STARBUCKS CORP (SBUX) Extended Graph Analysis

October 8th, 2019 Posted by Extended Analysis No Comment yet

SBUX

COMPANY PROFILE

Starbucks Corp began in 1971. The company started in one store in Seattle’s Pike Market Place as a roaster and retailer of whole bean and ground coffee, tea, and spices. The business expanded globally and has millions of daily customers with exceptional products and more than 30,000 retail stores in 80 markets as of June 30, 2019.

Quoted from the company’s website: “ Starbucks is named after the first mate in Herman Melville’s Moby Dick. Their logo is also inspired by the sea, featuring a twin-tailed siren from Greek mythology.

The company’s mission: To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.

The company believed in serving the best coffee possible and its their goal that all their coffee to be grown in the highest standard of quality, using ethical sourcing practices.

 

STARBUCKS STANDARD GRAPH ANALYSIS 

1. SBUX CASH FLOWS

CASH FLOWS

 

2014-09 2015-09 2016-09 2017-09 2018-09 TTM
Net cash provided by operating activities 507,800,000 3,749,100,000 4,575,100,000 4,174,300,000 11,937,800,000 12,372,200,000
Net cash used for investing activities -817,700,000 -1,520,300,000 -2,222,900,000 -850,000,000 -2,361,500,000 -1,171,300,000
Net cash provided by (used for) financing activities -623,300,000 -2,256,500,000 -1,750,000,000 -3,001,600,000 -3,242,800,000 -8,297,900,000
Capital expenditure -1,160,900,000 -1,303,700,000 -1,440,300,000 -1,519,400,000 -1,976,400,000 -1,849,300,000
Free cash flow -553,100,000 2,445,400,000 3,134,800,000 2,654,900,000 9,961,400,000 10,522,900,000


Facts:

  • Net cash provided by operating activities was $12,372,200,000 in the trailing twelve months.
  • Net cash used for investing activities was -$1,171,300,000 in the trailing twelve months.
  • Net cash provided by (used for) financing activities was -$8,297,900,000 in the trailing twelve months.
  • Capital expenditure was -$1,849,300,000 in the trailing twelve months.
  • Free cash flows was $10,522,900,000 in the trailing twelve months.

Explanation

  • The company has managed to produce sufficient net cash provided by operating activities in the last five years. Year-over-year cash from operation increases, shows that the management was efficient in running the business.
  • Net cash used for investing activities consist of investment in properties and purchases of investments.
  • In cash flows from financing activities there was a debt issued in significant amount, and the company had repurchase common stock at $11 billion.
  • Capital expenditure consist of investment in property, plant and equipment.
  • Free cash flow increased 330 percent from 2015 to the trailing twelve months.

Interpretation

The company was efficient in providing sufficient cash from the operation and the cash increases year-over-year in the last five years. Further, Starbucks has enough cash for investing in property, plant and equipment, acquisition and purchases. 

2. SBUX BALANCE SHEET

BALANCE SHEET (1)

2014-09 2015-09 2016-09 2017-09 2018-09 2019-09
Total Cash 1,843,800,000 1,611,400,000 2,263,200,000 2,690,900,000 8,937,800,000 8,937,800,000
Total current assets 4,168,700,000 4,352,700,000 4,760,500,000 5,283,400,000 12,494,200,000 12,494,200,000
Total assets 10,752,900,000 12,446,100,000 14,329,500,000 14,365,600,000 24,156,400,000 24,156,400,000
Total current liabilities 3,038,700,000 3,653,500,000 4,546,900,000 4,220,700,000 5,684,200,000 5,684,200,000
Total liabilities 5,480,900,000 6,628,100,000 8,445,500,000 8,915,500,000 22,986,900,000 22,986,900,000
Equity 5,272,000,000 5,818,000,000 5,884,000,000 5,450,100,000 1,169,500,000 1,169,500,000
Retained earnings 5,206,600,000 5,974,800,000 5,949,800,000 5,563,200,000 1,457,400,000 1,457,400,000
Total Debt 2,048,300,000 2,347,500,000 3,202,600,000 3,932,600,000 9,440,100,000 9,440,100,000
Working Capital 1,130,000,000 699,000,000 213,000,000 1,063,000,000 6,810,000,000 6,810,000,000

Facts: 

  • Total cash was $8.9 billion in 2018 and the trailing twelve months.
  • Total current assets was $12.49 billion in 2018 and the trailing twelve months.
  • Total assets was $24.16 billion in 2018 and the trailing twelve months.
  • Total current liabilities was $5.68 billion in 2018 and the trailing twelve months.
  • Total liabilities was $22.99 billion in 2018 and the trailing twelve months.
  • Equity was $1.17 billion in 2018 and the trailing twelve months.
  • Retained earnings was $1.46 billion in 2018 and the trailing twelve months.
  • Total debt was $9.44 billion in 2018 and the trailing twelve months.
  • Working capital was $6.8 billion in 2018 and the trailing twelve months.

Explanation

  • Total cash has a growth of 385 percent in five years
  • Total current assets has a growth of 200 percent in five years.
  • Total assets has a growth of 125 percent in five years.
  • Total current liabilities represent 25 percent of total liabilities.
  • Total liabilities represent 95 percent of total liabilities and stockholders equity. 
  • Equity has a negative growth of 78 percent in five years.
  • Retained earnings has a negative growth of 72 percent in 5 years.
  • Total debt had increased 361 percent in five years.
  • Working capital had increased 503 percent in five years and it represents 41 percent of total liabilities.

Interpretation

Starbucks has a strong balance sheet and is liquid. Its total cash alone is sufficient in paying its current liabilities. However, the balance sheet shows that Starbucks is highly leveraged at 95 percent. The company is using debt in financing its growth which is very dangerous and might lead to bankruptcy in the future.

3. SBUX FINANCIAL RATIOS

FINANCIAL RATIOS

2014 2015 2016 2017 2018 TTM
Asset Turnover (avg) 1.48 1.65 1.59 1.56 1.28 1.37
Return on Asset (ROA) 18.57 23.77 21.05 20.11 23.46 18.66
Return on Equity (ROE) 42.41 49.73 48.16 50.90 136.51 136.51
Financial Leverage (avg) 2.04 2.14 2.44 2.64 20.66 20.66
Return on Invested Capital % 30.79 35.86 31.02 29.92 44.26 44.26
Interest Coverage 50.29 56.36 52.64 47.68 34.94 15.69


Facts:

  • Asset Turnover was averaging 1.37 in the trailing twelve months.
  • Return on assets was 18.66 percent in the trailing twelve months.
  • Return on equity was 136.51 percent in the trailing twelve months.
  • Financial leverage was average 20.66 ratio in the trailing twelve months.
  • Return on invested capital was 44.26 percent in the trailing twelve months.
  • Interest coverage was 15.69 ratio in the trailing twelve months.

Explanation

  • Asset turnover ratio indicates that for every dollar in asset, it generated $1.37 in sales.
  • Return on assets tells us that every dollar that is invested in asset produced 19 cents of income.
  • Return on equity shows that for every dollar invested in equity, it produced $1.37 income. ROE jumps 136 percent from 2017 to 2018.
  • Financial leverage tells us that for every dollar in equity, the firm has $20.66 of total assets. The ratio soared up to 683 percent from 2017 to 2018.
  • The company is generating a 44 percent return on invested capital.
  • Interest coverage tells us that the company is making more than enough money to pay its interest obligation with extra earnings left to pay for the principal. 

Interpretation

The financial ratio of Starbucks were impressive, however, return on equity soared 136 percent due to decreased in equity by 79 percent during the same period. Another thing is, the financial leverage is too high which indicates that the operation of the business start to get risky. The company is operating its business in a borrowed funds, which means the creditors has more stakes than the investors. 

4. INCOME AND MARKET

SBUX INCOME AND MARKET

2014-09 2015-09 2016-09 2017-09 2018-09 TTM
Sales 16,447,800,000 19,162,700,000 21,315,900,000 22,386,800,000 24,719,500,000 26,065,200,000
EBIT 2,792,600,000 3,351,100,000 3,853,700,000 3,896,800,000 3,806,500,000 3,826,300,000
Net Income 2,068,100,000 2,757,400,000 2,817,700,000 2,884,700,000 4,518,300,000 3,551,900,000
Market Capitalization 61,570,000,000 89,181,000,000 80,899,000,000 81,094,000,000 80,069,000,000 105,839,000,000
Intrinsic Value 88,446,601,523 99,655,021,787 87,118,974,412 89,719,054,322 185,689,850,736 185,689,850,736


Facts:

  • Sales was $26 billion in the trailing twelve months.
  • EBIT was $3.8 billion in the trailing twelve months.
  • Net income was $3.55 billion in the trailing twelve months.
  • Market capitalization was $105.839 billion in the trailing twelve months.
  • Intrinsic value was $185.69 billion 2018.

Explanation

  • The sales increases year-over-year in the past five years and has a growth of 58 percent..
  • EBIT was stable and has a growth of 37 percent in five years.
  • Net income growth was 72 percent in five years.
  • Market capitalization  growth was 72 percent in five years.
  • Intrinsic value increased 110 percent from 2014 to 2018. 

Explanation

The earnings of the company is running smoothly from top to bottom in five years, the current true value soared impressively in the last five years.

 

5. KEY EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

2014 2015 2016 2017 2018
Key Executive Compensation 37,652,142 40,913,970 47,469,559 45,955,484 70,184,613
Kevin R. Johnson/President and Chief Executive Officer, Financial Officer 0 8,474,173 11,057,912 11,480,364 13,382,480
Scott H. Maw/Former Executive VP and CFO 2,215,390 3,654,372 4,385,431 5,761,602 5,980,769
Howard Schultz/Former Executive Chairman of the Board 21,466,454 20,091,353 21,815,498 17,980,890 30,181,610
Rosalind G. Brewere/Group President, Americas and COO 0 0 0 0 9,152,082
John Culver/Group President, International Channel Development and Global Coffee and Tea 6,332,919 3,836,988 5,244,124 5,366,864 5,907,186
Clifford Burrows/Group President, Siren Retail 7,637,379 4,857,084 4,966,594 5,365,764 5,580,486

Facts

  • The total key executive compensation in 2018 was $70.18 million.
  • Kevin R. Johnson, CEO and Financial Officer compensation was $13.38 million in 2018.
  • Scott H Maw, former EVP and CEO compensation in 2018 was $5.981 million.
  • Howard Schultz, former Executive Chairman of the Board compensation was $30.18 million in 2018.
  • Rosalind Brewer, Group President Americas and COO compensation was $9.15 million in 2018.
  • John Calver, Group President International Channel Development and Global Coffee and Tea compensation was $5.91 million in 2018.
  • Clifford Burrows, Group President Siren Retail compensation was $5.58 million in 2018.

Explanation

  • The key executive compensation is composed of the following breakdown:
    • Salary $4.873 million
    • Bonus                                     $0.334 million
    • Restricted Stock Award        $30.959 million
    • Securities option                  $28.364 million
    • Non-equity compensation    $ 5.031 million
    • Other compensation            $ 0.623 million
  • Kevin R. Johnson compensation represent 19 percent of the total key executive compensation in 2018.
  • Scott H Maw compensation represent 8.5 percent of the total key executive compensation in 2018.
  • Howard Schultz compensation represent 43 percent of the total key executive compensation.
  • Rosalind Brewer compensation represent 43 percent of the total key executive compensation in 2018.
  • John Calver compensation represent 8.42 percent of the total key executive compensation in 2018.
  • Clifford Burrows compensation represent 8 percent of the total key executive compensation.

Interpretation

The total key executive compensation represent 1.55 percent of the net income. Salary has only 7 percent of the total executive compensation, restricted stock award and securities options have a big chunk of the total compensation.

6. LOBBYING AND CONTRIBUTIONS

STARBUCKS LOBBYING AND CONTRIBUTIONS

2004 2005 2006 2007 2008 2009 2010 2011
120,000 200,000 280,000 390,000 638,000 530,000 730,000 580,000

 

2012 2013 2014 2015 2016 2017 2018 2019
490,000 2,190,000 460,000 780,000 810,000 990,000 1,060,000 510,000

Facts:

  • Lobbying in 2004 amounted to $120k.
  • Lobbying in 2005 amounted to $200k.
  • 2006 lobbying amounted to $280k.
  • 2007 lobbying amounted to $390k.
  • 2008 lobbying amounted to $638k.
  • 2009 lobbying amounted to $530k.
  • 2010 lobbying amounted to $730k.
  • 2011 lobbying amounted to $580k.
  • 2012 lobbying amounted to $490k.
  • 2013 lobbying amounted to $2,190M.
  • 2014 lobbying amounted to $460k
  • 2015 lobbying amounted to $780k.
  • 2016 lobbying amounted to $810k.
  • 2017 lobbying amounted to $990k.
  • 2018 lobbying amounted to $1,060M.
  • 2019 lobbying amounted to $510k.

Explanation

Starbucks is incurring a yearly lobbying and contributions since 1998. The lobbying expenses come from the Senate Office of Public Records. The data for the most recent years was downloaded on September 19, 2019.

7. FINANCIAL STRENGTH

FINANCIAL STRENGTH

DATA:

Working Capital $6,810,000,000
Total Assets $24,156,400,000
Sales $26,065,200,000
EBIT $2,826,300,000
Market value of equity $105,839,000,000
Book value of total liabilities $22,986,900,000
Retained Earnings $1,457,400,000


CALCULATION

RATIO SCORE Z-SCORE
A Working Capital/Total Assets  0.28 1.2 0.336
B Retained Earnings/Total Assets 0.06 1.4 0.084
C EBIT/Total Assets 0.12 3.3 0.396
D Market value of equity/Book value of total assets 4.6 0.60 2.76
E Sales/Total Assets 1.08 1.00 1.08
Z-Score 4.656

Formula: Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

Explanation

Z-Score is a statistical measurement that compare data points from different sets of data to find correlations. This measurement by Dr. Edward Altman is a significant measure in determining the financial strength of the company because it relies on different weighted financial liquidity and profitability metrics to come up with the overall score. This measure indicates the probability of bankruptcy.

Interpretation

The overall score was 4.656, the grading scale for the score 3 and above indicates the company will not declare bankruptcy, in other words, Starbucks is not close to bankruptcy and the business is doing well with its operation.

Conclusion

The company has a strong balance sheet and is liquid. Profitability shows that the company produces earnings sufficient for the operation. Starbucks is good in handling and in using the borrowed funds in the operation of the business. However, the stock of Starbucks Corp is not recommended for a Buy due to its high level of total liabilities than the investors equity which can be a very risky operation.

Citation

https://www.sec.gov/cgi-bin/browse-edgar?CIK=SBUX&owner=exclude&action=getcompany&Find=Search

https://www.opensecrets.org/orgs/lobby.php?id=D000037780

Researched and written by Criselda

Twitter: criseldarome 

 

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