Starbucks Financial

Analysis
MORGAN RHYNER
KRISTINA REYES
DY L A N J A C O B S
J O H N YA C U L L O
ANNA GERLICH

Starbucks vs. Dunkin Donuts

Is Starbucks just as successful behind closed doors?
Similar products compare ratios and financial numbers
Determine overall financial health
Stock Prices, financial ratios, investment risks, beta coefficients, growth rates,
CAPM model, WACC model

Stock Price
Movement

Dunkin Donuts Snapshot

Low: 24.20 on December 14th, 2011
High: 54.98 on July 13th, 2015
Most Dramatic Decrease: 49.53 on September 25th, 2015 to 40.86 on October
23rd, 2015
Most Dramatic Increase: 47.51 on
April 21st, 2015 to 53.50 on
April 27th, 2015
Jagged line of increase/decrease

Starbucks Snapshot
Low: 15.39 on November 29rd, 2011
High: 62.64 on November 23rd, 2015
Most Dramatic Decrease: 57.59 on August 19th, 2015 to 50.34 on August 24th,
2015
Most Dramatic Increase: 39.78 on
January 15th, 2015 to 44.17
on January 27th, 2015
Steady increase

Key Ratios

STARBUCK
S

DUNKIN DONUTS

Market
Capitalization:
Net Margin
over 5 years:

$4,207,000

$3,944,000

4.65% to 23.55%

P/E Ratio over

the past twelve
months:

Industry
Average

25.3

$92,866,000

8.84% to 12.57%

Current:
7.8%

34.1

31.7

Key
Ratios
DUNKIN DONUTS

STARBUCK
S

ROE over
5 years:

Industry
Average

Past 12 mo. :
27.8%
25.74% to 49.7%

-5.03% to 118.5%

ROA over
5 years:

14.81% to 19.23%
- Falls to 0.07% in 2013 due to one time cost
0.85% to 5.2%
- Steady increase with exception of past year falling
from 5.5% to 5.2%

Past 12 mo. :
5.2%

Investment Risks
FOR BOTH STARBUCKS AND DUNKIN DONUTS

Global Competition
Over populated in
America
CAP(China, Asia
Pacific), heavily
invested in by
Starbucks
Competition includes
McDonald's, McCafe,
and Yum brands.

Commodity Prices
Vulnerable to
Commodity Prices
Coffee beans, sugar,
milk
Use derivative
contracts to hedge
against price
increase.

Change in retail
market
Entirely dependent
on high disposable
income
Federal reserve
might taper interest
rates in the future.

High Leverage
Highest leverage in
the industry
Lowest coffee
industry interest
coverage ratio

Beta Coefficient
Reported beta = 0.76
Market Average = 1.0

Does this match expectations?

Financial Health/Profitability

Financial
ROE
24.13% average past 5 years

ROA
13.58% average past 5 years

Beta Past 5 Years

CAPM
Estimated 7.18%

Cost of Equity Past 5 Years

Growth Rate

Growth Rate of Starbucks

P= Stock Price
- At the time, was 61.37
Div= Most Recent Divedend
- 0.80
r= cost of equity
- 7.18%

Growth Rate = 0.06 or 6%

Comparison to Dunkin Donuts

Starbucks Stock Price decrease: 0.03%
Dunkin Stock Price decrease: 1.70%
Makes a difference in the end with calculations
McDonalds is part of comparison
Does better than both Starbucks and Dunkin
Should not be included due to other products sold

Finding WACC Using the

CAPM Formula

Step 1:
CAPM (cost of equity) = risk-free rate +
beta(market rate risk-free rate)
0.0718= 0.017 + 0.761046(0.09
0.017)

Step 2:
WACC = weight of equity * cost of equity +
weight of debt * cost of debt * (1-tax rate)

0.0524 = 0.713 * 0.072556 + 0.287 *

0.00376067 * (1-0.392)

What does 5.24% mean?

Weighted average of cost of firms common equity, preferred stock, and debt
Investors use this to make decision to invest
Class WACCs varied between 6%-12%
High = higher risk investment
Low = lower risk investment (Starbucks)
Investors have confidence to invest
Acquire capital cheaply

In Conclusion
Efficient with finances
Not a high risk stock
Attractive Price to Earnings ratio
Returns positive
Beta < 1
Ideal cost of equity

WACC is low
High ROA
Appealing current ratios
Overall consistent heath & profitability