solved: Extended” Executive Summary of 500 words.  Extended in that you must offer detailed comments on each

External Factor Evaluation (EFE) Matrix

According to David, David, and David (2020), an EFE matrix provides an empirical assessment of how well a firm is handling external factors overall, including the firm’s effectiveness at capitalizing on opportunities and minimizing threats. Through thorough research and assessment, we have recognized multiple opportunities and threats that have been assigned weights and ranks.

The lowest rating that has been identified during the research of opportunities is the steady forecast for revenue growth/consumption growth. This specific opportunity is important because it provides a means by which to strategize for the future. “In rapidly changing market situations, not enough attention is paid to the forecasting process on the part of managers of enterprises, which negatively affects the final results of their activities” (Sobon, et al, 2021). What this means for Starbucks is that they are not readily prepared for any upcoming trends or changes that may take place in the market. The recommendation is to invest in more comprehensive forecasting to ensure they can be ahead of any changes.

Of the ratings shown under opportunities, there were three categories identified that rated a 4, which indicates a superior response. These categories are coffee subscriptions, faster service, and self-service machines. These indicate that the company is doing a far superior job compared to others in their industry at addressing these factors. Research has shown that Circle K increased its foot traffic by 200% with a coffee subscription, an added 70% increase in food sales, and a 90-95% subscription renewal rate. The recommendation for Starbucks is to begin offering different levels of subscriptions for different price ranges of customers.

Of the threats that were identified, only one scored a rating of 1. The executive officer changeover has consistently happened, with Chief Executive Howard Shultz retiring and coming out of retirement multiple times. This poses and threat due to the accumulated cost of turnover in severance pay, as well as a lack of being able to achieve any performance targets. The recommendation is to put into place bylaws that bar any previously retired administrative management from coming back to their previous positions without substantial proof that it will be of benefit to the company.

Competitive Profile Matrix (CPM)

An assessment of the company’s primary internal strengths and weaknesses with those of the company’s significant competitors in the industry is done with the help of a tool known as the Competitive Profile Matrix (CPM). I have established that Dunkin’ Donuts and McDonalds McCafé are two of the most significant competitors in the industry. The matrix suggests that

3 compared to its competitors, Starbucks maintains a higher level of market competitiveness. In conclusion, according to the matrix, Starbucks, with a weighted score of 3.17, is more competitive in the market than Dunkin Donuts, which has a weighted score of 2.88, and McCafé, which has a weighted average score of 2.58.

Price competitiveness and quality are the performance criteria to examine in price and product designs. Starbucks has a weighted average of 0.32 for price competitiveness because it sells expensive goods and hence cannot serve the people, causing low-price competitiveness. Starbucks’ pricing strategy for maximizing profits is based on a combination of the target market and a premium branding strategy. Starbucks’ product quality has a weighted average of 0.30, which corresponds to its brand equity, which competitors cannot match. “The Starbucks Experience” is an informative approach that emphasizes the principles of quality control as a competitive advantage for Starbucks, where customers pay for both a product of high quality and an experience. Moreover, Starbucks customers are willing to spend a premium for premium coffee beans of superior quality to enjoy them.

Starbucks’ consumer loyalty, which has a weighted average of 0.4, is one of its most vital qualities, giving it an advantage over its competitors. Despite its expensive goods, “The Starbucks Experience” becomes a significant aspect that contributes to customer loyalty. The Starbucks experience provides not only high-quality products but also a friendly atmosphere that encourages guests to interact and learn while consuming Starbucks’ exceptional goods. Starbucks revamped its business model to attract high-income, high-spending, and relatively healthy professionals. The layout of Starbucks’ physical cafes provides consumer satisfaction exclusive to the firm.

With an average weighted score of 0.3 in the customer service category, Starbucks maintains a competitive advantage over its rivals. Starbucks provides its consumers with various rewards and souvenirs (Team, 2022). Today, Starbucks has become a symbol of social class, as evidenced by the desire to collect Starbucks cards and other merchandise. In addition, Starbucks regularly solicits client feedback, including, but not limited to, direct feedback at the counter or through Starbucks Customer Connections, questionnaires on their Corporate Social Responsibility, which provides the foundation for improving their operations. Starbucks also offers a quality table that illustrates client expectations and the company’s responses. It indicates that the company grows to meet all consumers’ needs, whereas the competitors provide the lowest acceptable quality of items at a low price.

Competitive Advantage Reflection

For years, Starbucks had a unique business model that no other company could replicate. It was the best of the best in all four primary business areas: beverage (product), store atmosphere, service, and overall company culture. Many companies were able to excel in one area, but not the other, still falling below Starbucks’ total package. However, over the years, some companies have been able to heavily strengthen one piece of the Starbucks business model and creep up to the coffee powerhouse.

Dunkin and McDonalds McCafe have found ways to close in on Starbucks consumer base and overall market coverage. Dunkin is the most similar to Starbucks in the competitive realm. The largest distinguisher between Dunkin and McDonaldS and Starbucks, is the price. Their drinks are less expensive, making them more accessible. However, quality and experience are expensed.

To maintain a competitive advantage and strengthen available opportunities to create a larger market gap again, Starbucks needs to continue to enhance certain business practices and consider continuing product expansion. The company is known for its excellent customer experience. From the time the customer interacts with the brand, which could be virtually or in-person, the sales experience begins. Starbucks is ahead of the technological curve in the coffee industry. The company created a mobile ordering app in 2009, which was well ahead of any mobile payment options in that industry. Now, Starbucks has 31.2 million users on the app. Customers use the app to place orders ahead of time to skip the line, can customize every bit of a beverage, and earn reward points while doing so. The majority of Starbucks competitors do not have a unique application. Because of this, Starbucks should continue to capitalize on this application by building out the opportunity for order ahead in the app, the ability to connect with and learn about the consumer, the option for feedback, etc. This makes the consumer feel powerful while also unique in their relationship with Starbucks. Most companies cannot provide this level of personalization.

Starbucks is also known nationally for its in-person experience. All stores have their own unique feel to blend into the community they are located in, acting as a “third home” to the consumer. This allows the major chain to feel quaint and unique. Many coffeehouses at the same level as Starbucks are franchised and also in a chain, and do not have the opportunity to create a unique space per location, therefore, feel stale and just like any other shop. Studies have shown that the personalization per store with décor, music, and menu choices keeps consumers coming back. Starbucks needs to continue to curate individual store locations and find creative ways to take this one step further. This could include adding more unique menu items, recruiting local designers to build out the storefront, etc.

Starbucks coffee is known across the world, but not all consumers drink coffee. Substitute options are one of Starbucks largest threats. In many competitors/alternate choices, multiple products are available to those who don’t just prefer coffee. These include juice, soda, tea, energy drinks, and food options, like meals, snacks, and more. Consumers may go to the competition due to it seeming like a “one-stop shop” with multiple options for all preferences, rather than just the typical coffeehouse drinker. To combat this, Starbucks has pivoted and seen how the introduction of new drinks and food has benefitted the company. These include the introduction of Teavana, protein boxes, etc. In 2019, “food accounted for 20% of Starbucks sales” (Kader, 2020). Continuing to add more food options that are appealing to all demographics, and potentially unique to the location as mentioned above, will benefit Starbucks and allow for a more general consumer attraction. Our team would personally recommend that Starbucks adds a carbonated beverage option to the menu across all stores to replicate soda or a sparkling water option as soda is always popular in the US specifically, and sparkling water has become a fad over recent years.

Financial Ratio Analysis

Financial ratios provide great insight into a company’s overall financial health and success. It allows you to create a strategy based on the current state of various aspects of the company to best prepare for future decisions. To evaluate Starbucks’ progress, the team viewed data from both 2019 and 2021. 2020 was omitted due to the pandemic year halting normal sales practices and revenues across all industries, but especially those like Starbucks in the food industry. In 2019, Starbucks’ current ratio was .92 and increased in 2021 to 1.36. This is a very important ratio as it depicts how capable a company is of paying off its debt, often in a short time. To receive any loans, or often trust in the market, a bank or stakeholders will review this ratio and its progress. The higher the ratio, the better; showing here positive growth for Starbucks. The quick ratio is very similar regarding debt and current financial health. However, it depicts if the company has enough assets or cash to cover all debts. The ratio must be greater than 1 to show this and therefore show that the company will still be standing when paying out all dues. Starbucks in 2019 was not in a great state here as the quick ratio was at 0.67, meaning all debts would not be paid if needed. However, over two years, a big jump was made to 1.14, where Starbucks is now in great health. This could be because of an increase in sales and inventory, increased marketing, etc. One can also “delay any purchases that would require massive cash payments” (Thorne, 2012). Another interesting ratio when reviewing the past three years of sales is the operating profit margin percentage. This shows external reviewers “how much profit a company makes on a dollar of sales after paying all variable costs, but before tax” (Hayes, 2022). Starbucks shows positive growth from 2019 to 2021, increasing by 1%. This may not seem substantial but is impressive due to the pandemic and the recovery efforts that came with it.

Strategically, the direction of the ratios mentioned above indicates that Starbucks has made the correct decisions to survive the pandemic, and is currently in a very good position, with increased turnover, less inventory, and maintaining, slightly increasing profit margins.

Strategically, Starbucks is looking at solidifying its brand and value by becoming more socially active, with initiatives such as; a commitment to provide easier access to re-useable cups by 2025, debuting new partner waste and recycling app, designed to help partners understand and navigate the stores recycling guidelines. By themselves, these seem to be “social” initiatives to market their awareness of environmental issues, but they also lead Starbucks into a circular economy where they produce minimal waste and reuse byproducts, and in the long term reduce their overall costs. Moving to a circular economy will also help Starbucks use the ancillary products more efficiently, thereby increasing its overall utilization factor.

To increase its financial ratios such as the quick ratio, which is on a steady increase, Starbucks also needs to be more conservative in its expansion plans, to date most of its expansion plans have been around luxury items, such as the failed Princi brand. They need to consider the more middle-class markets to build a more economically stable base, similar to car companies with middle-class and luxury brands.

Both the move to a circular economy and entering more stable markets with help Starbucks with its stability and growth plan.

Internal Factor Evaluation (IFE) Matrix

According to David, David, and David (2020), the IFE Matrix is a comprehensive evaluation of the firm’s effectiveness in implementing current strategies based on its strengths and weaknesses. Through research, we have identified several strengths and weaknesses as well as ranked them and assigned weights.

The ratings are from 1 to 4, with 4 being a superior response and 1 being a poor response. Of the identified strengths, six have been ranked 4, indicating that the response to the current strategies is superior. This includes the response to operational efficiency, ethical business practices, and long-term strategic planning. The implications of being high in categories such as these are important. “If a firm possesses many highly-rated strengths, this is likely the result of effective strategies” (David, et al, 2020).

The weaknesses identified are those that reflect the difficulties the firm has or is encountering in growing and gaining profits. Of those identified, only two ranked a 2, with none ranking 1. The most difficult to create strategies for is the volatility of the supply costs. This is not something that the firm can directly determine based on its needs but instead must rely on other strategies to ensure that it can still obtain supplies within a reasonable cost range. In response to the pandemic (the second category that ranked 2), Starbucks, like many companies, was forced to raise its prices due to the disruption of the supply chain and therefore rising costs. One implication of this was that in February of 2022, the market shares of Starbucks fell 4.7% and 16% in January. Chief Executive Officer Kevin Johnson stated, “We experienced higher-than-expected inflationary pressures, increased costs due to Omicron, and a tight labor market.”

What strategies do you think would allow the firm to capitalize on its major strengths?

Starbucks possesses a solid market position, superior supply chain management, brand recognition, a high-quality product offering, and committed customers (Liu et al. 2022). For instance, the siren in the Starbucks logo is recognizable, and it is no longer necessary to include the words “Starbucks Coffee” to identify the brand. In addition, the customer base and loyalty are extensive, as the company is established and spread internationally. In addition, Starbucks demonstrates tacit knowledge through its treatment of employees. Each Starbucks employee is a “partner.” The organization offers healthcare benefits, educational opportunities, and publicly traded stock. For many people, Starbucks is their first professional job. With these opportunities and benefits, the company has fostered a culture in which the partners develop positive habits that can be applied to other aspects of their lives (City, 2021). If Starbucks maintained or enhanced these strengths, it would be more profitable than its competitors. Starbucks needs as well to improve its consumer loyalty programs. This will increase its sales and maintain a good number of loyal consumers in its portfolio.

What strategies would allow the firm to improve on its major weaknesses?

Starbucks has aggressively expanded into EMEA countries such as Saudi Arabia, but sales have not met projections. Starbucks views the prevalence of tea consumption in Arabian culture as an untapped market opportunity. The best solution to increase its profits, they must broaden its portfolio’s adaptability by incorporating different cultures. Similarly, Starbucks will find it challenging to expand into regions such as the United Kingdom, where Costa Coffee already has a loyal customer base. Like the United States, Canada and Australia have substantial brand loyalty for Tim Hortons and Gloria Jeans, respectively.

Proposed Strategies Developed from SWOT Matrix

Below you will find the strategies that have been developed from the SWOT Matrix analysis of Starbucks Coffee Company. This can be used to continue to stay relevant and competitive in a thriving industry.

Strength-Opportunity (SO) Strategies

Strength-Threat (ST) Strategies

Weakness-Opportunity (WO) Strategies

Weakness-Threat (WT) Strategies

Boston Consulting Group (BCG) Matrix

Below is a Boston Consulting Group (BCG) Matrix for Starbucks Coffee Company’s operating segments. The revenues listed are in the billions.

Starbucks Coffee Company’s main division segments are its handcrafted beverages, food, and others (which include its merchandise and grab-and-go options). The main competitors within the same category/industry are McDonald’s McCafe and Dunkin Donuts. While handcrafted beverages and others remain in good standing as a star in the BCG, food falls under question marks. This signifies that it may need some work to bring it up to the level of other divisions to ensure adequate revenue.

Internal-External (IE) Matrix

By analyzing the Internal-External (IE) Matrix above, we can see that there are a few divisions that are performing well. The American division and CAP are doing well. The EMEA (Europe, Middle East, and Africa) region is performing poorly. Looking at where it falls on the graphical representation, it would be advisable to develop specific strategies to either improve these sectors significantly or to drop them completely, as they may be using more resources than the revenue they are bringing in.

Space Matrix, Grand Matrix, and Quantitative Strategic Planning Matrix

In this paper we will look at Starbucks Corporations overall Space, Grand, QSP Matrices analysis and provide a summary of the data collected.

SPACE Matrix

Below you will find a Strategic Position and Action Evaluation Matrix (SPACE Matrix) for Starbucks Coffee Company with two of their competitors, McDonald’s and Maxwell House.

Based on the space matrix and previous matrices and reviewing the 2021 Starbucks 10-K and other financial documents, Starbucks is clearly in the aggressive quadrant and competing well against its competition considering its smaller product mix, and more targeted market. It has a very strong financial position (FP) due to a low D/E ratio, and high current ratio, and a high inventory turnover. Starbucks stability position is reflective of the covid pandemic, and the rising inflation pressures, as well as a low barrier to entry for the competition, and a higher barrier to entry for Starbucks into established coffee cultures and markets.

Starbucks competitive position is very good, they are higher than the coffee suppliers like Maxwell House, and on the heels of larger corporations like McDonalds. As a note, they have no single worldwide competitor with a product mix close to theirs, so McDonalds, even though a fast food restaurant chain, is considered a competitor with their McCafé offerings. So with a smaller product mix, Starbucks is in a very competitive position relative to McDonalds. Its Industry position (IP) is quite high, and it is considered the leader in the coffee industry.

With Starbucks being in the aggressive quadrant, there are a few recommendations to consider. Starbucks should accelerate its growth plans in the markets in which they lead, the USA, Canada, and China to maintain and expand its lead over the competition. This recommendation is based on the relative lack of barriers to entry into their core coffee business, and competitive pressures from the competition.

Starbucks should also consider increasing its product mix and quality and remarketing/repositioning stores as a defensive act to not lose market share to competitors that offer equal quality coffee products, but a greater mix of other food-related products. This should include local food offerings in markets that they are struggling with such as EMEA.

Starbucks should also look to expand its involvement in the Global Coffee Alliance with Nestle as this will expand its global reach. Starbucks has expanded its social responsibility with increased investment in its partners, Starbucks refers to its employees as partners, by advancing social and racial equality, and focusing on partner retention. It has integrated social responsibility as the core of its purpose and “our reason for being.” They have also expanded environmental sustainability programs by declaring a bold aspiration to become planet positive by 2050. Starbucks needs to expand this program worldwide, beyond the markets that they lead to truly show that they truly are committed.

Grand Strategy Matrix

The Grand Strategy Matrix has four quadrants that hold different strategies within them. As we see the quadrants are split up as such, rapid market growth, strong competitive position, slow market growth, and weak competitive position. The first quadrant that runs along the axis of rapid market growth and a strong competitive position involves the strategies of market penetration, product development, horizontal integration, and diversification. This means that Starbucks is in a great standing point within their industry which means they will continue to grow.

Quantitative Strategic Planning Matrix (QSPM)

Below you will find the Quantitative Strategic Planning Matrix for Starbucks Coffee Company that analyzes the two proposed recommendations.

There were multiple strategies developed from the SWOT analysis that could be pursued. The two that were chosen as the best options were as follows:

1. Grow market share and the company as a whole.

2. Maintain market share and the current status of the company

Europe, Middle East, and Africa (EMEA) market are not currently performing at industry standards. The belief behind why this is occurring is due to regional differences in tastes and preferences and not enough products that cater to the local culture and customers. There is the potential for growth in these markets by developing products that are specific to these regions that will appeal to the customers and their desires. The brand equity is currently performing at a high level and can be used to the company’s advantage to continue growing the market share and promoting the company in a positive light, as well as pushing more of the ethical business values that the company shares within its mission and vision. Growing the market share would also be profitable for a long-term reinvestment strategy that is multi-faceted per specific region.

Maintaining the current position of the company regarding the market share would continue to be profitable at a steady rate but not provide the chance for embracing changes that may occur within the industry. The issue with this specific strategy is that it will not continue to grow the company to be as profitable as it can be within the industry. With product recalls, higher prices than competitors, and nearly identical products to competitors, maintaining the current position will not allow the company to diversify and set itself apart. Further, unionization may pose a threat if the company does not grow and diversify to include and embrace these changes.

Marketing Expenses, Perceptual Map, and Organizational Chart Analysis

In this paper, we will look at Starbucks Corporation’s overall Marketing Expenses, Perceptual Map, and Organizational Chart Analysis and provide a summary of the data collected.

Marketing Expenses versus Rival Firms

A 10K is a detailed report filed annually by a public company that describes the financial performance from the last year. The SEC, or US Securities and Exchange Commission, requires all companies to complete this report. It is a more detailed report than just the annual report that is sent to shareholders – the 10K breaks down each area of the company.

For example, when looking at the 10K, one can examine categories like marketing and advertising expenditures. Starbucks spent $305 million in 2021 advertising its product and brand. Their strongest competitors, Dunkin Donuts and Peet’s Coffee posed around the same investment. Dunkin put forth $316 million towards advertising funds, with many of those dollars straight from franchises. In addition, Peet’s grew a whopping 27% in the marketing area taking their total to $320 million. A goal of Dunkin Donuts is to increase coffee and overall beverage sales. The company plans to do this through continued new product launches and a heavy push behind marketing and advertising with slogans like “America runs on Dunkin” and “What are you drinkin?”. Peet’s Coffee has a lower market share than both Dunkin and Starbucks, so to keep up the company decided it was necessary to make a substantial increase to the marketing budget to allow for a similar presence as its’ top competitors. Since the three companies are spending similar ad money as of 2021, Starbucks needs to continue to build relationships with consumers in their communities to attract the most attention. The coffee market is so diluted that to stick out, there has to be something special about the cup of coffee or brand. Starbucks has established such a large affinity with its consumers to this point due to tactical traditional advertising spending that feels unique, heartwarming, and welcoming. It does not need to increase ad spending to keep its large market share because the company is easily a household name internationally. Starbucks needs to continue to spend consistently within the ad space, and transcend that feel into all shop environments, to keep Starbucks superior.

*Peet’s is under JABS management. The numbers described above depict Jabs Beverages within the coffee industry. Information found in
Nearly four of every five US coffee shops…

Perceptual Map

Perceptual maps are diagrams used for marketers/ businesses, as they provide valuable insights into consumer preferences. Mapping out the different products allows marketers to better understand how their products compare to their competitors and also what changes could be made to stay ahead of the competition. Also, perceptual maps help businesses understand the products that are most important to consumers and how they can better their products on the market. Starbucks perceptual map involves comparing its offerings against those of different competitors such as McDonalds and Dunkin. Starbucks differentiates its goods and services using the unique sales proposition idea. Starbucks is noted for its exceptional customer service and in-store experience. Below is a perceptual map of the coffee industry, comparing the competitors in direct competition with Starbucks. Successful strategy creation does not ensure successful strategy execution. Strategy creation and strategy execution are distinct despite their interdependence. Strategy execution is change. The consensus is that “the actual work starts when tactics are defined.” Motivated managers and people are needed to execute a plan successfully. It is alarming to consider that one person may ruin the plan execution (David et al., 2020)

High Price

Low Price

High-Value Proposition

Local Cafes

Starbucks

McDonalds McCafe

Neighborhood coffee

Low-Value Proposition

Dunkin Donuts

Diagramming Existing and Proposed Organizational Chart

Starbucks currently uses a matrix organizational structure. The company is controlled by a board that has a few main pieces to it. When you visualize this, the chairman, Mellody Hobson, sits at the top, followed immediately by the CEO, with the rest of the board just below, all on one level. Their functional hierarchy is centralized and run by the Chairman and Chief Executive Officer, Howard Shultz. There are heads of functional departments, product-based divisions, and geographic divisions who control their separate divisions, departments, and teams that operate below them.

Product-based divisions include merchandise, food items, and other brands that operate under Starbucks such as Teavana. Geographic divisions are more complicated. Starbucks currently operates in over 80 countries globally. They have created three international divisions: Americas, China, and Asia-Pacific, and EMEA (Europe, Middle East, and Africa.

The new proposed organizational chart for Starbucks has the chairman at the top, with others following on tiers two and three. The CEO, Howard Shultz is on the second tier, at the same level as the CFO, Rachel Ruggeri, CTO, Deb Hall Lefevere, and SVP EMEA Duncan Moir along with others. The third tier contains the COO, John Culver, along with other heads of global divisions.

These specific changes that are being recommended would not create many associated costs, as the changes being made are minor. The current organizational structure of Starbucks is set up efficiently. The minor changes that are recommended to be made are not the remove or add positions, but to modify levels by moving one down below the COO.

Part I: EPS / EBIT Analysis

Below is the analysis of Earning per share (EPS) and Earnings before interest and taxes (EBIT), this shows the EPS value when we use 100% Equity financing side by side with using 100% debt financing.

Below is the EPS vs EBIT graph, which shows the effect on EPS of Equity and Debt financing. The effect is very similar, as the EPS does not change significantly from choosing equity financing over debt financing.

Since we are asking for a small amount of additional funding to implement our recommendations ($180M) the mix of debt-to-stock financing does not affect the EPS as much as if we were considering a larger amount of financing.

Having run a few models, and analyzing the data, we recommend finance recommendations through issuing stock, rather than debt. This makes sense as interest rates have risen and the amount of financing is about $180M, which is considerably small compared the Starbucks current equity ratios.

Part II: Financial Statements

Below are the projected financial statements for the next 3 years. All Dollar amounts are in whole dollars.

With the slowdown of the pandemic, a modest increase in revenues is expected in 2022, with great revenue growth in the following years. With the recovery from the pandemic, growth rates will be more in line with traditional growth rates approaching 8.7%. Profit margin is consistent across the 2 yrs., as innovation and R&D investments are expected to increase margins in the 3rd year

The growth is expected mainly in North America, with slower growth in Europe, Asia, Africa, and the Middle East. FY23 and FY24 are expected to grow at rates comparable to before the pandemic. FY23 and FY24 also include growth based on the recommendations to expand with localized products and services to the EMEA markets. The recommendations will be financed with 10% debt at approximately 3.50% interest.

In terms of assets, property, plant, and equipment are projected to increase over the next 3 fiscal years by capitalizing new locations in the EMEA markets and expansion in North America, and by the capitalization of newly developed intellectual property.

The liabilities will increase somewhat but with the capitalization of new locations, and cash on hand, additional liabilities will be limited.

Equity is expected to grow as we exit the pandemic and return to more normalized growth.

Part III: Cash Value

The team calculated the financial worth of Starbucks in the past fiscal year through four approaches: the net worth method, the net income method, the price-earnings ratio method, and the outstanding shares method. “Evaluating the worth of a business is central to strategy implementation because firms acquire other firms, divisions of other firms, or even divest part of their own firm” (David, 2020).

The net worth method is calculated by subtracting shareholders’ equity from (Goodwill+Intangibles). The equation/solution is: (7,013,400) – (3,677,300+349,900) = ($11,040,060).

The net income method is calculated by net income multiplied by 5. The equation/solution is: 3,030,800*5= $15,154,000. This may be used when acquiring a business and determining value.

The price-earnings ratio method is calculated by (Stock Price ÷ EPS) × NI. The equation/solution is: (243.16/(3.40)*3,305,200,000 (average NI over five years) = $236,380,127,058.82.

The outstanding shares method is calculated by the number of shares outstanding multiplied by the stock price. The equation/solution is: 744,800,000*243.16=$181,105,568,000.

The average approximate company value is currently $104 billion.

Part IV: Projected Financial Ratios

The historical ratios are representative of Starbucks, during the pandemic, s business slowed and started to recover in late 2022. The ratio is relatively good and shows signs that Starbucks has weathered the pandemic very well, largely due to its control over the supply chain and corporate store management. The ratios are improving in 2021.

Items of interest are the current and quick ratios and debt-to-equity ratios. These are all improving as we exit the pandemic and return to a more stable growing economy, and as Starbucks expands into new markets.

Part V: Retained Earnings

Retained earnings are normally located on the company’s balance sheet located in the shareholders’ Equity section. Retained earnings can be calculated by taking the beginning-period retained, adding to the net income and or loss, as well as subtracting dividend payouts. Retained earnings are accumulated portions that Starbuck has not distributed to shareholders. When the net income isn’t distributed to shareholders, shareholders’ equity is increased by the same amount. The above chart shows each year and it’s their income, based on the balance sheet.

Part VI: Analysis

An important part of a business should be to always improve its current financial position. The five analyses within this document provide a better understanding of the current financial position and what should be done to improve the standing.

EPS/EBIT is important for determining the potential implementation of strategies. “This technique involves an examination of the impact that debt versus stock financing has on EPS under various expectations for EBIT, given specific recommendations (strategies to be implemented)” (David, et al, 2020). The recommendation to finance through issuing stock is a viable option due to the limited amount of funding that is being requested. Given the option of financing through common stock or debt financing, analysis shows that the two options have similar results, with common stock financing coming in at a slightly better rate.

Projected financial statements are important to a company’s future. By analyzing previous financial statements, we can predict coming trends and funding needed for future expenses and strategy implementation. The analysis of Starbucks Coffee Company’s projected financial statements provides us with a few recommendations. There is expected to be an increase since the slowdown of the pandemic. With the growth rates holding steady, it is recommended to finance with 10% debt at 3.5% interest. While liabilities will increase, the ending of a worldwide pandemic is showing an increase in traffic, and equity is predicted to grow.

To implement proposed strategies, it is important to know the cash value of a company. There are multiple ways to accomplish this. By using a combination of four methods, we have determined the accurate financial worth of Starbucks. The average amount from the four methods is $104 billion.

Financial ratios are important for many reasons. “Financial ratios can signal strengths or weaknesses anywhere up and down a firm’s value chain from suppliers through production and distribution” (David, et al, 2020). Projected financial ratios can anticipate any financial results that may occur and therefore help to avoid any issues that may arise. Analysis of Starbucks projected financial ratios provided interesting results. The pandemic has been a main concern over the last few years, as it shut down not only stores but also the distribution line of items needed by consumers. As of 9/30/2022, the current ratio was 0.72, with a rise predicted of 0.39 to come in at 1.11 by 9/30/2024. This rise is significant and predicts that Starbucks is capable and doing well in navigating the issues with logistics that have come forth.

Retained earnings are those that have not been given to shareholders but have been retained for investing and paying down liabilities. This excess income is available to invest, and therefore is important to the future of Starbucks. In 2020, the retained earnings were $20,811.00. It has risen since then and is currently at $52,699.00. It is important to note that since retained earnings are based on the net income, any activity can change this current number, and therefore it is changing daily.

References

Benefits and perks. Starbucks Coffee Company. (2022). Retrieved October 17, 2022, from

https://www.starbucks.com/careers/working-at-starbucks/benefits-and-perks/