Melissa Brown, Dana Fulton, Teny Ghazarian, Stevie Holloway, Evelyn Lurhuma
October 23, 2012 Guyton Gagliardi
Starbucks Loan Package
In major cities and small towns across America and across the globe, Starbucks coffeehouses have become a beacon for coffee lovers everywhere. Offering more than just delicious coffee, Starbuck offers premium teas, fine pastries, and other scrumptious treats to stimulate the taste buds. Additionally this company offers a cozy, hometown atmosphere with free Wi-Fi internet connections to enhance the coffeehouse flavor (“Our company”, 2011).
This paper outlines a proposed loan package for Starbucks. The proposal includes a ratio analysis of financial statements to include the quick and current liquidity ratios, the DuPont ratios, profit margin, asset utilization, and financial leverage. Further, justification for why Starbucks needs this loan, and finally explains how Starbucks plans to use the loan proceeds and how approval affects the company.
Ratio analysis is use to evaluate the company’s financial status. By doing a ratio analysis of the company’s financial statement, the lender will know where the company stands financially. The ratio analysis includes the quick and current liquidity ratios, DuPont ratios, profit margin, asset utilization, and financial leverage. The quick ratio shows if the company is able to meet its short term goals. Quick ratio is current assets minus Inventory divided by current liabilities. Current Ratio is the current assets divided by the current liabilities. The DuPont Ratio helps identify the return on equity. It helps break it down into sections. The DuPont ratio does not measure the net value; it measures the gross value instead. It shows how the operating efficiency, the asset use efficiency, and the financial leverage affect the Return on equity. The operating efficiency is measured by the profit margin. The asset use efficiency is measured by the total asset turnover. The financial leverage is measure by the equity multiplier. (" 0 inshare,”). The profit margin is also called the net profit margin. It measures how the company is profitable. The net profit margin is the net income divided by the revenue multiplied by 100. The asset utilization shows how the company uses its assets. Asset utilization can be measured using two formulas, receivable turnover and Inventory turnover. Receivables turnover is the annual credit sales divided by the accounts receivable. The inventory turnover is the cost of goods sold divided by the average inventory ("Financial ratios,”).
The financial leverage ratio measures how the company is using its long term debt. This can be measure by determining the company’s debt ratio and the company’s debt to equity ratio. The debt ratio is the total debt divided by the total assets. The debt to equity ratio is the total debt divided by the total equity. Starbucks Corp. (SUBX) 44.97 down -0.33(-0.73%) ratios as of Tuesday, October 23rd, 2012 are as follows for September 2012:
Earning/Share 1.33 Price/Earnings 26.87
Profit Margin, % 10.32 Price/Book 6.43
Return on Equity, % 26.55 Debt/Equity 0.00
Return on Assets, % 16.59 Interest Coverage 56.33
Price/Sales 0.00 Book Value, $ 0.00
Dividend Payout, % 50.04
With the growing global market, Starbucks has recently expanded productions and now has a store available in India. A challenge for the company is to offer their products with respect to the cultures stance on vegetarian food products. Starbucks will use their loan to offer two stands: vegetarian and non-vegetarian. The company has also decked out the store with Indian artifacts and cultural tapestries. The loan has allowed Starbucks to open a store in a new market place for them with more jobs available to those in the state of Kamataka (Miller 2012). This loan will also be used to support the establishment and maintenance of schools for children