Task: Ratios, Analysis of solvency, Industry or competitor comparisons for Starbucks corporation.
Please answer the following using Starbucks Corporation as 2019 as the current year
Ratio analysis is a way to compare current performance and financial position to performance and position of (1) previous years, and (2) other corporations. – Calculate the following ratios for your corporation. You should show all of your calculations. In other words, indicate the components of the numerator and the denominator for each ratio.
ANALYSIS OF PROFITABILITY
Ratios of profitability indicate the degree of success of the corporation’s operations during the year. Profitability ratios show the amount of resources required to generate profits and the avail ability of profits to stockholders. These ratios are often used as a means for stockholders to evaluate the performance of corporate management.
- Profit Margin
The profit margin on revenue shows the relation of profits to revenue. The percentage is computed by dividing income from continuing operations by net revenue for the year. Income from continuing operations is net income without the effects of any discontinued operations, extraordinary items, or cumulative effects of accounting changes.
2. Return on Assets
The return on assets (ROA) ratio indicates how well the assets of the corporation are utilized to achieve a · profit. The ratio demonstrates potential earning similar to the way a savings account interest rate indicates how much you can earn on money invested in savings. The percentage is computed by dividing income from continuing operations by average total assets held over the year. Average assets are usually computed by adding current year total assets to previous year total assets and dividing by two.
3. Return on Stockholders’ Equity
Return on stockholders’ equity is similar to return on assets except it removes the effect of funds the corporation has borrowed. It is calculated by dividing income from continuing operations by the average stockholders’ equity through the year.
4. Earnings Per Share
The earnings per share ratio (EPS) represents the amount of earnings attributable to each share of stock in the corporation. The ratio is considered so important that GAAP requires EPS disclosure on the face of the income statement. In its simplest form, EPS is calculated by dividing net income, less preferred stock dividends, by the average number of common shares outstanding. If the corporation has income or losses from discontinued operations, extraordinary items, or cumulative effects of accounting changes, the effects of these items on earning per share must be disclosed separately.