Objective: Analyze your company’s most recent annual report to draw conclusions about (a) components of equity and...

Objective: Analyze your company’s most recent annual report to draw conclusions about (a) components of equity and (b) use of debt vs equity for financing.

The company is Starbucks

I. Analyze Equity:

a. Compare the amounts of Contributed Capital vs Earned Capital.

b. What are the components of contributed capital? Does the company issue preferred or common stock? How many shares are outstanding? What is the amount of par vs add’l paid in capital?

c. Did the company pay dividends? If so, how much? Why do companies choose to pay dividends?

d. What is the company’s EPS?

e. Did the company repurchase any stock (ex Treasury Stock). If so, how much? Why might a company choose to buy back its own stock?

II. Debt vs Equity Financing:

a. Compare the company’s use of debt vs equity for financing. Provide a brief analysis that includes total dollar amounts for each and draws conclusions about whether the company prefers owner vs non owner financing.

b. What are the pros vs cons of debt vs equity financing?

Thank you

Solutions

Expert Solution

Starbucks latest annual report is for Fiscal year 2018. for year ended 30th Sept 2018. Link is

https://s22.q4cdn.com/869488222/files/doc_financials/annual/2018/2018-Annual-Report.pdf

1a) Contributed capital is capital that a corporation received when it issued it stocks

For Starbucks it is $ 1.3 million in common stock and $41.1 million in additional paid up capital = $42.4 million.

Earned capital is the retained earnings which is $1457.4 million (retained earning) - $330.3 million (Other comprehensive loss) = $1127.1 million

b) - Contributed capital is $ 1.3 million in common stock and $41.1 million in additional paid up capital.

The company has issued only common stock. It has authorized to issue 7.5 million shares of preferred stock but none of which was outstanding at September 30, 2018.

Shares Outstanding - 1,309.1 million shares outstanding

Par value is $0.001 per share totaling to $1.3 million and additional paid in capital is $41.1 million

c) The company does pay dividends. It has paid cash dividend of $1.7 billion for the fiscal year 2018.

The company may not be able to reinvest all its earnings in its business. Hence, it is prudent to pay such portion of earnings that it cannot reinvest in its business successfully. Also, certain investors look for generating income and company dividend is a form of income for them.

d) the basic EPS is $3.27 per share and the diluted EPS is $3.24 er share

jeff jeffy answered 1 year ago

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