Dunkin donuts balance sheet

Finance Report – SBUX v. DNKN Group One

Executive Summary:

The Starbucks Corporation (SBUX) is a retailer of specialty coffee that is presently operating in 62 countries across the globe. Its stores sell premium coffee, tea, other beverages, and a variety of food products (Orr, 2013).

Dunkin’ Brands Group Inc. (DNKN) is a quick service restaurant that serves hot and cold coffee, various baked goods, other food items, as well as, ice cream. The company franchises restaurants under its Dunkin’ Donuts and Baskin-Robbins brands. The company has over 17,400 points of distribution in 55 countries (Zacks, 2015).

The focus of this paper will be to present background information for Starbucks and Dunkin’ Brands. This background information will consist of: conducting a financial analysis of each company, comparing the results, and providing a recommendation on which stock to purchase. The research and analysis will look at a three year history and examine each company’s balance sheets, income statements, cash flow statements, and certain financial ratios.

Known as the “Coffee Giant,” Starbucks has shown impressive growth and the next few pages of this report will clearly covey how Starbucks, which owns a little more than half of its establishments, continues to remain on top.

Introduction-Starbucks Corporation

The Starbucks Corporation started out as a wholesaler of premium coffee to local restaurants and supermarkets in Seattle, Washington. The company went through some changes before it became the brand that it is today. Everyone across the globe is familiar with the Starbucks’ logo. Starbucks was established by Gordon Bowker, Jerry Baldwin, and Zev Siegl in 1971. They all contributed $1,350 a piece and borrowed $5,000. In 1982, the team hired Howard Schultz as their retail and marketing manager.

Starbucks acquired Peet’s Coffee in 1983 and two years later Mr. Howard left the company to open up his own coffee bar called Il Giornale. After a trip to Italy, Mr. Howard believed it would be more beneficial to sell directly to the consumer via a coffee bar, instead of selling the product within the wholesale market. Mr. Howard’s idea was very successful, and in 1987 he purchased all of Starbucks units for $4M; there were six in total. He then merged them into Il Giornale, renamed his company Starbucks Corporation, and starts expanding nationally.

In 1992, the Starbucks Corporation (SBUX) went public. Currently, the company has more than 10,700 coffee shops and kiosks in the United States. Internationally, Starbucks is currently operating in 62 other countries consisting of 10,600 coffee shops and kiosks; Japan, Canada, the United Kingdom, China, Australia, and Germany, just to name a few. At the turn of the century, Starbucks Corporation’s net earnings increased more than fivefold, from $94.6M to $494.5M. The company saw revenue spikes from $2.17B to $5.39B between 2000 and 2005 (referenceforbusiness.com). In 2005, the company celebrated its 10,000th store opening.

The Starbucks Corporation is considered a “Specialty Eatery,” which is a type of Quick Service Restaurant. QSRs include companies such as: McDonalds, Burger King, Dunkin Donuts, and etc. Dunkin’ Brands Group, Inc. is one of Starbucks main competitors. These companies operate under the conditions of monopolistic competition. A monopolistic competition is a market structure with many companies selling differentiated products (Sexton, 1999).

At the surface, Starbucks and Dunkin’ sell some of the same products. However, each company has an element of monopoly power, because of its unique atmosphere, location, building structure, quality of products and services, and personnel training. When broken down into those terms, the two companies are different, yet they are the same. It is the differentiating qualities that make them a monopoly, but it is the fact that they are targeting the same types of consumers that makes them competitors.

The following tables display a portion of SBUX’s financial statements used to compare with industry standards and DNKN.

Financial Statements and Analysis-SBUX

Income Statement

28 September 2014

29 September 2013

30 September 2012

Revenue

16.4B

14.9B

13.3B

Gross Profit

9.6M

8.5M

7.5M

Operations Income

3.1M

(325M)

1.8M

Net Income

2.1B

8.3M

1.4B

Earnings Per Share

Diluted

1.36

0.00

0.90

EBITDA

4M

454M

2.7M

(finance.yahoo.com) (financials.morningstar.com)

Balance Sheet

28 September 2014

29 September 2013

30 September 2012

Total Current Assets

4.2B

5.5B

4.2B

Total Assets

10.9B

11.5B

8.2B

Total Current Liabilities

3B

5.4B

2.2B

Total Liabilities

5.5B

7B

3.1B

Retained Earnings

5.2B

4.1B

5B

Total S. E.

4.1B

3.3B

5.1B

(finance.yahoo.com)

Cash Flow Statement

Cash Flow From:

28 September 2014

29 September 2013

30 September 2012

Operating Activities

608M

2.9B

1.8B

Investing Activities

818M

1.4B

974M

Capital Expenditures

(1.2B)

(1.2B)

(856M)

Financing Activities

623M

108M

746M

Free Cash Flow

(553M)

1.8M

894M

(finance.yahoo.com)

Financial Statement Analysis

The tables above show the income statement, balance sheet, and cash flows for the Starbucks Corporation over the past three years. The company had an estimated increase of $3.2B in revenues from 2012 to 2014. Sales growth was about 12% from 2012 to 2013, and 11% from 2013-2014. SBUX reported the following profit margins: Gross – 58.3% (2014), 57.1% (2013), and 56.3% (2012). The company’s operating profit margins were reported as 18.7% (2014), -2.2% (2013), and 15% (2012). The net profit margin for SBUX rose from 11.2% to 12.4%; 2013 and 2014, respectively and the industry average is 7.1%. Managers use this ratio to understand how profitable the company is. The ratio represents the amount of each dollar of sales that the company has left after all its expenses have been paid.

SBUX-Financial Ratios

Financial Ratios

Ratios

2014

2013

2012

Current

1.4

1.01

2

Quick

1.07

0.63

1.27

ROE

42.41

0.17

29.15

Financial Ratio Analysis