Starbuck's Essay Example | Topics and Well Written Essays - 500 words

Starbuck's - Essay Example The tables below show the ratio analysis for the fiscal years 2006 and 2007. The current ratio shows a company’s abilities to pay for its current obligations. The formula used to calculate the current ratio is current assets divided by current liabilities. The current ratio of Starbucks for both 2006 and 2007 was 0.79. In theory the desirable current ratio is to have a 1.0 current ratio or above. The metric result shows the company is able to pay for its current liabilities. The fact that the current ratio stayed at the same level is good sign, bad would be if the current ratio of the company decreased. Starbuck’s debt to equity ratio in 2006 was 0.99 implying that the company had as much debt as equity. In 2007 the company’s ratio rose 35% meaning Starbucks long term debt increased. At first glance it is never a good sign to look at year to year financial statement and to see more debt in the books. More debt sometimes means trouble, but necessarily. A higher amount of debt could mean a company borrowed money in order to finance some investments that will increase its profitability. To learn more about what Starbucks has done with its new money we have to analyze the firm’s profitability’s ratios. Return on equity is a profitability ratio. In 2006 Starbucks return on equity was 25.32%, by 2007 the firm had risen this ratio to 29.44%. The total increase in return on equity at Starbucks was 4.12% which represents a percentage increase of 16.27% in comparison with the previous year. The increase in return on equity at Starbucks is a good indicator. It prov es so far that the company has invested its added debt total smartly and that the company is more profitable. The financial ratio analyzes performed on Starbucks shows the company heading in a good direction. The firm added a lot of long term debt but the money apparently spend wisely in capital projects that raised the level of income of the company. The company’s ability to pay its