Question

Between about December 2007 and June 2009, the United States was considered to be in a recession. The U.S. Gross Domestic Product fell approximately 3% from the third quarter of 2008 to the third quarter of 2009. Also, during December 2007 and June 2009, the Standard and Poor’s 500 index dropped by 38% and the unemployment rate climbed from 5% to 9.5%.

The macroeconomic situation affected almost all companies since higher unemployment affected personal consumption, which dropped from 10,140.3 Billion Dollars in Aug 2008 to 9,807 Billion Dollars in June 2009, a drop of 3.8 percent.

Starbucks is one of the companies affected by the December 2007 recession. The following table shows several ratios for Starbucks corresponding to the years 2006, 2007, and 2008. Use a stock price of 10.9 dollars per share for the year 2009.

Year	2006	2007	2008	2009
ROE	0.253	0.294	0.127
ROA	0.106	0.126	0.056
ROIC	0.207	0.250	0.121
Asset Turnover	1.758	1.761	1.830
Op. Profit Margin	0.115	0.746	0.048
Long Term Debt Ratio	0.0009	0.241	0.221
D/E Ratio	0.987	1.340	1.277
Current Ratio	0.970	0.787	0.798
Quick Ratio	0.462	0.466	0.482
Payout Ratio	0.000	0.000	0.000
Plowback Ratio	1.000	1.000	1.000
Market to Book Ratio	6.088	3.099	1.374
Stock Price Used for Mark/Book	17.71	9.450	4.68

By using the financial statements provided, calculate the ratios presented in the table for the year 2009 and answer the following questions:

a-       Were sales per dollar of assets impacted by the recession?

b-      which ratio shows the impact of the recession on sales per dollar of assets?

c-       Did the company operating profit margin increased, decreased, or was the same, between the years 2007 and 2009?

d-      Did the mix of debt and equity changed for Starbucks between the years 2007 and 2009?

e-      In what ratio can you see the change in the mix of debt and equity reflected?

f-        Did the value added by management, reflected in market to book ratio, increased or decreased between the years 2007 and 2009?

g-       Did the quick ratio increase or decrease between the years 2007 and 2009?

h-      Explain why you expect the quick ratio to increase or decrease during a recession?

i-        Use the ratios for the years 2007 and 2009 to explain if, in your view, Starbucks is in a better or worse situation in the year 2009 due to the recession.

j-        What areas should Starbucks improve for the years 2010 onwards, if any?

Answer 1