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Stock Code : SBUX (NASDAQ GS)

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Starbucks is a lifestyle company that primarily sells coffee drinking as a speciality lifestyle to its customers. The company purchases coffee beans, processed them and sells them in various styles like espresso, cold blended, etc. The company also sells a select food items like cakes, teas. It also retails accessories and equipment. The business owns and operates retail stores, leases from other or licenses its trademark .

Starbucks has divided itself into three accountable business segments: United States (73%), International (19%) and Global Consumer Products Group (8%) with their approximate presence in brackets.

The information below is a snapshot of the health of the company based on financial statements publicly available.

Starbucks, Margins 

The profit margins after interest and tax looks to be on the up trend since FY 2007 as the below table indicated

(Margin) FY 11 FY 10 FY 09 FY 08 FY 07
Profit to shareholders 0.11 0.09 0.04 0.03 0.07
Total net revenues


Starbucks, Intersting financial tools 

Starbucks appears to have a low long term debt to equity ratio, FY 2011 at 13%, FY 2010 at 15% and FY2009 at 18%. Starbucks kept GOODWILL assets, TRADING SECURITIES and AVAILABLE FOR SALE SECURITIES as assets. These assets are non core to business. They add up to approximately 20% of the total assets of the business. Starbucks also hold a significant quantity of cash and cash equivalent at hand, 16% based on the FY 2011. Could it be that business could not find additional room for expansion?

Starbucks, Statement of Cash Flow

I’ve looks at the statement of cash flows and made the following observation. The business is ables to generate cash from its operations to fund its operation. This is fundamental requirment for a self sustaining business. The business is continuously investing cash into itself. However, in a sign of a maturing business, it is no longer borrowing to finance its expansion but relies on its operating cash flows to finance itself. It is returning cash to financing sources. 

Concluding Analysis

The business looks lucratively positioned in the market segment that it has carved out for itself. The million dollar question whether one can make more money by investing in the business, given that it is trading at at price of approximately $55 giving a PE ratio of 34 on diluted shares basis. The firm is able to generate a free cash flow per share on diluted basis of $0.77~0.70 (derived from FY 2011 and FY 2010 financial statements) depending on the method of derivation.

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