It all started on March 31, 1971 in Seattle, Washington, when three friends who met when they were students at the University of San Francisco opened a store called "Starbucks" to sell roasted coffee beans. Convinced of the quality of the product, they transmitted their passion for the secret of a good coffee, its way of preparation and its exquisite aroma, to each person who came across them inside and outside the premises.
In 1982 Howard Schultz, the sales manager of an electrical appliance company, visited them for the first time and fell in love with their passion for coffee. A year later he joined the company, and it was in August 1987 when he bought Starbucks with the help of other local investors.
Today, Starbucks has become an icon of coffee, mainly for young people, having more than 20,000 stores in more than 60 countries; But what did Schultz do to make Starbucks so successful?
The formula for its success is based on different factors, such as the Starbucks concept itself: consisting of a place where everyone can have a great experience drinking coffee with a warm atmosphere. Its location: since all the stores are in convenient and high-traffic areas, such as on university campuses, airports, office buildings, high-visibility places near shopping centers, among others. Its atmosphere: because whenever you visit Starbucks you get comfort and each store emits its own feeling. The service: all its workers are fast, efficient, friendly and energetic. (Ooi, 2018).
In addition to these, Starbucks makes good use of marketing strategies, where its main strategy has always been to generate differentiation by offering value in its different digital campaigns, achieving love and generating trends among its consumers. The Starbucks experience generates an emotional connection with your consumer, thus developing a high level of loyalty. (Galindo, 2018).
Next, Starbucks financial ratios will be explained compared to those of the Industry to which it belongs, which is "Retail (Grocery)", and its Sector which is "Services", where a brief explanation will be given and it will be pointed out which of these three looks more favorable in each of these coefficients.
Valuation Ratios
Valuation indices perform a comparison of relevant data that helps users obtain an estimate of the attractiveness of a potential or existing investment. (Investopedia, 2018)
- P / E Ratio (TTM) - Price-Benefit Ratio
Starbucks has a price-benefit ratio of 17.13 while the Industry of 84.62 and the "Services" Sector of 17.27, this shows us that the expectations of the value of the Industry are favorable and future profit growth is expected, but it also means that its share price is overvalued and it may be unlikely that its price will continue to rise, therefore the Starbucks value is better in this regard.
- Beta
The Starbucks Beta coefficient is 0.57 while the Industry's “Retail (Grocery)” is 0.54, indicating that the expected return on an asset based on its beta and expected market returns is high, they are faster than the market, while the sector's beta coefficient is 1.40.
- Price to Sales (TTM)
The price-sales ratio indicates the value assigned to each dollar of a company's sales or income, thus being the Starbucks value of 3.16 while the Industry value is 3.32 and the Sector value is 9.92 This tells us that the share price of the “Services” Sector has more value.
- Price to Book (MRQ)
This ratio compares the market value of a share with its book value, we can see that this in Starbucks is 19.36 while that of the Industry is 8.78 and that of the Sector is 2.74, this means that shareholders pay 19 times more Starbucks share value.
- Price to Cash Flow (TTM)
This takes into account the operating cash flow of a share, which adds non-monetary gains such as depreciation and amortization to net income, thus, we can see that the value of this in Starbucks is 12.85 while that of the Industry is of 29.41 and the "Services" sector is 10.40, this tells us that it is better to invest in the industry and this value is more effective as cash flows can not be easily manipulated, compared to revenues, which are affected by depreciation and other cash items.
Dividends
A dividend is a distribution of a portion of a company's profits, decided by the board of directors, paid to a class of its shareholders. These can be issued as cash payments, stocks, or other property. (Investopedia, 2018)
- Dividend Yield
This index shows us how much a company pays in dividends each year in relation to the price of its shares, in this case, Starbucks has a value of 2.55%, while Industry and the Sector have a value of 1.07% and 2.60% respectively.
- Payout Ratio (TTM)
This index is the proportion of earnings paid as dividends to shareholders, Starbucks has a value of 37.27%, while its value in the Industry is 43.28% and the Sector is 2.60%.
Profitability Ratios
Profitability ratios are used to assess a company's ability to generate profits compared to its expenses and other costs incurred over a specified period of time.
- Gross Margin (TTM)
Starbucks shows us a value of 58.83% while the Industry "Retail (Grocery)" of 46.62%, and the Sector of 23.85%, this shows us that Starbucks has a higher percentage of total sales revenue that it retains after incurring the direct costs associated with the production of the goods and services you sell.
- EBITDA Margin (TTM)
This is a measure of a company's operating profitability as a percentage of its total revenue. In this case, this percentage in Starbucks is 20.98%, while the Industry and Sector have no value in it. By excluding interest, depreciation, amortization, and taxes, it indicates to an investor, business owner, or financial professional a clear view of a company's operating profitability and cash flow.
- Operating Margin (TTM)
This percentage refers to the profits that a company retains after eliminating operating expenses such as the cost of goods sold and wages, and depreciation, thus, we can see that the percentage of Starbucks is 24.14% while that of the Industry is 9.68% and the “Services” Sector is 9.46% , showing that Starbucks has higher earnings.
- Net Profit Margin (TTM)
This net profit margin is the ratio between the net profit and the income of a company, so we can see that the percentage of Starbucks is 19.50% while that of the Industry is 7.61% and that of the “Services” Sector is 9.43%, this means that Starbucks has a greater benefit.
- Effective Tax Rate
The effective tax rate is the average rate at which a person or corporation is taxed. The percentage of this in Starbucks is 21.63% while that of the Industry is 25.24% and that of the "Services" Sector is 18.39%, this shows us that Starbucks has a large amount of taxes since it pays more than its sector.
Liquidity Ratios
Liquidity ratios measure the ability of a company to meet its obligations that expire in the short term. It tells us if a company can quickly convert its assets to cash without any loss in value if necessary to meet its short-term obligations. (Investopedia, 2018)
- Current Ratio (MRQ)
In the case of Starbucks we can see that their current ratio is 1.01 indicating that if they have the ability to pay with their short and long-term obligations, although compared to the Industry of 1.21 and the Sector, we can see that theirs is 1.53, thus having more success in this area.
- Quick Ratio (MRQ)
Starbucks' acid test is 0.76, indicating its ability to meet its short-term obligations such as accounts receivable, cash, etc. it is favorable, while that of the Industry is 1.09 and that of the “Services” Sector is 1.25, suggesting that it has a great capacity to meet these same short-term obligations.
Efficiency Ratios
Efficiency ratios are generally used to analyze how well a company uses its assets and liabilities internally. It can calculate the turnover of accounts receivable, the repayment of liabilities, the amount and use of capital, and finally the general use of inventory and machinery. (Investopedia, 2018)
- Revenue / Employee (TTM)
The income per employee at Starbucks is $ 87,055.00 dollars, while that of the Industry is $ 44,356,566.00 and that of the “Services” Sector is $ 972,422,233 .00, this means that the Sector has greater productivity and an effective use of resources from the company.
- Receivable Turnover (TTM)
This measure is used to quantify the effectiveness of a company in the extension of the credit and in the collection of debts in that credit, the “Retail (Grocery)” Industry shows to have greater effectiveness by having a value of 83.96 while Starbucks has a value of 29.30 and the Sector of 13.54.
- Inventory Turnover (TTM)
Inventory turnover measures how fast a company is selling its inventory and is generally compared to industry averages. Starbucks has a value of 7.23 and the Industry "Retail (Grocery)" of 66.59 while the Sector of 9.98, this tells us that the Industry has strong sales and / or large discounts, so it causes a constant change in their inventories.
- Asset Turnover (TTM)
The asset turnover rate at Starbucks is 1.52 while in the Industry it is 1.40 and in the Sector it is 0.74, this indicates that Starbucks has greater efficiency in deploying its assets to generate income.
Leverage Ratios
Leverage ratios are financial measures that analyze the amount of capital that goes into debt (loans) or assesses a company's ability to meet its financial obligations. (Investopedia, 2018)
- Long Term Debt to Equity (MRQ)
The long-term debt-to-capitalization index is an index that shows the financial leverage of a company, the value of this in Starbucks is 154.09% while that of the Industry is 51.87% and that of the “Services” Sector is 50.97%, showing that the Sector has better financial strength by having better liquidity.
- Total Debt to Equity (MRQ)
This indicates the amount of debt that a company is using to finance its assets in relation to the amount of value represented in the capital of the shareholders, the Industry being better at having a value of 69.97% while Starbucks has a value of 170.37% and the Sector of 80.08%.
Management Effectiveness
The effectiveness ratios indicate how effective management has been in using the company's shareholder capital and assets to generate an acceptable rate of return. (Basu, C., 2018)
- Return on Assets (TTM)
Asset return is an indicator that tells us how profitable a company is relative to its total assets. The value of this in Starbucks is 29.66% while in the Industry it is 9.35% and that of the Sector is 6.68%, this tells us that the administration of Starbucks is more efficient in the use of its assets to generate profits.
- Return on Investment (TTM)
This is similar to the return on assets, the value of this in Starbucks is 42.53% while in the Industry it is 12.64% and in the Sector 11.26%, this means that Starbucks has a higher amount of return on an investment in relation to the cost of the same investment.
- Return on Equity (TTM)
Return on equity is the amount of net income returned as a percentage of shareholder capital. Starbucks has a value of 95.63% while the Industia of 15.03% and the Sector of 13.42%, showing us that Starbucks has a higher profitability by revealing how much profit it generates with the money that the shareholders have invested.
In short, Starbucks is a company in which it is worth investing because the financial ratios have shown us that in most of them Starbucks is better than its sector and industry, this means that it is one of the best within them. However, its success is not only due to good numbers management since good capital under the wrong direction can quickly vanish. That is why, beyond finances, Starbucks is an excellent option to invest because throughout its years of operation we have seen great growth from the company, as well as a very good expansion and very innovative strategies.
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Anonymous. (2018). Starbucks Corp (SBUX.OQ). October 27, 2018, Reuters Website:
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Galindo, E.. (2017). The Starbucks strategy, a benchmark in loyalty. October 26, 2018, from increnta Website:
Guitart, P. (2018). A BRIEF HISTORY OF THE SPECTACULAR SUCCESS OF STARBUCKS. October 26, 2018, from GUITART & PARTNERS Website:
Ooi, A. (2018). How and Why Starbucks is so Successful. October 26, 2018, from SPOON UNIVERSITY Website:
