CLC-Steps Required for Financial Recommendations

CLC-Financial Ratio Analysis and Internal Factor Evaluation (IFE) Matrix

Jose Alonso, Tamberlyn Crayton, Dinaja Dowdy, Pauline Morgan, and Brad Overson Comment by Daniel Smith: Team - quite well done. Your write-up was quite well developed and your academic writing was clear - especially in some sections. Some refinement of both content and academic writing would improve your submission. Dr. Smith

Colangelo College of Business, Grand Canyon University

MGT 660: Strategic Management

May 12, 2021

Financial Ratio Analysis

	Historical Ratios
	9/30/2020		9/30/2019
Current Ratio	1.06		0.92
Quick Ratio	0.85		0.67
Total Debt-to-Total-Assets Ratio	-2.10		-1.79
Total Debt-to-Equity Ratio	-2.1		-1.79
Times-Interest-Earned Ratio	NA		NA
Inventory Turnover	4.96		5.57
Fixed Assets Turnover	8.07		55.46
Total Assets Turnover	0.80		1.37
Accounts Receivable Turnover	27		30
Average Collection Period	13.30		11.00
Gross Profit Margin %	67%		68%
Operating Profit Margin %	7%		15%
ROI %	13.48%		72.82%
ROA %	3.15%		18.70%
ROE %	-12%		-78%

When analyzing the performance of Starbucks, seeing strengths and weaknesses, for study purposes or for an investor looking to invest, reviewing its financials will give you the map of where they are heading. Starbucks is a strong company that shows great growth, even though this last year’s pandemic. When reviewing last year’s financials, seeing dips compared to the year prior, such as revenue with a constant growth all through 2019 and dipping in 2020.  Macrotrends reported the following bullet points that show the continual growth with the pandemic dip in 2020. 

· Starbucks’ revenue for the quarter ending March 31, 2021, was $6.668B, an 11.21% increase year-over-year.

· Starbucks’ revenue for the twelve months ending March 31, 2021, was $23.843B, a 10.58% decline year-over-year.

· Starbucks’ annual revenue for 2020 was $23.518B, an 11.28% decline from 2019.

· Starbucks’ annual revenue for 2019 was $26.509B, a 7.24% increase from 2018.

· Starbucks’ annual revenue for 2018 was $24.72B, a 10.42% increase from 2017. (Macrotrends, 2021)

   With seeing great revenue growth and an outlook of 2021 being a great year, an offset that could and should be alarming is the amount of debt that Starbucks has acquired. Since 2013 Starbucks has seen consistent increases in their long-term debt in drastic measures. In the last 4 years, there has been an average of 50% increase in long-term debt (Macrotrends, 2021). An assumption can be made that the debt is due to growth as you will see as total assets have followed the track in proportion to the debt that was taken on.   Comment by Daniel Smith: Was the revenue an "offset?" Be more specific - explain your conclusions somewhat more. Comment by Daniel Smith: Frame with more formally academic writing…

In addition to analyzing how well a public company is performing is to look at its stock price. Reviewing its performance over the entire history of the company is a great indicator of when, why, and how happy the market is with its performance. Looking at investment.com at the SBUX sitting at 113.27 which shows its strength in a market that just saw the biggest dips since 2008.  

Current ratios are a liquidity ratio that measures a company’s ability to pay short-term obligations (Macrotrends, 2021). A current ratio below 1.00 could indicate a company might be struggling to meet its short-term obligations. Ratios over 1.50 would generate ample liquidity. In 2019, Starbucks showed they were struggling, but they were able to raise their liquidity above 1.00 in 2020, showing they were doing better at meeting their obligations. Starbucks hit a five-year low in September 2019 of 0.92 (Finbox, 2021). Comment by Daniel Smith: Develop the content of this paragraph somewhat more…

The quick ratio measures a company’s ability to pay its current debts without making additional sales or taking on additional debt (Macrotrends, 2021). This figure was below 1.00 for both 2019 and 2020, and just like the current ratio, indicates Starbucks struggled to meet its financial obligations for the past 2 years. Comment by Daniel Smith: Develop this paragraph somewhat more. Follow the MEAL plan of writing…

When reviewing the return on equity (ROE) values for Starbucks over the last 2 years, it appears they did not effectively use the equity capital to generate profits. While their ROE showed considerable improvement last year, they still reflected a negative return. The improvement in the ROE shows that management made better use of the equity than the previous year, but it still was not enough to show a positive return. Investors will see the negative equity and may determine that this is not a good company for them to invest in.

Return on assets (ROA) is used as to gauge the efficiency of the company and its management at deploying capital to generate income for shareholders (Finbox, 2021). Starbucks’ ROA decreased in 2020, giving it a five-year low of 3.15%. This reflects a big drop from its median ROA, of 20.1% over the last 5 years. The decrease creates a red flag for investors. Management will need to determine why there was a decrease and find ways to improve the ROA.

The past year was difficult for many businesses. Due to the coronavirus, Starbucks saw a decrease in sales, earnings, and stock prices, and the closure of some stores (Fernando, 2020). With restrictions being lifted, it is expected that the company will see more positive ratios this year. Investors will need to take a close look at comparable or same-store sales to see the performance comparison of stores that have been in operation for at least one year (Fernando, 2020). Doing this will help investors determine where sales are coming from and to get a better idea of the financial health of the company. 

Internal Factor Evaluation Matrix Comment by Daniel Smith: Clearly presented table - good.

 STARBUCKS IFE Matrix 

Strengths                         Weights Rating Weighted 

Starbucks revenue for March 31, 2021 quarter was $6.688B, which is a great 11.21% increase.	0.3	3	0.9
Starbucks offers a great coffee house experience.	0.5	3	.15
Starbucks has continued to maintain the highest share of the coffee shop market in the U.S when it comes to having operating stores by 40%(Statista,2021).	0.8	4	.32
The total number of Starbucks locations worldwide is 32,660 which is more than any competitor (Starbucks,2020).	0.5	2	0.15
Starbucks is one of the most environmental company in the world opening up to 700 LEED certified locations (Hickson, 2020)	0.3	3	0.30
Brand reputation that focuses on progressive issues such as education and health (Davis, 2018).	0.08	3	0.15
Total sales assets for Starbucks were $28.372B at the end of the March 2021 quarter which is a 3 percent increase year over year (Marcotrends,2021).	0.6	4	.24
Operating margin for Starbucks is currently at a low 6.35% (Macrotrends, 2021)	0.7	4	.32
Variety of products (drinks and lunch items).	0.4	3	.12

Weaknesses 

Costs of products are high based on the high quality of ingredients that is used for the product	0.8	2	.08
More of the stores are operated in the United States and that causes dependency on the U.S market.	0.9	2	0.9
Selling food products has been difficult causing constant changes in the menu (Bashin,2019).	0.8	1	0.8
Imitation of products from the competition.	0.6	1	0.6
3 billion dollars hit in revenue due to pandemic.	0.9	1	0.9
Company focuses more on expansion than internal management.	0.6	1	0.9
Needs to focus on investing in new technology.	0.5	1	0.5

Total

1

2.56

The IFE Matrix provides some information on auditing and evaluating major strengths and weaknesses. It helps us to identify the relationships amongst those functions (n.d.). The weight of the categories displays their importance and value it holds towards the company’s business reputation. The ratings go from 4 being above average, 3 being average, 2 being poor and 1 being below average. As shown in the chart above, Starbucks highest weight factors are: 

· 3 billion dollars hit in revenue due to pandemic;

· Selling food products has been difficult causing constant changes in the menu (Bashin,2019);

· More of the stores are operated in the United States and that causes;

· Costs of products are high based on the high quality of ingredients that is used for the product;

· Brand reputation that focuses on progressive issues such as education and health (Davis, 2018); and

· Starbucks has continued to maintain the highest share of the coffee shop market in the U.S when it comes to having operating stores by 40% (Statista,2021).

These factors go from a weight of 0.8-0.9. Starbucks did not receive the highest possible rating of 4 on all these segments. Most of them were rated 1. Therefore, they fell short on some points. This affects their business more than the other categories because of their weight. Their higher ratings were more in the departments of less weight. These categories do not impact the business’s strategy or foundation as much. Once Starbucks improves on the higher weight categories, they can become the best coffee franchise in the market.

Strategies to Capitalize on Strengths

A company should have a strong financial plan. Once the revenue begins to thrive, making smart investments is the key for a company to stay on top. Secondly, as a company builds a strong financial background, can be a major strength; another strength can be taking that financial revenue and invest back in the building and keeping the brand fresh. Starbucks is a popular brand and is dominating the food and beverage industry, topping all brands competing in its industry right now. I believe, Starbucks gained this gold metal by building its brand and reshaping the entire industry. By branding themselves, this has proven to be a major strategy that Starbucks has mastered and has become one of, if not the best strengths the company has owned. So, I believe if Starbucks continues to keep its financial plan strong and keep revamping its brand, the company will continue to stay on top. Comment by Daniel Smith: Reasonable conclusions - good

Strategies to Improve on Weaknesses

One of Starbucks’ weaknesses is its pricing. Starbucks is a household name; just as is McDonald’s. A customer pays the same for a cup of coffee at Starbucks as a customer who purchases three cups of coffee from McDonald’s McCafé with the same ingredients and maybe even larger size.  The difference is the branding, customers are paying for the name that has been established as being the better cup of coffee. If Starbucks takes the time to see how they can make their products price-effective; they would gain more of a customer base and beat out their competitors completely. What customers look for nowadays, because of our economy, is how to save a dollar or how to make a dollar stretch. If you want Starbucks, expect to pay a higher price. Because of this Starbucks is more of a treat for consumers, instead of the normal beverage corner café’. Starbucks needs to reevaluate its pricing and see how it can be more cost-efficient. This strategy or developing a strategy to make their products more affordable, would promote affordability and gain a larger customer base.

References:

Bhasin, H. (2019). SWOT analysis of Starbucks. Marketing 91. HYPERLINK "www.marketing91.com/swot-analysis-starbucks/" www.marketing91.com/swot-analysis-starbucks/.

Blokhin, A. (2019). Starbucks’ 6 key financial ratios (SBUX). Investopedia. Starbucks' 6 Key Financial Ratios (SBUX) (investopedia.com

Davis, S. (2018). When Starbucks looked its brand purpose in the eyes. Forbes. https://www.forbes.com/sites/scottdavis/2018/04/25/when-starbucks-looked-its-brand-purpose-in-the-eyes/?sh=6f769d343dbe

Durban, D. (2020). Starbucks takes $3 billion hit to revenue during pandemic. ABC News. https://abcnews.go.com/Business/wireStory/starbucks-takes-billion-hit-revenue-pandemic-71174428.

Eira, A. (2021). Number of Starbucks worldwide 2021/2022: facts, statistics, and trends. FinancesOnline.com. https://financesonline.com/number-of-starbucks-worldwide/

Fernando, J. (2020). Starbucks earnings: what happened. Company news. https://www.investopedia.com/starbucks-earnings-4774457

Hickson, A. (2015). Starbucks tops all other companies in the world with this green certification. Food & drinks. www.refinery29.com/en-us/2015/11/98463/starbucks-worlds-greenest-company .

Investing.com (2021). Starbuck corporation (SBUX). SBUX Ratios. Starbucks (SBUX) Financial Ratios (investing.com)  

Lock, S. (2020). U.S. coffee shops: market share as of October 2019, by number of stores. Food & drink services. www.statista.com/statistics/250166/market-share-of-major-us-coffee-shops/#:~:text=As%20of%20October%202019%2C%20Starbucks,stores%20in%20its%20home%20nation .

Starbucks corporation. (2021). Current ratio. https://finbox.com/NASDAQGS:SBUX/explorer/current_ratio

Starbucks Income Statement 2005-2021. (2021). Macrotrends. Starbucks Income Statement 2005-2021 | SBUX | MacroTrends

IFE Matrix (Internal Factor Evaluation). (n.d.). Maxi-Pedia. http://www.maxi-pedia.com/ife+efe+matrix+internal+factor+evaluation#:~:text=Internal%20Factor%20Evaluation%20(IFE)%20matrix,evaluating%20relationships%20among%20those%20areas .