Analysis Of Starbucks Long-Term Return On Investments

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Starbucks long-term return on assets (ROA) deteriorated from 2012 to 2013 from 17.76% to 0.08%, but improved remarkably in 2013 to 2014 from 0.08% to 18.57%. Over the last ten years, Starbucks Corporation had the highest return on assets of 18.57 % in 2014 and the lowest return on assets of 0.08% in 2013 with a median of 10.86%. Starbucks cost of financing (debt) was around 5% suggesting that the company has favorable financing by almost 14% in 2014. Starbucks return of assets was greater than 5% (cost of debt) with only one unfavorable year for financing in 2013 probably due to the impending lawsuit. By the end of 2013, Starbucks had total assets of $11,517 million and total liabilities of $7037 million produced a debt-to-asset ratio of …show more content…
The highest cash conversion cycle of 55 days was generated in 2103. Consequently, Starbucks needs to concentrate on reducing their cash conversion cycle to attain higher efficiency. In 2013, Starbucks had 13 days in sales outstanding, 67 days in inventory, and a 25-day average payment period resulting in a cash conversion cycle of 55 days. In 2014, Starbucks had 13 days in sales outstanding, 59 days in inventory, and a 27-day average payment period resulting in a cash conversion cycle of 45 days. Starbucks’s cash conversion cycle was 10 days faster in 2014 than it was in 2013 meaning the company had to finance 10 fewer days of net working capital in 2014. Starbucks held inventory 8 days less in 2014 compared to 2013, which reveals improvement in inventory management. Additionally, Starbucks account receivables remained the same in 2013 and 2014, but account payables were 2 days slower in 2014. All these contributing factors show that Starbucks made improvements from 2013 to 2014 with the ability to convert operating activities into cash more rapidly. Starbucks earned $4.90 of sales for every dollar of fixed assets in 2014, which was slightly lower than $5.08 of sales for every dollar of fixed assets earned in 2013. This concludes that Starbucks was less effective and efficient when using their fixed assets …show more content…
In 2014, Starbucks generated an impressively high 42.4% rate of return to their shareholders compared to their 2013 rate of return of 0.17%. Starbucks remarkable rate of return is a product of the company’s 12.57% net profit margin, asset turnover of 1.48, and financial leverage of 2.28 (average total assets divided by the average common equity). Despite the company’s remarkable rate of return, Starbucks’s competitor, Dunkin Doughnuts had a slightly higher rate of return of 45.59% in 2014. Dunkin Doughnuts rate of return is a product of their company’s net profit margin of 23.55%, asset turnover of 0.23, and financial leverage of 8.27. Starbucks net profit margin and financial leverage were both less compared to Dunkin Doughnuts, however Starbucks’s total asset turnover was higher, indicating their company had more of an upward trend. Starbucks asset turnover ratio of 1.48 shows that for every $1 worth of assets generated $1.48 worth of revenue, whereas Dunkin Doughnuts only generated $0.23 worth of revenue. Starbucks profitability data in 2014 reveals the company produced substantial profits from sales, managed assets efficiently to generate sales, and used leverage effectively to finance the company’s assets. On the other hand, Starbucks profitability displayed a very different story in 2013. Starbucks had net

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