Financial Analysis: A Tool for Coffee Biz Success - Essay Sample

Introduction

Financial analysis is an important tool used by organizations as a basis for making decisions accurately on matters concerning the business. Analysis of the effect of various economic and environmental variables on Starbucks will be useful in laying business strategies for coffee connection business. This will help coffee connections avoid the mistakes done by Starbucks and help it utilize the opportunities that Starbucks never realized for their advantage. Financial analysis helps a company decide on when, how and how much to invest. Making decisions on when it is the right time to invest, where to invest and what to invest helps the business avoid unnecessary losses. Since Starbucks is its immediate competitor, studying their weaknesses and strengths can be very important in laying out flowless strategies to emerge the winner. Competition is a must in business and outstanding your competitor in terms of laying out perfect business strategies and making the right decisions make the difference. This report is about the financial analysis of Starbucks company which aims at developing a benchmark to help expand coffee connection operations and also help maximize profits.

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The horizontal analysis is also known as trend analysis is the process of comparing various items in a business in a comparative financial statement over various years. This is aimed at tacking the financial performance of the business over that period. By the end of the financial year 2016, Starbucks' business registered a total revenue of $21,315.9. The following year, it accumulated a total of $22.386.8 In terms of total revenue. This was a $1070.9 increase from the previous year representing a 5% increase in revenue. By the end of the fiscal year 2018, the company registered total revenue amounting to 24,719.5 which was higher than that of the previous years. From the results, the company shows a progressive positive trend in total revenue with a notable increase in revenue every consecutive year. Similarly, the same trend is noted on the comprehensive income attributed to the company were for the fiscal year 2016, 2017 and 2018 the company accumulated value of $ 2,908.7, $2,837.5 and $4,343.6 respectively. Vertical financial analysis involves the representation of financial statements as the percentage of others. It is aimed at evaluating the performance metrics and identifying whether they are doing well or deteriorating.

By the end of the fiscal year 2017, the assets under the firm's management were evaluated at $1.4 trillion and a total capitalization of $60 million. Starbucks offers credit and loans to its customers and many more. The Company is a source of employment to thousands of people all over the continent. More branches are being opened in different parts of the world.

The measure of the ability of a business to pay for all its short-term obligations is referred to as liquidity ratios. The coffee connection can use this method of evaluation to make decisions on whether to extend on their credit or debts. The firm's networking capital shows its ability to pay off its debts using its assets and thus higher liquidity ratios show how well the farm is utilizing its resources. Banco can use the results from this metric to make decisions on whether to invest in more assets or to invest or either to reduce the rate at which they are lending to their customers. Debts will always be there in any business whether small or large but the fact remains that, imbalance in debt and credit negatively affect the business.

There are cases that Starbucks customers get unhappy about the services offered, fail to pay their debts, and even though the company follows its set procedures to collect the money, in some cases, these methods do fail. These are what are referred to as bad debts and the company has to define the accounting process for evaluating and reporting these uncollectable accounts. Starbucks uses the direct write-off method of evaluating and reporting uncollectable debts or accounts. Using this technique, the initially receivable account is removed from the accounting records after being determined to be uncollectable. The main reason why Starbucks uses this method is simply that it is simple even though it can only be used with immaterial bad debts. This technique also allows for more time before an account can be declared a bad debt, unlike other methods. The common drawback to this method is that it results in a mismatch between revenues and expenses since the cost for uncollectable accounts may take more time before they can be recognized.

NTM ratio is a well-known system of evaluating the company's overall performance to its operational earning capacity. It is an important evaluation system for firms to determine whether the firm has to be overvalued or undervalued in comparison with its competitors. It is a more precise evaluation technics where both the firm's overall earning measure and its overall value indicator are considered. Cash position, financial debts, and minority interest are in this case used for evaluation. The overall Starbucks NTM ratio is slightly lower than the mean of its competitor ratios which means that it is undervalued in comparison with its competitor's performance. Five years down the line, Banco Santander had an average NTM ratio of 1.5. this has significantly affected its overall performance and its asset valuation has grown.

The company's ability to settle its debts is given by the debt to equity ratio. A low debt to equity ratio signifies that the firm is in a position to satisfy its debt requirements. The 96% value shows that the company is leveraging on its profit. This may also indicate that the company is in more debt and case it happens that the company is not in business, then shareholders and investors may be in danger of losing their share value. Therefore, the firm can use this result to identify the main drawback to the balancing of this value. The company's total debt ratio of 44 percent signifies that the company has a high value of debts than the current value of its assets. The 2018 quarterly report clearly shows that Starbucks made an overall $1.43 Billion Us Dollars change in its property and assets. This marked a 20.16 % increase from its previous year's net change.

Conclusion

The coffee connection can invest in more countries but before deciding to do so, there are numerous factors to consider. Judgment on the best approach is dependent on Starbuck's previous experience. Since the time Starbucks was established, it has been through harsh and tough times from which its administration has learned new tricks to encounter them. Its administration has gained experience over the years on what the best marketing strategies work well for the farm, the best administration practices which result in better results, how to manage crisis and adapting to the ever-growing market demand. More of its success can be attributed to its experience and its readiness to adapt to market changes. The market is dynamic and so, marketing strategies implemented by the firm should accommodate the same.

The fact that the market is dynamic, the firm organizational structure has to be designed in such a way it is flexible and that it can accommodate any changes to favor the firm's performance. The firm should also design its administration structure in such a way that there is more efficiency and that it favors the customers. Complex administration structures may result in reduced efficiency, high production cost, poor communication between customers and the firm, low output and loss of customer trust. The firm is composed of branches of different sizes and different organizational structures can perform differently in these different scenarios. It is worth changing already existing organizational structures if that would improve on overall returns. Research on which structure performs better than the other should be carried out occasionally.

The firm needs to invest more in market research to allow enable it to spot all available marketing opportunities and to find out what tactics work best for the firm in different geographical and social settings. Big firms like Starbucks have highly depended on research findings in making decisions. Advancement in technology has made research better since more data can be found on the internet and more sophisticated and dedicated analysis software are available. Different research teams have developed various analysis computer models which can be handy in determining which product will sell best in which region and also, where exactly does the firm need to invest in.