In: Finance

Evaluating Starbucks debt utilization ratios. This category of ratios are especially important to creditors and investors. Please answer in paragraph form.

The debt utilization ratios that I will use for Starbucks are debt ratio, debt to equity ratio and times interest earned (or interest coverage ratio). All numbers have been taken from Starbucks 2017 Annual Report.

Debt ratio = total debt/total assets. Total debt = current liabilities+long term liabilities. Total debt of Starbucks = $8,908.6 million and total assets = $14,365.6 million. Thus Starbucks debt ratio = 8908.6/14365.6 = 0.62. This ratio shows the degree of leverage being used by Starbucks and the number means that around 62% of the company’s assets are debt financed.

Debt to equity ratio = Long term debt/Equity. Total long term debt of Starbucks = $3,932.6 million and total equity of Starbucks = $5,457 million. Thus Starbucks debt to equity ratio = 3932.6/5457 = 0.72. This ratio indicates that the high figure of 0.72 will mean that degree of protection enjoyed by Starbucks creditors is low.

Times interest earned ratio = EBIT/Interest. Thus the ratio for Starbucks = 4134.7/92.5 = 44.70. Starbucks has a good interest coverage ratio and so the debt capacity of the company is strong, despite the presence of high amounts of debt in its books. High interest coverage ratio also augurs well for the bond ratings of Starbucks.

What is the focus when evaluating Home Depot asset utilization
ratios? This category of ratios evaluates how effectively the
company is using its investment in assets to generate sales.

Which category of ratios are the most popular for
investors? Liquidity ratios, financial leverage ratios, asset
management ratios, profitability measures or market value ratios?
Explain why?

List and define TWO ratios generally used by
investors and creditors to measure a company's ability to pay
current liabilities.
List and define TWO ratios generally used by investors and
creditors to measure a company's ability to sell inventory and
collect receivables.
List and define TWO ratios generally used by
investors and creditors to measure a company's ability to pay
long-term debt.
List and define TWO ratios generally used by investors and
creditors to measure a company's profitability.
List and...

Bank executives consider liquidity and debt ratios to be most
important when evaluating a loan applicant. What ratios are they
referring to, and why would these be so important in bank-credit
and trade credit decisions?

Since liquidity ratios are so important to evaluating business
performance, what are some examples?

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