Starbucks Performance Dinancial Analysis

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Financial evaluation is a process that identifies Starbucks performance and this includes comparison of entries posted in the balance sheet with these present in the profit and loss account. This mission is beneficial to parties with a economic stake in the company. The benchmark used in ratio analysis is past overall performance of the company; the researcher will use it as a yardstick for gauging Starbucks’s performance and establish if the trade in performance was favorable, same, or adverser than in the previous while acknowledging influencing factors.
Section 1: Liquidity ratios
Working capital ratios signal the capability of Starbucks in offsetting maturing financial obligations when they fall due.
Current ratio
2016
2015
Total modern assets
$4,760 $3,971.00

total current liabilities

$4,546.90

$3,648.10

Current assets/ Current liabilities

1.046977061

1.088511828

The above ratio indicates the number of times that current liabilities can be paid from current assets of Starbucks before exhaustion (Corporate Finance Online). In 2016, current assets could offset current liabilities 1.05 times down from 1.09 in the preceding year; the decline is due to a significant increase in current liabilities at a proportion that is higher than the rise in current assets during the year.

Quick ratio

2016

2015

Total current assets

$ 4,760.50

$ 3,971.00

Less: Inventory

$ 1,378.50

$ 1,306.40

$ 3,382.00

$ 2,664.60

total current liabilities

$ 4,546.90

$ 3,648.10

(Current assets-Inventory)/ Current liabilities

0.74380347

0.730407609

The above is a refined current ratio, which excludes inventories of Starbucks in its computation primarily due to valuation at historical cost and the duration it takes to convert them into cash. The quick ratio improved over the review period unlike current ratio; the rise is due to elimination of stock. The more liquid assets of Starbucks can pay accruing liabilities 0.74 times in 2016 up from 0.73 times in 2015.

Section 2: Turnover ratios

Asset management ratios indicate the efficiency of Starbucks in utilization of assets at its disposal to generate sales turnover.

Inventory turnover

2016

2015

Cost of sales

$ 8,511.10

$ 7,787.50

Average stock

$ 1,378.50

$ 1,306.40

Inventory turnover

6.174174828

5.961037967

The above ratio indicates the number of times that Starbucks converted stock into sales in the different accounting periods; the buy-sell process increased from 5.96 to 6.17, and this improvement may yield turnover (Zions Bank).

Stock holding period

2016

2015

365

365

365

inventory turnover

6.174174828

5.961037967

365/ Inventory turnover

59.11721164

61.23094703

The stock holding period indicates the number of days that Starbucks held stock in the warehouse before selling them. An increase in the inventory turnover period in 2016 lowers this duration; this is favorable for the company as it warrants an increase in turnover.

Accounts receivable turnover

2016

2015

Annual credit sales

$ 21,318.82

$ 19,161.35

Average Accounts Receivable

$ 768.80

$ 719.00

Credit sales/ accounts receivable

27.73

26.65

The ratio signals the frequency of Starbucks in converting debtors into sale; accounts receivable turnover increased in 2016 compared to 2015 due to a significant increase in annual credit sales. The rise in the ratio over the review period is favorable for Starbucks as it warrants generation of revenue; it indicates that customers bought commodities on credit many times and offset their balances in a short period.

Debtors collection period

2016

2015

365

365

365

debtor turnover

27.73

26.65

365/ Inventory turnover

13.16263974

13.69606004

The above indicates the credit period granted to debtors by Starbucks. The marginal decline of the ratio due to an increase in debtor turnover is favorable as it guarantees availability of cash flow to support operations of the entity.

Section 3: Trend Analysis

2016

2015

Variance

% change

Sales

$ 21,315.90

$ 19,162.70

$ 2,153.20

11.24%

Accounts receivable

$ 768.80

$ 719.00

$ 49.80

6.93%

Inventories

$ 1,378.50

$ 1,306.40

$ 72.10

5.52%

The annual turnover of Starbucks is on the rise, and this guarantees profitability, which has a positive correlation with sales revenue. Furthermore, the accounts receivable also has an upward trend; the upsurge of the above signals an increase in credit sales, which boosts the total turnover of the venture. Moreover, an increase in inventories is an indicator of efficiency in the production process; these will match the growing demand of commodities offered by Starbucks as signaled by the rise of annual sales revenue (Starbucks 45). The increase of these variables complements the wealth maximization objective of Starbucks.

Analysis summary

In conclusion, the researcher commences with highlighting the essence of performing financial analysis with the help of annual reports. The study uses past financial performance as the benchmark for financial analysis. Noted is the essence of liquidity ratios and the current ratio signals a decline in the ability of the company in offsetting maturing financial obligations with current assets promptly. However, the computed quick ratio contradicts the above working capital ratio, and this is due to growth of inventories. The researcher also highlights the importance of turnover ratios, which had marginal variations over the years under review; the above signals stability in Starbucks operations. Simultaneous upsurge of sales, accounts receivable, and inventory is a positive trend that indicates growth of Starbucks to prospectus and shareholders.

Works Cited

Corporate Finance Online. “Financial Statement and Ratio Analysis.” CFO. Pearson, n.d. Print. 6 May 2017. .

Starbucks. “Fiscal 2016 Annual Report.” Form 10-K 2 October 2016. Print. 5 May 2017. .

Zions Bank. “How to analyze business using financial ratios.” Zion business resource center (n.d.): 1-17. Print. 6 May 2017. .

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