Question

# The Firm in Question is Starbucks.

The purpose of this assignment is to evaluate the financial condition and

performance of Starbucks

Refer to Tables A-1 through A-5 in Appendix II of the text for the operational definitions of and formulas for numerous common financial ratios, including profitability, liquidity, leverage, activity, and shareholders' return. Using these formulas, assess at least one ratio from each of the five categories, though you may apply as many of the ratios for which you can find the required information in the firm's financial reports. On your calculations page, specify for which formulas you are solving.

In an assessment of approximately seven hundred fifty words or so, address the following:

1. Determine which of the ratios provide the most key insights into the firm's current level of performance. How can you assess whether the results of your calculations are positive or negative? Explain which of the ratios give you reason to be concerned with the organization's current strategy and why.

2. The Organizational and Operational Plans assignment references the possible benefits and risks of forming a strategic alliance. What would be the risks of forming a strategic alliance in terms of the firm's profitability ratios? Which of those five ratios is most likely to reveal immediate information for analysis of the alliance's effectiveness?

3. Considering today's financial climate, how likely is it that the organization could acquire the capital necessary to support an aggressive value-enhancement strategy? From where would that capital originate? Compared to current interest rates, what do you believe is a realistic interest rate the firm might incur? Which of the liquidity ratios will be impacted by the influx of capital, if borrowed?

Submit calculations with your written response.

**And this is all the information we have been given. And the formulas are listed within the information in the tables. I tried to submit a picture for this but was unable to do so. **

**Table A-1** - Profitability Ratios

**Ratio Formula What it shows**

1)Return on total assets __Profits after taxes__ The net return on total investments of the firm

Total assets

OR or

__Profits after taxes + interest__ The return on both creditors' and shareholders'

Total Assets

2)Return on stockholder's __Profits after taxes __How profitably the company is utilizing

equity Total Stockholders' equity shareholder's funds

3)Return on common equity Profits after taxes - The net return to common stockholders

__Preferred stock dividends __

Total stockholders' equity - Par value of preferred stock

4)Operation profit margin __Profits before taxes and before interest__ The firm's profitability from regular

(or return on sales) Sales operations

5)Net profit margin (or net __Profit after taxes__ The firm's net profit as a percentage of

return on sales) Sales total sales total sales

**Table A-2** - Liquidity Ratios

**Ratio Formula What it Shows**

1)Current Ratio __Current assets__ The firm's ability to meet its current financial

Current liabilities liabilities

2)Quick Ratio __Current assets - Inventory__ The firm's ability to pay off short-term

(or acid test ratio) Current liabilities obligations

3)Inventory to net __Inventory __The extent to which the firm's working capital

capital Current assets - Current liabilities is tied up in inventory

**Table A-3 **- Leverage Ratios

**Ratio Formula What it Shows**

1) Debt-to-assets __Total debt__ Total borrowed funds as a percentage of total

Total assets assets

2)Debt-to-equity __Total debt __Borrowed funds versus the funds provided by

Total shareholders' equity shareholders

3)Long-term __Long-term debt __Leverage used by the firm

debt-to-equity Total shareholders' equity

4)Times-interest-earned __profits before interest and taxes__ The firm's ability to meet all interest payments

(or coverage ratio) Total interest charge

5)Fixed charge coverage Profits before taxes and interest + The firm's ability to meet all fixed-charge

__Lease Obligations __obligations including lease payments

Total interest charges + leased

obligations

**Table A-4** - Activity Ratios

**Ratio Formula What it Shows**

1)Inventory turnover __Sales __The effectiveness of the firm in employing

Inventory of finished goods inventory

2)Fixed-assets turnover __Sales __The effectiveness of the firm in utilizing plant

Fixed assets and equipment

3)Total assets turnover __ Sales __The effectiveness of the firm in utilizing total

Total Assets assets

4)Accounts receivable __Annual credit sales __How many times the total receivables have

turnover Accounts receivable been collected during the accounting period

5)Average collecting __Accounts receivable __The average length of time the firm waits to

period Average daily sales collect payment after sales

**Table A-5** - Shareholders' Return Ratios

**Ratio Formula What it Shows**

1)Dividend yield on __Annual dividend per share __A measure of return to common stockholders

common stock Current market price per share in the form of dividends

2)Price-earnings ration __Current market price per share __An indication of market perception of the firm;

After-tax earnings per share usually, the faster-growing or less risky firms

tend to have higher PE ratios than the slower

growing or more risky firms

3)Dividend payout ratio __Annual dividends per share__ An indication of dividends paid out as a

After-tax earnings per share percentage of profits

4)Cash flow per share __After-tax profits + Depreciation __A measure of total cash per share available for

Number of common shares outstanding use by the firm

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