Essay on Finance Ratios

Submitted By houssam88
Words: 580
Pages: 3

Using the Key Financial Ratio document from the Learning Resources as a guide, perform five ratios using Starbucks financials.
Interpret the numbers that you found and provide a 300–500 word analysis of what the ratios mean for Starbuck’s financials

Converting financial figures into ratios can provide managers and analysers with an effective method to identify trends, problems and opportunities. Ratios allow managers to conduct a benchmarking comparison with organisations in the same location and type of industry.
I’ve conducted key ratio calculations on Starbucks financial statements as requested by the University, below is my findings including table 1.0 that summarise the calculated ratios.

Table 1.0
Oct. 2 2011
Oct. 3, 2010
Sep 27, 2009
Sep. 28, 2008
Sep 30, 2007
Current Ratio 1.28 1.02 1.29 0.80
Debt to Equity Ratio 0.40 0.41 0.45
Debt to Assets Ratio 0.07 0.09 0.10
Net Asset Turnover 2.67 2.84
Return on Assets 0.17 0.15

1- Current Ratio (Current assets/current liabilities).
This ratio provides an indication of the organization’s strength to meet its short-term obligations Newman, (2013, p.5).
- Starbucks is evidently able to meet its short-term obligations. No doubt that the company has made significant improvement since year 2007 reporting year.

2- Debt to Equity Ratio (Total Liabilities / Shareholders equity).
This ratio is one of the important measurements of organization’s health that lenders look at when deciding of granting or extending loans/mortgages. It also gives an indication on the company’s reliance on borrowing (Debts or Shareholder capital), Monea (2009, p.142)
- Starbucks reduced this ratio by almost 25% since 2007, and it currently enjoys a stable debt to equity ratio, and evidently there is no mass borrowing of funds occurred during the past four years)

3- Debt to Assets Ratio (Short and long term debt/total assets).
It is an indicator of the ratio between assets that are being funded using debt.
- Starbucks made significant improvement to low this ratio to acceptable levels comparing to previous years.
- It is evident that this ratio is low, and that indicates that a bulk of assets has been financed from equity. Also, I have noted no short term borrowing occurred in 2009, 2010 and 2011.
4- Net Asset Turnover Ratio (Sales/Net assets).
Provides an indication on the efficiency of company’s assets to generate revenue.