Financial ratios

FINANCIAL RATIOS

This paper presents calculations of financial ratios of StarbucksCorporation in 2016. The data used to calculate various variables areobtained from the financial statements found in the 2016 annualreport of the company.

Workingcapital is the resources that a business organization uses to runningits daily operations. It can be used to evaluate the efficiency andshort-term financial performance of a firm (Sofat, 2016). Thisfinancial parameter is calculated through the subtraction of currentliabilities from current assets found on Starbucks Corporation’sbalance sheet.

= current assets – short-term liabilities

= $ (4760.5-4546.9) million

= $213.6million

Companiesusually use the current ratio to determine its liquidity andefficiency. It is calculated by dividing current assets by currentliabilities of Starbucks Corporation.

Current ratio forStarbucks =

=1.04

Grossprofit percentage is among the ratios used to measure theprofitability of a firm. It determines profitability by calculatingthe percentage of the profit using the total sales revenue (Sofat,2016). The first step involves obtaining the gross profit of thecompany by subtracting the cost of production from net sales. The netsales in then divided by the gross profit and then expressed as apercentage.

=60%

Accountsreceivable turnover ratio measures how quick Starbucks channelpayments its clients. The first step involves finding the averageaccounts receivable by dividing the sum of the previous year’s andcurrent accounts receivables by two. The following step is dividingthe net sales by the average accounts receivable.

=28.65

Sofat(2016) explains that debt ratio is used to express the relationshipbetween the debt and total assets of Starbucks Corporation. Bothshort-term and long-term debts of Starbucks Corporation are found onits balance sheet. The first step entails calculating the sum of thetwo types of debts to get total debts of the company. Total debt isthen divided by the total assets of the firm.

=3.978

Debtto Equity ratio determines the financial leverage since it providesinformation about the sources of funds, debts and shareholders’equity, an organization uses to finance its assets. It is calculatedby a simple division of total liabilities of Starbucks Corporationwith its shareholders’ equity indicated on the balance sheet.

=1.43

Earningsper share (EPS) represent the proportion of the net income of acompany that is allocated to the outstanding common shares. EPS iscalculated through the division of the net income of StarbucksCorporation with the number of outstanding common shares it has. Netincome is indicated in the consolidated statement of income while theshares are indicated on the balance sheet.

=1.9

Price-earningsratio is the representation of the relationship between the EPS andthe market price of the stock. It is calculated by dividing themarket price of Starbucks Corporation by its EPS.

=30.457

References

Sofat, R. (2016).&nbspStrategic financial management. Placeof publication not identified: Prentice-Hall Of India.

Starbucks Corporation, 2016 Annual Report, Retrieved fromhttp://investor.starbucks.com/financial-information/annual-reports/default.aspx,Accessed on 9 April 2017