Starbucks Financial Preformance
II. Assessment of Starbucks’ Financial Condition
We evaluated the financial performance of Starbucks by computing various ratios based on the company’s most current audited financial statements. Specifically, we evaluated the firm’s liquidity, operating profitability, capital structure, and market value. Additionally, we identified Starbucks’ competitors and benchmarked the company’s performance against the peer group. Finally, we defined what we believe the key factors are causing the current condition. Our assessment and results are presented below.
A. Liquidity
In measuring the firm’s overall liquidity, we used the current and acid-test ratios to analyze its ability to pay bills on time. The current ratio compares the company’s current assets to its current liabilities. Per Starbucks’ balance sheet, it has $2,756 mil. in current assets and $1,779 mil. in current liabilities. This relationship is estimated as follows:
Current Ratio = Current Assets / Current Liabilities = $2,756 mil. / $1,779 mil. = 1.55 times
Based on the current ratio, the company has $1.55 in current assets for every $1 it owes in short-term debt.
A measure of a company's ability to meet its short-term obligations using its most liquid assets. It is calculated by subtracting inventories from current assets and dividing by its current liabilities. The rationale behind it is inventory can be less liquid than other current assets, therefore, the acid-test ratio is more conservative than the current ratio as it measures a company's ability to meet obligations in a worst-case scenario. For Starbucks, we calculate the acid-test ratio as follows:
Acid-Test Ratio = (Current Assets – Inventory) / Current Liabilities = ($2,756 mil. - $543 mil.) / $1,779 mil. = 1.24 times
Based on the acid-test ratio, the company is slightly less liquid, and has $1.24 in cash and receivables per $1 in current liabilities.
In addition to looking at overall liquidity, we also measured the company’s
We evaluated the financial performance of Starbucks by computing various ratios based on the company’s most current audited financial statements. Specifically, we evaluated the firm’s liquidity, operating profitability, capital structure, and market value. Additionally, we identified Starbucks’ competitors and benchmarked the company’s performance against the peer group. Finally, we defined what we believe the key factors are causing the current condition. Our assessment and results are presented below.
A. Liquidity
In measuring the firm’s overall liquidity, we used the current and acid-test ratios to analyze its ability to pay bills on time. The current ratio compares the company’s current assets to its current liabilities. Per Starbucks’ balance sheet, it has $2,756 mil. in current assets and $1,779 mil. in current liabilities. This relationship is estimated as follows:
Current Ratio = Current Assets / Current Liabilities = $2,756 mil. / $1,779 mil. = 1.55 times
Based on the current ratio, the company has $1.55 in current assets for every $1 it owes in short-term debt.
A measure of a company's ability to meet its short-term obligations using its most liquid assets. It is calculated by subtracting inventories from current assets and dividing by its current liabilities. The rationale behind it is inventory can be less liquid than other current assets, therefore, the acid-test ratio is more conservative than the current ratio as it measures a company's ability to meet obligations in a worst-case scenario. For Starbucks, we calculate the acid-test ratio as follows:
Acid-Test Ratio = (Current Assets – Inventory) / Current Liabilities = ($2,756 mil. - $543 mil.) / $1,779 mil. = 1.24 times
Based on the acid-test ratio, the company is slightly less liquid, and has $1.24 in cash and receivables per $1 in current liabilities.
In addition to looking at overall liquidity, we also measured the company’s