Question

Ratio Analysis

*From Starbucks Corp form 10k ( 10-K reports on SEC.GOV and most recent two years report should be used for some ratio analysis )

Calculate your company's gross profit rate for the past two years. Did they increase or decrease? Explain the meaning of the change.

Calculate your company's account receivable turnover, inventory turnover for the past three years. What does the trend suggest to you about the company

Calculate the company's return on equity (ROE) for the past two years. Did they increase or decrease?

Calculate the company's current ratio and working capital for the past three years. What does the trend suggest to you about your company?

Calculate the company's debt-to-equity ratio for the past three years. What does the trend suggest to you about your company?

What are the company's EPS for the past three years. What does the trend suggest to you about your company?

2017
https://www.sec.gov/Archives/edgar/data/829224/000082922417000049/sbux-1012017x10xk.htm

2016
https://www.sec.gov/Archives/edgar/data/829224/000082922416000083/sbux-1022016x10xk.htm

2015
https://www.sec.gov/Archives/edgar/data/829224/000082922415000038/sbux-9272015x10k.htm

Answer 1

	(in m$)	2016	2017	diff
1	Gross Profit	12805	13349
	Sales (Revenue)	21316	22386
	Gross Profit rate
	= G.Profit/Sales	60.07%	59.63%	-0.44%
	(Gross Profit rate decreased by 0.44% in 2017. It means that either the selling price of the company's product is marginally reduced
	or, the input cost (ie., cost of goods sold) have increased, thereby reducing the gross margin)
2	Year	2015	2016	2017
a	Sales (Revenue)	19163	21316	22386
	Avg Receivables	675	744	819.5			1350
	Accounts Receivable T.O						675
	=Revenue/ AvgReceivales	28.39	28.65	27.32
b	Sales (Revenue)	19163	21316	22386
	Avg Inventories	1198.5	1342.5	1371.5	(Opening inventory+Ending inventory)/2)
	Inventory turnover
	= Sales/Inventory	15.99	15.88	16.32
	Note:
	The Accts Receivable T.O signifies the credit policy and shows how well the receivables are collected into cash.
	It is desirable to have the ratio high, as it means the company is good in collecting its dues. In this case, the trend is
	fluctuating and in 2017 it has decreased, meaning that there is delay in collecting the receivables in 2017
	The inventory turnover rate has increased marginally in 2017 by 0.44% (16.32-15388), which means that the company
	is efficient in converting its inventories into sales.
3	Year	2016	2017
	Shareholders Equity	5884	5450
	Return	2885	4383	(Net income available to Common Share holders)
	Return on Equity;
	= Return/Equity	49%	80%
	Note:
	ROE has increased in the current year than the previous year. This is due to sharp increase in "Other Income"
	in the year 2017
4	Year	2015	2016	2017
	Current Assets   (CA)	4353	4761	5283
	Current Liabilities (CL)	3654	4547	4221
	Current Ratio;
	=Current Assets/C. Liab	1.19	1.05	1.25	eg., (4353/3654=1.19)
	Working Capital= CA-CL	699	214	1062	eg., (4353-3654=699)
	Current ratio is around 1, which means that current assets are just covering the current liabilities, meaning
	tight liquidity, except in the year 2017, where, the working capital is 1062m$ (due to sharp increase in "other income" and the ratio is 1.25.
	The ideal recommended current ratio is 2
5	Year	2015	2016	2017
	Debt (long term)	2975	3899	4695
	Equity	5818	5884	5450
	Debt Equity Raio;
	= Debt/Equity	0.511	0.663	0.861
	The trend is increasing, whih means that the leverage is increasing due to increase in Debt in the capital structure.
	Increasing DE ratio indicates that the company is financing its growth aggresively by resorting to borrowed funds.
6	Year	2015	2016	2017
	EPS (Earnings per share)	1.9	1.97	3.03
	(in usd)
	The trend is increasing, which means that the company is using leverage (Cheaper debt than the cost of equity)
	to its advantage resulting in increase in the Earning per share. Sharp increase in 2017 is due to increase in "Other income",
	boosting the total earnings to equity share holders.