Question

Between about December 2007 and June 2009, the United States was considered to be in a...

Between about December 2007 and June 2009, the United States was considered to be in a recession. The U.S. Gross Domestic Product fell approximately 3% from the third quarter of 2008 to the third quarter of 2009. Also, during December 2007 and June 2009, the Standard and Poor’s 500 index dropped by 38% and the unemployment rate climbed from 5% to 9.5%.

The macroeconomic situation affected almost all companies since higher unemployment affected personal consumption, which dropped from 10,140.3 Billion Dollars in Aug 2008 to 9,807 Billion Dollars in June 2009, a drop of 3.8 percent.

Starbucks is one of the companies affected by the December 2007 recession. The following table shows several ratios for Starbucks corresponding to the years 2006, 2007, and 2008. Use a stock price of 10.9 dollars per share for the year 2009.

Year

2006

2007

2008

2009

ROE

0.253

0.294

0.127

ROA

0.106

0.126

0.056

ROIC

0.207

0.250

0.121

Asset Turnover

1.758

1.761

1.830

Op. Profit Margin

0.115

0.746

0.048

Long Term Debt Ratio

0.0009

0.241

0.221

D/E Ratio

0.987

1.340

1.277

Current Ratio

0.970

0.787

0.798

Quick Ratio

0.462

0.466

0.482

Payout Ratio

0.000

0.000

0.000

Plowback Ratio

1.000

1.000

1.000

Market to Book Ratio

6.088

3.099

1.374

Stock Price Used for Mark/Book

17.71

9.450

4.68

By using the financial statements provided, calculate the ratios presented in the table for the year 2009 and answer the following questions:

a-       Were sales per dollar of assets impacted by the recession?

b-      which ratio shows the impact of the recession on sales per dollar of assets?

c-       Did the company operating profit margin increased, decreased, or was the same, between the years 2007 and 2009?

d-      Did the mix of debt and equity changed for Starbucks between the years 2007 and 2009?

e-      In what ratio can you see the change in the mix of debt and equity reflected?

f-        Did the value added by management, reflected in market to book ratio, increased or decreased between the years 2007 and 2009?

g-       Did the quick ratio increase or decrease between the years 2007 and 2009?

h-      Explain why you expect the quick ratio to increase or decrease during a recession?

i-        Use the ratios for the years 2007 and 2009 to explain if, in your view, Starbucks is in a better or worse situation in the year 2009 due to the recession.

j-        What areas should Starbucks improve for the years 2010 onwards, if any?

Annual report:

http://media.corporate-ir.net/media_files/irol/99/99518/SBUX_AR.pdf

Homework Answers

Answer #1

a. Yes, The sales per dollar of assets were impacted by recession. Before recession, the sale per dollar of assets the ROA was 12.6% and this reduced to 5.6% post recession

b. Return on Assets shows the sales per dollar of assets

c. The operating profit margin reduced from 2007 to 2009

d. Debt increased from 2007 to 2009 due to recession and equity markets falling

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