx

Basic EPS= Net Income/Number of basic shares

For year ending 2019= 3720/1233.20=3.02

For 2018= 3595/1394.6=2.58

Company's earnings have sliglity increased. If you see the Net Income has been increased by 0.03% . Overall the company has maintained its consistency with respect to growth on year on year basis.

Current ratio =Current Assets / Curren Liability

For 2019 =5900/8676=0.69

The company's liability is comparitively more than the assets . The solvency is low . The company need to increase the current assets or reduce the liabilities . The ideal ratio is 2:1 But if we compare with the industry ratio it is 0.58 which is comparatively inline with industry ratio.

Debt to asset ratio= Total Debt/ total Assets

=34490/27,731=1.24

The companys debt is more than the total assets which is not an good indication. Always the debt and equity should be balanced . Too much debt can always be risky . Even it is too much high compared to insdustry ratio which is 0.78.

Cash flow

Analysis of Cash flow and conclusion:

There has been decrease in assets. That is sale of assets and also operating activities . There has been reduction in investments and operations. But the company can always do better with purchase of assets and investments .

The cash flow of the company is on little negative side .

Overall the company is inline with the industry ratios and that the company has scope for growth when i lookin to the above profitability and solvency ratios.

So I would definitely invest in the company as there are lot of opportunity for growth.

ekkarill92 answered 2 years ago
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