Solution
Sameeksha answered on
Nov 28 2021
MANAGERIAL ACCOUNTING
MANAGERIAL ACCOUNTING
STARBUCKS FINANCIAL STATEMENT ANALYSIS
Table of Contents
1. Sta
ucks Financial Statement 2
Summary of Income Statement and Balance Sheet - 2
2. Financial Statement Analysis: 3
A. Income Statement Analysis 3
B. Comparison with Dunkin Donuts - 4
3. Sta
ucks' Balance Sheet Comparison with Dunkin Donuts 5
4. Sta
ucks' Statement of Cash Flow Comparison with Dunkin Donuts 5
5. Conclusion and Sta
ucks’s Future Analysis 5
References 7
Appendix 8
1. Sta
ucks Financial Statement 8
2. Dunkin Donuts Financial Statement- 11
4. Comparison of Income Statement 17
3. Comparison of Balance Sheet 18
1. Sta
ucks Financial Statement
A. Sta
ucks Corporation- In today’s time, Sta
ucks Corporation is present in 70 countries having total stores of counting to more than 24000. Sta
ucks is Seattle based global company with a workforce of over 238,000 people (Sta
ucks, 2019).
B. Dunkin Donuts-Dunkin’ Brands Group, Inc., along with its subsidiaries Dunkin’ Donuts and Baskin-Ro
ins worldwide are operational globally. It provides products like coffee, baked goods, donuts, etc (Dunkin' Donuts, 2019).
Summary of Income Statement and Balance Sheet -
Detailed financial statement of Sta
ucks is part of Appendix.
Statement of Cash Flows
2. Financial Statement Analysis:
A. Income Statement Analysis
Sta
ucks is a well-known
and for delicious coffee and it works in a chain model globally. The detailed income statement analysis for the year 2016 to 2018 clearly reveals that the business of Sta
ucks is on an increasing trend. Further, its global expansion model has helped in letting its revenue grow year on year. This has also strengthened its global operations (Sta
ucks, 2019).
This is clearly depicted from the income statements of the past 3 years. The revenue is on an increasing trend as in 2016 it was 21,315,900, in 2017 it was 22,386,800 and in 2018 it increased to 24,719,500.
The reason of the increase in revenue in the last 3 years is owing to store sales growth of 3%, also with this, successful innovation of offering premium food along with coffee and tea beverage has led to this increase (Sta
ucks, 2019).
Likewise, Sta
uck’s cost of sales has been on an increasing trending, which is not a good sign however in case of Sta
ucks this increase is less than the revenue increase in the percentage terms, thus signifying improving business operations.
Further the gross profit for the last 3 years of Sta
ucks is also increasing owing to the higher revenue growth as compared to the cost of sales increase. The revenue growth year on year depicts that Sta
uck’s business is strengthening (Sta
ucks, 2019).
Later, Net Income Growth in the year 2018 is huge 57% against 2% in 2017. This was owing to the increased revenue because of effective product differentiation, designing effective product mix along with establishing itself as a premium
and against its competitors.
Also, the COGS has increased and because Sta
ucks is part of labour-intensive industry change in this cost affects significantly.
B. Comparison with Dunkin Donuts -
Sta
ucks Corp. and Dunkin' Brands Group Inc both are large eatery chains operation globally specialises in coffee (Dunkin' Donuts, 2019).
The product line is the same for both the companies with similar strategies overall, however the difference lies between the operational scales, business models and ownership of stores along with marketing and
anding strategies.
Though Sta
ucks started 20 years after Dunkin’ Donuts, yet presently Sta
ucks is a bigger company. The same can be established from the fact that today Sta
ucks have more store presence than Dunkin’ Donuts (Sta
ucks, 2019).
Further comparing the income statement, it is evident that in FY 2018, the revenue generation of Sta
ucks was $24.7 billion and the same was 10 percent higher from 2017 while Dunkin' Brands had a revenue generation of $1.32 billion, 3.6% higher than the year 2017. Sta
ucks has a larger footprint, with some 28,218 locations worldwide, compared to Dunkin' Brands' more than 20,500 points of distribution across the globe. Also, the increased interest expenses of Dunkin Donuts (21% up) has adversely affected the profit margin.
Sta
ucks operated in Company-operated stores model till 2016 and thus COGS was a major factor negatively affecting profit margins (increased operational and capital expense cost) as any increase in raw material like in coffee bean prices severely impacts the revenue, unlike Dunkin’s which operates in franchise model. (Sta
ucks, 2019).
However, Sta
ucks promotional and pricing strategies like free internet access, writing customer name besides the cup, more effective La carte, product customisation etc have paid well. It has structured itself as a more premium
and as compared to Dunkin' Donuts.
Further, comparing the international business of both the companies, it is revealed that Sta
ucks’ 30% revenue was from international business while just 4% of revenue of Dunkin' Donuts came from global business in year 2018 revealing that Dunkin Donuts have an option to expand and grow in the international market and earn higher profits.
3. Sta
ucks' Balance Sheet Comparison with Dunkin Donuts
The net income of Dunkin' Brands saw a downward trend of -15% because of increased interest expenses, owing increased refinancing and debts. Also, though Dunking Donuts is focusing on external debt however a very less increase in long term liabilities depicts that Dunkin Group is planning to reduce the leverage (Dunkin' Donuts, 2019).
Sta
ucks witnessed huge growth in revenue, net income thereby resulting in increased retained earnings. In the year 2018 Sta
ucks have increased long term debts by 131% further leveraging the company and showing a sign of business expansion. The operating income of Sta
ucks is higher than its interest expense showing a satisfactory balance sheet. Also last year Sta
ucks EPS was $1.05 (Sta
ucks, 2019).
Also, Dunkin Donut’s Cu
ent ratio which was 2.68 times in 2017 have come down to 1.50 times, however opposite is the case of Sta
ucks which had Cu
ent ratio of 1.25 times in 2017 and 2.2 times in 2018. This depicts a more balance ratio liquidity position for Dunkin Donuts.
From the equity holder’s perspective Dunkin Donuts is not in favourable position as it has a negative equity balance however Sta
ucks presents a promising picture for equity holders though from 2017 to 2018 their equity balance has reduced.
4. Sta
ucks' Statement of Cash Flow Comparison with Dunkin Donuts
Comparing Cash Flow for both the businesses, it gets clear that Sta
ucks capital expense burden is higher as compared to Dunkin' Donuts owing to the business model of having company owned stores thereby resulting in higher capital expenditure (Dunkin' Donuts, 2019). Yet one thing to mark important here is that capital expenditures of Dunkin' Donuts' rose to $51.86Â million in 2018 against $14.61 million in year 2017 against $268.96 million net operating cash flow and $828.0 million revenues. Similarly, Sta
ucks’s $1.98 billion capital expenses in year 2018 against $11.94 billion net cash flow from operations and $24.72 billion revenue reveals a more satisfactory picture for Sta
ucks (Sta
ucks, 2019).
One thing to consider here is that difference between store ownership is the key driving factor in the cash flow for both the businesses.
5. Conclusion and Sta
ucks’s Future Analysis
With robust Market Position and Global Brand Recognition, Sta
ucks enjoys strong presence internationally, having 39.8% market share in the United States and has operations in over 62 countries. Its effective strategies for the future is to manage product building, innovation in product redesigning and development. The company plans to offer product differentiation offering such as premium product mix, locations etc. Further, owing to the higher number of store locations,...