(a) How much did your company’s gross margin and gross margin as a percentage of revenue increase (decrease) over the past five fiscal years?
As per the report of Stock Analysis on Net on Starbucks’ profitability analysis, Starbucks’ gross profit margin was 55.75% in 2009, and it notably increased to 58.36% in the following year. However, the firm’s gross profit margin was decreased by 0.66% in 2011 reaching 57.70%. It was again dropped to 56.29% in 2012. According to the same report, in the last fiscal year, Starbucks achieved an improved gross profit margin of 57.14%. The recent increase in the company’s gross profit margin indicates that Starbucks is recovering from the shocks of the recent global recession. Similarly, the organization’s gross margin as a percentage of revenues markedly increased over the past five fiscal years. This trend in the gross margin reflects that the company is likely to improve its financial status over the coming years. Evidently the downsizing strategy widely employed by Starbucks management five years ago greatly assisted the company to improve its net earnings constantly.
(b) Compare your company’s working capital in the past five fiscal years
While analyzing Starbucks’ working capital or operating income, it seems that the organization has been constantly improving its status over the years. Starbucks’ operating income was only $562 in 2009 due to recessionary forces that affected the global economy. According to the Bloomberg Business Week report on Starbuck, the company’s operating income increased by $829.8 million by the following year, and reached $1391.8 million. In the following three years (2011, 2012, and 2013), Starbucks earned operating incomes of $1,524.6 million, $1,786.7 million, and $2,207.3 respectively. For the Starbucks stakeholders, it is hopeful to see that recently the company could increase its operating income from $1,786.7 million in 2012 to $2,207.3 million in 2013, an increase of $420.6 million (Bloomberg Business Week).
(c) Did your company’s Board declare any cash dividends in the last 5 fiscal years? If so, how much in each of those years?
While evaluating the Starbucks’ cash dividends history (published as Starbucks Investor Relations) over the last five years, it seems that the company distributes cash dividends 3-4 times a year. In 2010, Starbucks declared cash dividends three times amounting $0.1, $0.13 and $0.13 per share. For each share, the firm declared $0.13 in January, April, and July 2011 and it also declared $0.17 per share in November 2011. Similarly, the company declared cash dividends four times in 2012 and 2013 too. In 2012, the company offered $0.17 per share for the first three issues, and provided $0.21 per share for the last dividend issue. In 2013, the company declared cash dividends of $0.21 per share in January, April, and July and $0.26 per share in November. In 2014, the company declared cash dividends ($0.26 per share) two times till date (Starbucks Investor Relations).
Company Financial management
- Describe the company’s strategy on how they raise short-term and long-term capital
While analyzing Starbucks’ short-term and long-term capital raising strategies, one can see that the company relies on debt financing to raise short-term capital whereas it depends on bond market to meet its long-term capital needs. In the context of the fast recovering global economy, Starbucks has an increased need for short-term capital to benefit from emerging market opportunities. Therefore the organization currently seeks more debt financing. According to an International Business Times report by Rudarakanchana (2013), Starbucks plans to raise nearly $750 million in 10-year debt securities. The company already has a number of outstanding bonds. Under this strategy, the firm needs to repay the amount along with the coupon payment at the maturity date specified earlier.
- Any short-term credit arrangements with banks, etc.? At what interest rates?
Starbucks has made short-term credit arrangements with banks. Referring to the company’s agreements with the banks concerned, the company can increase its ‘maximum commitment amount by an additional $750 million’. “Borrowings under the 2013 credit facility will bear interest at a variable rate based on LIBOR, and, for US dollar-denominated loans under certain circumstances, a Base Rate (as defined in the 2013 credit facility), in each case plus an applicable margin” (Starbucks Corporation Fiscal 2013 Annual Report).
(ii) What types and quantities of outstanding bonds does it have? What are the coupon payments and maturity dates?
According to the Morning Star report on Starbucks Corp., Starbucks has four bond issues outstanding. They are Starbucks 3.85%, Starbucks 6.25%, Starbucks 0.875%, and Starbucks 2%. The maturity date of Starbucks 3.85% is 1st October 2023, and it has a coupon payment of 3.85%. The Starbucks 6.25% will be matured on 15th August 2017 with a coupon payment rate of 6.25%. The third outstanding bond’s (Starbucks 0.875%) maturity date is 12th May 2016, and its coupon payment rate is 0.875%. Finally the coupon payment rate of Starbucks 2% is 2%, and this outstanding bond will mature on 12th May 2018 (Starbucks Corp., Morning Star).
(iii) What types and quantities of stocks does it have?
(iv)What is its debt/equity ratio?
A study of the Starbucks’ annual financial statements for the last few years indicates that the organization’s debt to equity ratio has significantly increased over the last two quarters of 2013, and the first quarter of 2014. According o the Y Chart report, the debt/equity ratio improved from 0.1033 in March 2013 to 0.0957 in June 2013. However, this ratio noticeably increased to 0.29 by the third quarter of the 2013. In the last quarter the same year, Starbucks’ debt to equity ratio again increased to reach 0.419. According to the recent reports published on 31st March 2014, the organization maintains a debt/equity ratio of 0.4141 (Y Chart, Starbucks Debt to Equity Ratio (Quarterly):0.4141 for March 31, 2014).
Bloomberg Business Week. Starbucks Corp (SBUX:NASDAQ GS). Retrieved from http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=SBUX
Morning Star. Starbucks Corp. Retrieved from http://quicktake.morningstar.com/StockNet/bonds.aspx?symbol=SBUX
Rudarakanchana, N. (2013, Sep 3). Starbucks Seeks More Debt Financing, In New Debt Issuance Worth $750 Million. International Business Times. Retrieved from http://www.ibtimes.com/starbucks-seeks-more-debt-financing-new-debt-issuance-worth-750-million-1402435
Starbucks Corporation Fiscal 2013 Annual Report. Retrieved from http://news.starbucks.com/uploads/documents/Starbucks_Fiscal_2013_Annual_Report_-_FINAL.PDF
Starbucks. Investor Relations. Dividend History. Retrieved from http://investor.starbucks.com/phoenix.zhtml?c=99518&p=dividendhistory
Stock Analysis on Net. Starbucks Corp. (SBUX). Retrieved from http://www.stock-analysis-on.net/NASDAQ/Company/Starbucks-Corp/Ratios/Profitability
Y Charts. Starbucks Debt to Equity Ratio (Quarterly):0.4141 for March 31, 2014. Retrieved from http://ycharts.com/companies/SBUX/debt_equity_ratio