starbucks vs caribou

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Starbucks Corporation vs. Caribou Coffee Company Analysis Rusty Shackleford ACCT 547 Dr. Steven Hunt July 26, 2010

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Page 1: Starbucks vs Caribou

Starbucks Corporation vs. Caribou Coffee

Company Analysis

Rusty Shackleford

ACCT 547

Dr. Steven Hunt

July 26, 2010

Page 2: Starbucks vs Caribou

Executive Summary

The following report details the background and financial position, in regards to

receiving credit, of Starbucks Corporation and Caribou Coffee. Starbucks is the largest roaster

and retailer of specialty coffee in the world while Caribou is the second largest premium

coffeehouse operator in the United States. Both companies offer their coffee product in licensed

retail stores and in other commercial segments including grocery stores. Each company has

branched out from just coffee by adding items like bottled drinks, teas, espressos and

cappuccinos and a line of baked goods to their menus. Each company faces similar risks

inherent to the coffee industry. These risks include fluctuating coffee bean prices, the U.S.

economy and various foreign economies. Additional risks to Caribou include the inability to

circumvent changes in interest rates or the price of supplies and charter provisions which may

prevent or delay changes in management.

Despite increasing current ratios, both companies are increasing liquidity risk by not

having a standard 2:1 ratio. Caribou looks to have more liquidity based on cash to current assets

and cash to current liability ratios but has seen a rise in days’ sales in receivables. Caribou also

converts inventory to cash quicker than Starbucks. However, Starbucks is able to pay back

obligations 3 days faster than Caribou. Though Caribou appears to be more liquid, there is a

large gap in working capital which needs to be noted. Based on cash flow ratio, Starbucks seems

less risky to lend credit to because of a higher ratio. The debt to equity ratio makes Starbucks

appear less likely to default on debt financing and Starbucks’ times interest earned ratio far

exceeds that of Caribou’s. Starbucks also fairs better in meeting obligations using only cash

from operations and has a greater return on net operating assets.

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Page 3: Starbucks vs Caribou

Analysis Overview

Company Descriptions

Formed in 1985, Starbucks is the largest roaster and retailer of specialty coffee in the

world. They purchase and roast high-quality whole bean coffees and sell them, along with fresh,

rich-brewed coffees, Italian-style espresso beverages, cold blended beverages, a variety of

complementary food items, a selection of premium teas, and beverage-related accessories and

equipment, primarily through company-operated retail stores. Starbucks also sells coffee and tea

products and licenses its trademark through other channels such as licensed retail stores.

Starbucks also produces and sells a variety of ready-to-drink beverages.

Founded in 1992, Caribou Coffee is the second largest premium coffeehouse operator in

the United States based on the number of coffeehouses operated. Their coffees are also available

within the commercial segment through grocery stores, mass merchandisers, club stores, office

coffee and foodservice providers, hotels, entertainment venues and e-commerce channels.

Business Segments

Starbucks operates in three business segments: United States, International, and Global

Consumer Products Group (CPG). Caribou also has 3 business segments but they are

significantly different from Starbucks. Their business segments are retail, commercial, and

franchise. Therefore we will not be comparing business segments.

Products

In addition to brewed coffees, espressos and cappuccinos, Starbucks also offers bottled

drinks, chocolate drinks, teas, and smoothies. Starbucks also have an extensive variety of bakery

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Page 4: Starbucks vs Caribou

items, fruit and snack plates, hot breakfast, salads, sandwiches, panini and wraps, ice cream and

yogurt parfaits. Similar to Starbucks, Caribou offers espressos, lattes, and cappuccinos.

Additionally, Caribou offers a variety of iced coffees, coolers, smoothies, hot chocolate and iced

teas. Caribou also offers bakery items including hand-crafted oatmeal, muffins, brownies,

breads, coffee cake, scones, cookies, bagels, and donuts as well as other local favorites.

Locations

Starbucks has 16,706 stores of which 8,850 are company owned and 7,856 licensed stores

located in over 50 countries. Caribou has 534 retail coffeehouses, including 121 franchised

locations. Caribou Coffee’s coffeehouses are located in 20 states, the District of Columbia and

international markets.

Employees

Starbucks employs approximately 142,000 people worldwide compared to Caribou with

5,917 employees of which only 1,577 are considered full-time. In the US, Starbucks employs

approximately 111,000 people.

Risk Factors

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Page 5: Starbucks vs Caribou

Both companies list many of the same risk factors which are inherent in the specialty

coffee market as well as many other industries, such as the inability to import coffee beans at a

reasonable price, economic conditions in the US as well as in the countries in which they do

business, or the loss of key personnel to name a few.

In addition to these shared risks, Caribou listed two additional risk factors which could

impact our decision to issue credit. The first is that Arcapita Inc. owns 58.9% of Caribou shares.

Arcapita Inc is wholly owned by Arcapita Bank and requires that Caribou Coffee follow the

Islamic Shari’ah law which, among other things, prohibits engaging in derivative hedging

transactions such as interest rate swaps or futures, forward options or other instruments designed

to hedge against changes in interest rate or the price of commodities.

The other item of concern is that Caribou Coffee’s articles of incorporation and bylaws

contain provisions that could prevent or delay changes in control or management even though

beneficial to shareholders. These provisions make it difficult for shareholders to elect directors

among other things, and may affect the price that future shareholders would be willing to pay for

common stock.

Credit Analysis

The credit analysis examines valuation measures relating to liquidity, solvency, and

capital structure for Starbucks and Caribou. Additionally, the return on net operating assets

(RNOA) is also calculated. The results of all these valuation measures can be found in the

appendices at the end of this report.

Credit Analysis

The current ratios for Starbucks (1.29) and Caribou (1.45) have both increased over the

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Page 6: Starbucks vs Caribou

last three years however both companies are increasing liquidity risk by not following the rule of

thumb 2:1. Both the cash to current assets and cash to current liabilities ratios are higher for

Caribou, indicating more liquidity. In addition, the days’ sales in receivables are identical with

Starbucks and Caribou at approximately 10 days. However, the number of days has increased

for Caribou while Starbucks has reduced the number of days. Also worth noting is days’ sales

in inventory. Caribou’s figures have been historically better, with 2009 reporting an average of

22.31 days versus Starbucks 29.96 days. The acid-test (quick) ratio is considered by the text to

be a more stringent test of liquidity. Yet again, Caribou is higher than Starbucks with 0.98 versus

0.59. Again, both companies are increasing liquidity risk by not maintaining a ratio of 2:1. The

conversion period for Caribou is shorter than Starbucks specifically 32 days versus 39 days.

Therefore, Caribou converts inventories to cash quicker than Starbucks. Additionally, it is

important to examine days’ purchases in accounts payable to understand how long it takes both

Starbucks and Caribou to pay obligations back. Starbucks pays back obligations within 12 days

versus Caribou which takes 15 days. This is important to keep in mind as a potential creditor to

know how quickly the companies can pay debt obligations. Caribou appears to be more liquid

however it is important to note that although both operate in the specialty coffee industry

Starbucks has far more assets and capital. For example, working capital in 2009 for Starbucks is

$455 million while Caribou is $14 million. It is important to note that difference. Also, Standard

and Poor’s gives Starbucks of ‘BBB’ credit rating currently while information on Caribou was

not applicable. Furthermore, as a creditor it is important to know the risk of default or the

likelihood of a borrower going into bankruptcy. Both Starbucks and Caribou’s Altman Z-Score

is over the threshold of 2.90. Starbucks is higher than Caribou with 6.79 versus 5.97. Therefore,

examining the liquidity of Starbucks and Caribou, it seems Caribou has better liquidity than

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Page 7: Starbucks vs Caribou

Starbucks. Therefore, further examination of solvency and RNOA should help narrow down the

decision for which company is the best choice to lend.

In determining which company is better suited to receive credit, a few ratios can be

looked at which shed light on each company’s ability to pay off debt. The cash flow ratio helps

measure a company’s liquidity in the short term. Looking at cash flows instead of income gives

a better indication of liquidity since cash is what usually pays off bills. Based on current year

2009 figures and figures from previous years, Starbucks has a higher cash flow ratio which

means they have raised more money to meet their liabilities. Both companies however have cash

flow ratios under 1 which means they both need to raise cash to meet liabilities. Based on cash

flow ratios, it would be less risky to become a creditor to Starbucks as opposed to Caribou.

The total debt to total capital ratio helps measure a company’s financial leverage and

can tell investors whether a company is more prone to use debt financing vs. equity financing. A

higher debt to capital ratio than the industry may show weak financial strength which increases

default risk. Starbucks and Caribous have similar debt to capital ratios for the current year and

past years. Starbucks has a declining debt to equity ratio which may indicate a declining

reliance on debt financing. This may also indicate that Starbucks is less likely to default on debt

in the future which makes Starbucks marginally more attractive in terms of lending credit. Both

Starbucks and Caribou have a declining long term debt to equity ratio meaning the gap

between what each company owes long term and shareholder’s equity is closing. A declining

long term debt to equity ratio may signal that management can take on more debt to put to work

in the company. Caribou has a better long term debt to equity ratio than Starbucks.

The times interest earned ratio is used to measure a company’s ability to meet its debt

obligations by dividing earnings before taxes and interest by interest expense. The ratio

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Page 8: Starbucks vs Caribou

indicates how many times a company can cover its interest charges on a pretax basis. Failure to

meet debt obligations can force a company into bankruptcy. Though Caribou has increased its

times interest earned ratio over the past 3 years, Starbucks’ worst ratio in the past three years is

better than Caribous’ best ratio in the past three years. Based on this ratio, Starbucks is more

likely to be able to meet its debt obligations by earning enough to cover its interest expenses.

Similarly, the cash flow to fixed charges ratio measures a company’s ability to meet its fixed

obligations using only cash from operations. Like times interest earned, Starbucks has a higher

cash flow to fixed charges ratio in the past year and better performance in previous years.

When deciding to issue credit, looking at a company’s operating performance may be

useful to find out if the company can effectively bring the product or service to market and

service customer needs. If a company can effectively do this then their ability to succeed and

ultimately pay off liabilities is increased. The return on net operating assets, or RNOA, isolates

the portion of ROE attributable to operations of a business. The RNOA for Starbucks in 2009 is

10.89%, compared to Caribou’s 7.18%. Starbucks receives a better return on the operating assets

of its business than does Caribou. The choice between the two companies would go to Starbucks

since it is better positioned to pay off liabilities.

Conclusion

Based on the financial position of each company, it would be less risky to lend credit to

Starbucks. Looking at certain figures Caribou is more liquid than Starbucks; however the

concern is the ability of the company to pay back creditors. Starbucks pays back obligations 3

days quicker than Caribou and looking at Altman Z-scores, Starbucks is less likely to go in

bankruptcy. Starbucks is able to raise more money to meet its liabilities than Caribou and their

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Page 9: Starbucks vs Caribou

debt to equity ratio indicates a lessened likelihood of defaulting on debt in the future. The times

interest earned ratio of Starbucks far exceeds that of Caribou and indicates Starbucks can meet

its interest obligations and Starbucks is able to cover fixed charges using only cash from

operations. Starbucks also has a higher RNOA which is important since operation is considered

the most important function of a company. Additionally, Caribou’s financial figures are not

applicable for official credit ratings which may indicate the size of the company is too small to

generate an accurate forecast of credit risk. Starbucks is a more established, larger company

which better performs in operations which increases their chance of success and ultimately their

ability to pay off creditors.

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Page 10: Starbucks vs Caribou

References

BIBLIOGRAPHY ADVFN. (2010). Altman Z-Score: Caribou Coffee Company. Retrieved July 23, 2010, from

ADVFN Website:

http://www.advfn.com/p.php?pid=financials&symbol=NASDAQ%3ACBOU

ADVFN. (2010). Altman Z-Score: Starbucks Corporation. Retrieved July 23, 2010, from

ADVFN Website:

http://www.advfn.com/p.php?pid=financials&symbol=NASDAQ%3ASBUX

Caribou Coffee Company. (2010, January 3). Caribou Coffee Company 10K. Retrieved July 23,

2010, from United States Securities Exchange Commission:

http://www.sec.gov/Archives/edgar/data/1332602/000095012310028838/c57090e10vk.htm

Caribou Coffee Company. (2010). Our Company: Caribou Coffee Company Website. Retrieved

July 23, 2010, from Caribou Coffee Company Website:

http://www.cariboucoffee.com/page/1/our-company.jsp

Standard & Poor's. (2010). Company Profile: Caribou Coffee Company. Retrieved July 23, 2010,

from Standard & Poor's Website:

http://www.netadvantage.standardandpoors.com.ezproxy.wiu.edu/NASApp/NetAdvantag

e/simpleSearchRun.do?ControlName=HomePageSearch

Standard & Poor's. (2010). Company Profile: Starbucks Corporation. Retrieved July 23, 2010,

from Standard & Poor's Website:

http://www.netadvantage.standardandpoors.com.ezproxy.wiu.edu/NASApp/NetAdvantag

e/simpleSearchRun.do?ControlName=HomePageSearch

Starbucks Corporation. (2010). About Us: Starbucks Corporation. Retrieved July 23, 2010, from

Starbucks Corporation Website: http://www.starbucks.com/about-us/company-information

Starbucks Corporation. (2009, September 27). Starbucks Corporation 10K. Retrieved July 23,

2010, from United States Securities and Exchange Commission:

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http://www.sec.gov/Archives/edgar/data/829224/000095012309064772/v53316e10vk.htm

Subramanyam, K. R., & Wild, J. J. (2009). Financial Statement Analysis (10th Edition ed.). New

York: McGraw-Hill Irwin.

Value Line Investment Survey. (2010). Company Profile: Caribou Coffee Company. Retrieved

July 23, 2010, from Value Line Investment Survey Website:

http://www3.valueline.com.ezproxy.wiu.edu/vlquotes/quote.aspx

Value Line Investment Survey. (2010). Company Profile: Starbucks Corporation. Retrieved July

23, 2010, from Value Line Investment Survey Website:

http://www3.valueline.com.ezproxy.wiu.edu/secure/vlispdf/stk1700/profile.aspx?ticker=SBUX

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Appendices

STARBUCKS INCOME STATEMENT ($ MILLIONS)2009 2008 2007

Net Sales $ 9,775 100%

$ 10,383 100% $ 9,411 100%

Cost of Goods Sold 7,990 82% 8,648 83% 7,509 80%Gross Profit 1,784 18% 1,735 17% 1,902 20%

Selling, General, & Administrative Exp. 453 5% 456 4% 489 5%Income from Operations 1,331 14% 1,279 12% 1,413 15%

Depreciation,Depletion,&Amortization 535 5% 549 5% 467 5%Operating Profit 797 8% 730 7% 946 10%

Interest Expense 42 0% 61 1% 42 0%Non-Operating Income/Expense 161 2% 130 1% 153 2%Special Items (356) -4% (339) -3% - 0%

Pretax Income 559 6% 460 4% 1,056 11%Total Income Taxes 168 2% 144 1% 384 4%Net Income $ 391 4% $ 316 3% $ 673 7%

CARIBOU INCOME STATEMENT ($ MILLIONS)2009 2008 2007

Net Sales $ 263 100% $ 254 100% $ 257 100%Cost of Goods Sold 214 82% 209 82% 215 84%

Gross Profit 48 18% 45 18% 42 16%Selling, General, & Administrative Exp. 26 10% 33 13% 35 14%

Income from Operations 22 8% 12 5% 7 3%Depreciation,Depletion,&Amortization 16 6% 27 11% 34 13%

Operating Profit 6 2% (15) -6% (28) -11%Interest Expense 1 0% 1 0% 1 0%Non-Operating Income/Expense 0 0% 0 0% 0 0%Special Items - 0% - 0% (3) -1%

Pretax Income 5 2% (16) -6% (31) -12%Total Income Taxes (0

)0% 0 0% (0) 0%

Items & Discontinued Operations 5 2% (16) -6% (31) -12%Net Income $ 5 2% $ (16) -6% $ (31) -12%

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STARBUCKS BALANCE SHEET ($ MILLIONS)2009 2008 2007

AssetsCash & Short-Term Investments $ 666 12% $ 322 6% $ 439 8%Net Receivables 271 5% 330 6% 288 5%Inventories 665 12% 693 12% 692 13%Other Current Assets 434 8% 403 7% 278 5%

Total Current Assets 2,036 37% 1,748 31% 1,696 32%Net Plant, Property & Equipment 2,536 45% 2,956 52% 2,890 54% Investments at Equity 313 6% 268 5% 234 4% Other Investments 110 2% 106 2% 45 1% Intangibles 327 6% 333 6% 258 5%Other Assets 254 5% 261 5% 219 4%

Total Assets $ 5,577 100% $ 5,673 100% $ 5,344 100%

LiabilitiesLong Term Debt Due In One Year $ 0 0% $ 1 0% $ 2 0%Notes Payable - 0% 713 13% 710 13%Accounts Payable 267 5% 325 6% 391 7%Taxes Payable 128 2% 76 1% 93 2%Accrued Expenses 643 12% 554 10% 526 10%Other Current Liabilities 543 10% 521 9% 434 8%

Total Current Liabilities 1,581 28% 2,190 39% 2,156 40%Long Term Debt 549 10% 550 10% 552 10%Deferred Taxes - 0% - 0% - 0%Investment Tax Credit - 0% - 0% - 0%Minority Interest 11 0% 18 0% 17 0%Other Liabilities 390 7% 424 7% 335 6%

Total Liabilities $ 2,531 45% $ 3,182 56% $ 3,060 57%EquityPreferred Stock - Redeemable $ - 0% $ - 0% $ - 0%Preferred Stock - Nonredeemable - 0% - 0% - 0%Total Preferred Stock - 0% - 0% - 0%Common Stock 1 0% 1 0% 1 0%Capital Surplus 186 3% 39 1% 39 0%Retained Earnings 2,859 51% 2,451 43% 2,244 42%Less: Treasury Stock - 0% - 0% - 0%Common Equity 3,046 55% 2,491 44% 2,284 43%

Total Equity $ 3,046 55% $ 2,491 44% $ 2,284 43%Total Liabilities & Equity $ 5,577 100% $ 5,673 100% $ 5,344 100%

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CARIBOU BALANCE SHEET ($ MILLIONS)2009 2008 2007

AssetsCash & Short-Term Investments $ 24 25% $ 11 12% $ 10 9%Net Receivables 7 8% 6 7% 5 4%Inventories 13 14% 10 11% 10 9%Other Current Assets 2 2% 1 1% 2 2%

Total Current Assets 46 49% 28 32% 27 24%Net Plant, Property & Equipment 47 50% 60 67% 84 75% Investments at Equity - 0% - 0% - 0% Intangibles - 0% - 0% - 0% Deferred Charges 0 0% 0 0% 1 0%Other Assets 1 1% 0 1% 1 1%

Total Assets $ 94 100% $ 90 100% $ 112 100%

LiabilitiesLong Term Debt Due In One Year $ - 0% $ - 0% $ - 0%Notes Payable - 0% - 0% - 0%Accounts Payable 9 10% 8 9% 10 9%Taxes Payable - 0% - 0% - 0%Accrued Expenses 14 15% 15 16% 17 15%Other Current Liabilities 9 9% 9 11% 10 9%

Total Current Liabilities 32 34% 32 36% 37 33%Long Term Debt - 0% - 0% - 0%Deferred Taxes - 0% - 0% - 0%Investment Tax Credit - 0% - 0% - 0%Minority Interest 0 0% 0 0% 0 0%Other Liabilities 11 12% 13 15% 16 14%

Total Liabilities $ 43 46% $ 46 51% $ 53 47%EquityPreferred Stock - Redeemable $ - 0% $ - 0% $ - 0%Preferred Stock - Nonredeemable - 0% - 0% - 0%Total Preferred Stock - 0% - 0% - 0%Common Stock 0 0% 0 0% 0 0%Capital Surplus 127 135% 125 140% 124 111%Retained Earnings (76) -81% (81) -91% (65) -58%Less: Treasury Stock - 0% - 0% - 0%Common Equity 51 54% 44 49% 59 53%

Total Equity $ 51 54% $ 44 49% $ 59 53%Total Liabilities & Equity $ 94 100% $ 90 100% $ 112 100%

Page 14: Starbucks vs Caribou

STARBUCKS STATEMENT OF CASH FLOWS ($ MILLIONS)2009 2008 2007

Indirect Operating ActivitiesIncome Before Extraordinary Items $ 391 $ 316 $ 673Depreciation and Amortization 563 605 491Extraordinary Items and Disc. Operations - - -Deferred Taxes (70) (117) (37)Equity in Net Loss (Earnings) (25) (9) 0Funds from Operations - Other 299 389 45Inventory - Decrease (Increase) 29 (1) (49)Accounts Payable and Accrued Liabs-Inc (Dec) (53) (64) 75Income Taxes - Accrued - Inc (Dec) 57 7 86Other Assets and Liabilities - Net Change 198 133 47

Operating Activities - Net Cash Flow $ 1,389 $ 1,259 $ 1,331Investing ActivitiesInvestments - Increase $ 129 $ - $ -Sale of Investments 116 96 226Capital Expenditures 446 985 1,080Sale of Property, Plant, and Equipment 43 - -Acquisitions - 74 53Investing Activities - Other (5) (124) (294)

Investing Activities - Net Cash Flow $ (421) $(1,087) $(1,202)Financing ActivitiesSale of Common and Preferred Stock $ 57 $ 112 $ 177Purchase of Common and Preferred Stock - 311 997Cash Dividends - - -Long-Term Debt - Issuance - - 549Long-Term Debt - Reduction 1 1 1Current Debt - Changes (713) 2 10Financing Activities - Other (2) (2) (4)

Financing Activities - Net Cash Flow $ (642) $ (185) $ (172)Exchange Rate Effect 4 1 11

Cash and Equivalents - Change $ 330 $ (12) $ (31)Direct Operating ActivitiesInterest Paid - Net $ 40 $ 53 $ 35Income Taxes Paid $ 162 $ 260 $ 342

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CARIBOU STATEMENT OF CASH FLOWS ($ MILLIONS)2009 2008 2007

Indirect Operating ActivitiesIncome Before Extraordinary Items $ 5 $ (16) $ (31)Depreciation and Amortization 16 28 35Extraordinary Items and Disc. Operations - - -Deferred Taxes - - -Equity in Net Loss (Earnings) - - -Funds from Operations - Other 2 2 5Receivables - Decrease (Increase) (1) (2) (1)Inventory - Decrease (Increase) (3) 0 0Accounts Payable and Accrued Liabs-Inc (Dec) - (5) 4Income Taxes - Accrued - Inc (Dec) - - -Other Assets and Liabilities - Net Change (4) 0 0

Operating Activities - Net Cash Flow $ 16 $ 7 $ 12Investing ActivitiesInvestments - Increase - - -Sale of Investments - - -Short-Term Investments - Change - - -Capital Expenditures 3 6 17Sale of Property, Plant, and Equipment 0 0 -Acquisitions - - -Investing Activities - Other (0) 0 -

Investing Activities - Net Cash Flow $ (3) $ (6) $ (17)Financing ActivitiesSale of Common and Preferred Stock $ 1 $ - $ 1Purchase of Common and Preferred Stock - - -Cash Dividends - - -Long-Term Debt - Issuance - - -Long-Term Debt - Reduction - - -Current Debt - Changes - - -Financing Activities - Other (0) (0) (0)

Financing Activities - Net Cash Flow $ 0 $ (0) $ 0Exchange Rate Effect $ - $ - $ -

Cash and Equivalents - Change $ 13 $ 1 $ (5)Direct Operating ActivitiesInterest Paid - Net $ 0 $ 0 $ 0Income Taxes Paid $ 0 $ (0) $ 0

Page 15: Starbucks vs Caribou

STARBUCKS: CREDIT ANALYSIS ($ MILLIONS)2009 2008 2007

Current Ratio 1.29 0.80 0.79Acid Test Ratio 0.59 0.30 0.34A/R Turnover 32.55 33.63 36.77

Inventory Turnover 11.77 12.49 11.31Days' Sales in Receivables (in days) 9.98 11.42 11.01Days' Sales in Inventory (in days) 29.96 28.84 33.16

A/P Turnover 26.99 24.17 20.52Days' Purchases in Account Payable (in days) 12.03 13.52 18.74

Conversion Period (in days) 39.94 40.26 44.17Cash to Current Assets Ratio 0.33 0.18 0.26

Cash to Current Liabilities Ratio 0.42 0.15 0.20Working Capital $ 455 $(442) $(459)Cash Flow Ratio 0.88 0.57 0.62

Total Debt to Total Capital Ratio 0.45 0.56 0.57Long Term Debt to Equity 0.31 0.4 0.4Short Term Debt to Equity 0.52 0.88 0.94

Earnings to Fixed Charges Ratio 14.31 8.54 26.14Times Interest Earned 12.3 6.54 24.14

Cash Flow to Fixed Charges Ratio 27.83 16.42 39.92CARIBOU: CREDIT ANALYSIS ($ MILLIONS)

2009 2008 2007Current Ratio 1.45 0.88 0.72

Acid Test Ratio 0.98 0.54 0.40A/R Turnover 38.51 45.76 62.57

Inventory Turnover 18.24 20.43 20.91Days' Sales in Receivables (in days) 10.08 8.91 6.74Days' Sales in Inventory (in days) 22.31 17.61 17.16

A/P Turnover 24.82 23.37 22.18Days' Purchases in Account Payable (in days) 15.19 14.18 16.19

Conversion Period (in days) 32.38 26.52 23.90Cash to Current Assets Ratio 0.52 0.39 0.37

Cash to Current Liabilities Ratio 0.75 0.34 0.27Working Capital $ 14 $ (4) $(10)Cash Flow Ratio 0.5 0.22 0.32

Total Debt to Total Capital Ratio 0.46 0.51 0.47Long Term Debt to Equity 0.22 0.3 0.27

Short Term Debt to Equity 0.63 0.73 0.63Earnings to Fixed Charges Ratio 6 -15 -30

Times Interest Earned 4 -15 -30Cash Flow to Fixed Charges Ratio 18 10 3

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Starbucks RNOA & ROCE

RNOA = NOPAT / Average Net Operating Assets

NOPAT = operating profit x (1-effective tax rate) Effective tax rate = tax expense / pretax profit

2009 NOPAT 557.9 2009 168/559 = .30

2008 NOPAT 547.5 2008 144/460 = .25

Average Net Operating Assets = Net Operating Assets - Net Operating Liabilities

2009 2008 2007

Total Assets 5577 5673 5344

Other Investment 110 106 45

Accounts Payable 267 325 391

Taxes Payable 128 76 93

Deferred Taxes 0 0 0

Net Operating Assets 5072 5166 4815

2009 Average NOA 5119

2008 Average NOA 4990.5

RNOA = NOPAT / Average Net Operating Assets

2009 RNOA 0.10899

2008 RNOA 0.10971

ROCE = (Net Income - Preferred Dividends) / Average Common Shareholder's Equity

2009 0.1433 (391-0) / ((3046+2491) / 2)

2008 0.1323 (316-0) / ((2491+2284) / 2)

Disaggregating Return on Net Operating Assets

NOPAT / Avg. NOA = (NOPAT / Sales) x (Sales / Avg. NOA)

2009 NOPAT / Avg. NOA 557.9 / 5119 0.10899

NOPAT / Sales 557.9 / 9775 0.057

Sales / Avg. NOA 9775 / 5519 1.77

.057 x 1.77 = 0.10089

2008 NOPAT / Avg. NOA 547.5 / 4990.5 0.10971

NOPAT / Sales 547.5 / 10383 0.0527

Sales / Avg. NOA 10383 / 4990.5 2.08

.0527 x 2.08 = 0.1096

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Caribou RNOA & ROCE

RNOA = NOPAT / Average Net Operating Assets

NOPAT = operating profit x (1-effective tax rate) Effective tax rate = tax expense / pretax profit

2009 NOPAT 6 48 x (1-0) 2009 0/5 = 0

2008 NOPAT -15 45 x (1-0) 2008 0/-16 =0

Average Net Operating Assets = Net Operating Assets - Net Operating Liabilities

2009 2008 2007

Total Assets 94 90 112

Other Investment 0 0 0

Accounts Payable 9 8 10

Taxes Payable 0 0 0

Deferred Taxes 0 0 0

Net Operating Assets 85 82 102

2009 Average NOA 83.5

2008 Average NOA 92

RNOA = NOPAT / Average Net Operating Assets

2009 RNOA 0.07186

2008 RNOA -0.163

ROCE = (Net Income - Preferred Dividends) / Average Common Shareholder's Equity

2009 0.1052 (5-0) / ((51+44) / 2)

2008 -0.3106 (-16-0) / ((44+59) / 2)

Disaggregating Return on Net Operating Assets

NOPAT / Avg. NOA = (NOPAT / Sales) x (Sales / Avg. NOA)

2009 NOPAT / Avg. NOA 6 / 83.5 0.07186

NOPAT / Sales 6 / 263 0.0228

Sales / Avg. NOA 263 / 83.5 3.149

.0228 x 3.149 = 0.07179

2008 NOPAT / Avg. NOA (15) / 92 -0.163

NOPAT / Sales (15) / 254 -0.059

Sales / Avg. NOA 254 / 92 2.76

(.059) x 2.76 = 0.1628

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