Starbucks Case Study
Question 1 Overall, Starbucks’ performance has been mixed over the past six months. On April 13, 2012, its stock price reached a high of $61.67 per share and closed at $57.37 per share. Since April, the price of Starbucks’ stock fell on average in the following closing months of May and June before reaching a low of $43.16 in the opening days of August. The fall was correlated with the release of Starbucks’ third quarter annual report, which showed a less-than-expected performance for that quarter; the earnings per share were $0.43 compared to a market expectation of $0.45 (Baertlein). Since then, the price of Starbucks’ stock has gradually increased. Although market risk factors like decreased consumer spending may have impacted Starbucks’ recent performance, Starbucks has still remained profitable, and there are generally positive expectations for the next year.
Question 2
a. NOPAT = [Operating income – (1 –Tax rate)]; Tax rate = Income tax / EBIT
b. Invested Capital = (Accounts receivable + Inventories + Prepaid expenses & other current assets) – (Current liabilities) + (Long-term investments + Equity & cost investments + Net PPE + Other assets + Other intangible assets + Goodwill)
c. Book value of interest-bearing debt = Long-term debt
d. Growth of NOPAT in the high growth state = Mean estimate
e. Reinvestment rate = Tab 1 of spreadsheet
f. Steady-state NOPAT growth: This represents the year-by-year constant growth rate of Starbucks when both the growth rates of NOPAT and NOA (net operating assets) have converged. Only minimal growth is achieved at this state.
g. Steady-state ROI = WACC (given)
h. Book value of equity per share = Book value of equity / # of shares
i. Current stock price: $51.07 (Yahoo Finance Stock Price as of date 9/21/12)
j. Number of shares outstanding (p. 44 Balance Sheet)
k. No preferred stock (given)
l. Cash, short-term investments, & non-operating assets = (Cash & cash equivalents) + (Short-term
Question 2
a. NOPAT = [Operating income – (1 –Tax rate)]; Tax rate = Income tax / EBIT
b. Invested Capital = (Accounts receivable + Inventories + Prepaid expenses & other current assets) – (Current liabilities) + (Long-term investments + Equity & cost investments + Net PPE + Other assets + Other intangible assets + Goodwill)
c. Book value of interest-bearing debt = Long-term debt
d. Growth of NOPAT in the high growth state = Mean estimate
e. Reinvestment rate = Tab 1 of spreadsheet
f. Steady-state NOPAT growth: This represents the year-by-year constant growth rate of Starbucks when both the growth rates of NOPAT and NOA (net operating assets) have converged. Only minimal growth is achieved at this state.
g. Steady-state ROI = WACC (given)
h. Book value of equity per share = Book value of equity / # of shares
i. Current stock price: $51.07 (Yahoo Finance Stock Price as of date 9/21/12)
j. Number of shares outstanding (p. 44 Balance Sheet)
k. No preferred stock (given)
l. Cash, short-term investments, & non-operating assets = (Cash & cash equivalents) + (Short-term
Cited: Baertlein, Lisa. “UPDATE 4-Starbucks Cuts View, U.S. Slows; Shares Sink.” Reuters 26 Jul. 2012. Web. 22 Sep. 2012.