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Published by:
Babson College (2013)
Version:
July 2013
Length:
18 pages
Data source:
Published sources
Abstract:
Part of the Babson Classic Collection. This note introduces calculation and interpretation of basic financial analysis, including common size income statements and financial ratios. It emphasises linkages between financial results and operating strategy. It uses financial results for Starbucks Corporation for fiscal 2010 through 2012 to provide context for financial analysis interpretation. Starbucks’ global presence and widely familiar business model make it a particularly helpful vehicle for illustrating interpretation of financial analysis. In addition to profitability ratios, asset management ratios, and financial leverage ratios, DuPont analysis of return on equity (ROE) is introduced to illustrate how profitability, asset utilisation, and financial leverage come together to measure ability to generate return to shareholders. This note does not draw definitive conclusions about whether Starbucks is effectively managed, but it illustrates how Starbucks’ operating strategy is reflected in its financial results. It demonstrates that financial results tell an intuitive story about a firm’s business model and operating strategy. This note assumes a working knowledge of income statements and balance sheets. Its intended audience is non-financial managers in an executive program wishing to understand how their operating decisions affect corporate-level financial performance. It also is useful for MBA students in a core finance or accounting course.
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