Publicly Traded Company Analysis: Starbucks Cafe - Research Paper Example

? Analysis Publicly Traded Company: Starbucks Cafe By: December 11, of School Starbucks Cafe is the largest coffeehouse chain in the world. The firm was founded in 1971 in Seattle Washington by three partners: Jerry Baldwin, Zev Siegl and Gordon Bowker. The firm operates over 17,651 stores across 60 countries. The CEO and chairman of Starbucks Cafe is Howard Schultz. The mission of the company is to inspire and nurture human spirit – one person, one cup, and one neighborhood at a time (Starbucks, 2012). The company is a publicly traded company trading in the New York Stock Exchange under the symbol SBUX. The common stocks of Starbucks Cafe were trading at a price of $52.96 as of December 10, 2012 (Yahoo, 2012). The market capitalization of Starbucks Cafe is $39.38 billion. The firm uses a holistic approach towards the sourcing of its coffee. Starbucks Cafe sources its coffee through fair trade coffee. Fair trade coffee guarantees the farmers a price of at least $1.26 per pound. Other benefits that farmers receive in a fair trade coffee arrangement are technology transfer and financing of crops. Customers are more likely to support companies that source coffee using fair trade coffee practices due to the green movement and the tendency of customers of buying from companies that act in a socially responsible manner. The market share of Starbucks in the U.S is 33% of the coffee market (O’Farrell, 2012). During the recession the business of Starbucks declined because the demand for gourmet coffee is price sensitive. Buying coffee from Starbucks Cafe is considered a luxury by a lot of American buyers. During harsh economic times people tend to be more price conscious. The store has 192,866 employees and 39.66% of its workforce works outside the United States (Cnn, 2012). The employees of the firm are referred too as baristas. The firm believes in the value of diversity in the workplace. Diversity is valued by the managerial staff of the company. The equation that defines diversity at Starbucks Cafe is: Diversity = Inclusion + Equity + Accessibility (Starbucks, 2012). The use of diversity can enhance the creativity of the employees and foster an environment in which innovation is a critical component of the success of the enterprise. The customer service of the company has helped the firm differentiate itself from the competition. Starbucks Cafe offers free services to its customers including Wi-Fi internet accessibility. The firm generates an alternate revenue stream through the sale of iTunes. The firm believes a lot in the value of corporate social responsibility (CSR). The CRS program of the firm is comprehensive due to the genuine effort the firm places in helping the community and other stakeholder groups. Starbucks Cafe was named one of the world’s most ethical companies in 2012 for the six year in a row. The firm certifies 75% of all new stores under the LEED® green building standard. The firm minimizes the use of water and energy at its stores to save resources and protect the environment. About half of the firm’s company owned store are powered by renewable energy. The communities in which Starbucks operates are an important stakeholder group for the organization. The firm donated 441,000 community service hours during 2011 (Starbucks, 2012). During fiscal year 2011 Starbucks Cafe generated sales of $11,700 million. The sales of the company increase by 9.27%. The net income of the firm in 2011 was $1,246 million. In the last two years the company’s net income increased by 219%. A firm’s net margin measures the absolute profitability of the company. The desirable outcome is to have a high net margin. During 2011 the net margin of Starbucks Cafe was 10.65%. The net margin of the company is much higher than the industry average of 3.8% (Dnb, 2012). The earnings per share and cash dividend per share of the company were $1.66 and $0.56 respectively. The liquidity of the firm is an important aspect of the business that managers must consider. A ratio that measures the ability of the company to pay off is short term debts is the current ratio. The formula used to calculate current ratio is total assets divided by total liability. Starbucks Cafe current ratio in 2011 was 1.32. The company’s current ratio is good because is above 1.0.The working capital of the firm during 2011 was $919 million. Starbucks Cafe has sufficient current assets to cover all its current liabilities. The return on assets (ROA) metric measures how effective a company is at generating income from its total assets. The ROA of Starbucks cafe was 16.92% which is higher than the industry standard ROA of 4.90%. The total equity of Starbucks Cafe during 2011 was $4,387. The debt ratio of the firm in 2012 was 0.40, while its debt to equity ratio was 0.68. The debt to equity ratio shows the relationship of the capital structure of the company. Companies that finance their operations using more equity than debt suffer less from cash flow problems due to lower fixed expenses. The debt ratio of the company is acceptable. The business trajectory of Starbucks Cafe since its inception is a true American business success story. The company has grown so much that it holds a 33% market share in the American coffee industry. The firm suffered greatly during the latest recession which in ended in 2009. The firm has bounced back in an impressive fashion with an increase in revenue of $855 million between 2009 and 2011. The aggressive international expansion plan has helped the company increase its revenues. The company is an attractive investment because Starbucks Cafe stocks have been paying dividends in recent accounting periods. An investor can obtain capital gains and dividend income from the company. The use of corporate social responsibility has helped build the brand value of the company. The firm is very ethically responsible and it cares about the communities where its stores are established. The common stocks of the company priced at $52.96 are an attractive investment due to the firm’s sound liquidity and profitability position. Starbucks Cafe must continue to pay close attention to its customer relations to ensure satisfaction and the best possible customer service for its clients. References Cnn.com (2012). 93. Starbucks Coffee. CNN Money. Retrieved December 10, 2012 from http://money.cnn.com/magazines/fortune/bestcompanies/2010/snapshots/93.html Dnb.com (2012). SIC: 5812 – Eating Places. Retrieved December 10, 2012 from http://www.dnb.com O’Farrell, R. (2012). Who is Starbucks Target Audience? Retrieved December 10, 2012 from http://smallbusiness.chron.com/starbucks-target-audience-10553.html Starbucks.com (2012). Diversity at Starbucks. Retrieved December 10, 2012 from http://www.starbucks.com/about-us/company-information/diversity-at-starbucks Starubucks.com (2012). Goals & Progress: Community Involvement. Retrieved December 11, 2012 from http://www.starbucks.com/responsibility/global-report/community-involvement Starbucks.com (2012). Our Heritage. Retrieved December 11, 2012 from http://www.starbucks.com/about-us/our-heritage Yahoo.com (2012). Starbucks Corporation (SBUX). Retrieved December 10, 2012 from http://finance.yahoo.com/q?s=sbux&ql=1 Read More