Company Project Analysis: Starbucks

Company Project Analysis: Starbucks
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Company Project Analysis: Starbucks
Established by Jerry Baldwin and Howard D. Schultz on November 4, 1985, Starbucks has grown to be one of the most renowned restaurant brands globally, and the company is listed under NASDAQ as SBUX (MarketWatch, 2021). As of the end of the company’s fiscal year 2021, the coffee giant operates over 33,800 different stores in 83 countries (Nasdaq, 2021). Starbucks runs three separate segments or markets, including North America, the international market, as well as the channel development or ready-to-drink and grocery market. Company-operated stores, sales of products and equipment, royalties, ready-to-drink beverages, single-serve products, and packaged coffee sales are the main source of revenues for the U.S. coffee chain (Dimitrakaki, 2021). According to Macrotrends (2021), Starbucks deals with the purchase and roasting of high-quality whole bean coffee, which the firm then sells along with espresso beverages, confections and pastries, and other coffee-related equipment in its retail stores. Starbucks aims to establish itself as a globally recognized and esteemed brand with the best offerings to its customers. In determining the financial standing of Starbucks relative to its competitors such as McDonald’s, tools such as fixed-charge coverage ratio, debt/equity ratio, operating margin ratio, net margin ratio, return on equity, and return on invested capital are used.
Based on the fixed-charge coverage ratio, the company reported more than $15.91 billion in the form of long-term debt at the end of the fiscal year 2020. This might serve as a red flag for investment since firms should have adequate funds that can be used to run day-to-day contractual obligations. Nevertheless, events that occurred during 2020 following the announcement of the COVID-19 need to be factored in. The fixed-charge coverage ratio determines whether a company can cover fixed charges, including lease payments and interests, using its revenues. Besides, Starbucks works on a model of renting rather than owning operating premises, which significantly increases their operating leases. In terms of operating leases, the company reported $9 billion in operating leases. While leases work similarly to regular debts, the United States Generally Accepted Accounting Principles (GAAP) exempted leases from capitalization. However, rent expenses can inform the financial health of firms.
In 2020, Starbucks reported an interest expense of $437 million, earnings before interests and taxes (EBIT) of $1.562 billion, and fixed charges of $2 billion. This has since improved in 2021 to $4.872 billion. The firm’s fixed-charge coverage ratio was 1.58. The debt/equity ratio during 2020 was -1.723 and is currently -2.74 (YCharts, 2021). This indicates that Starbucks might face even more serious challenges in case of another pandemic in the future as this parameter shows poor financial leverage. The debt/equity ratio shows that the company is funding its operations through debts and not from what it owns. Another indicator for the company’s financial health is the operating margin of 6.6% compared to less than 5%, which is the average operating marg...