Financial Analysis of Starbucks: Cash Cycle and DuPont Analysis Report

This report provides a financial analysis of Starbucks, focusing on its cash conversion cycle and DuPont analysis. The analysis examines Starbucks' financial performance by calculating key metrics such as the days sales of inventory (DSI), days sales outstanding (DSO), and days payable outstanding (DPO) to determine the cash cycle. The report also includes a DuPont analysis, which breaks down the return on equity (ROE) into its components: net profit margin, total asset turnover, and equity multiplier. The analysis utilizes financial data from Starbucks' financial statements to assess the company's efficiency in managing its working capital and its ability to generate income from its equity. The report concludes that Starbucks has improved its efficiency in receiving cash from customers, and its management has increased its ability to generate earnings from its equity.

Running Head: CASH CYCLE COMPARISON
CASH CYCLE COMPARISON
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Background of Starbucks.......................................................................................................2
Cash Conversion Cycle..........................................................................................................2
Dupont Analysis.....................................................................................................................3
Conclusion..................................................................................................................................3
Reference....................................................................................................................................4

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Introduction
The financial analysis is consists of using financial data for assessing performance of
company and making recommendations about the way it can be improved for going forward.
It refers to assessment of viability, profitability and stability of project, sub-business and
businesses (Muscettola, 2014). Hence, this report aims to analyze cash cycle and Dupont
analysis of Starbucks.
Discussion
Background of Starbucks
Starbucks Corporation is the coffee company as well as chain of coffeehouse at
America. The foundation of company was in year 1971 in Washington. Starbucks operates
over and above 30,000 locations worldwide. The industry in which Starbucks is operating is
coffee industry (S22.q4cdn.com. 2019).
Cash Conversion Cycle
The cash conversion cycle is calculation of cash flow, which measures time taken by
organization for converting its investment into the inventory and inputs of other resources
into cash. The calculation of cash conversion cycle helps in measuring how long the cash is
being tied up in the inventory before it is being sold and cash is being collected from the
customers. The days sales of inventory of company has reduced from 2017-2018, which
means that the time taken by company for selling its inventory has reduced. Further, the days
sales outstanding of company has decreased from 2017-2018, which means that time taken by
company for collecting cash from the sales has decreased (Yazdanfar & Öhman, 2014).
Lastly, the days payable outstanding of company has increased from 2017-2018, which
means that the time taken by firm for paying to its vendors for goods and inventory purchased
by company. Hence, the cash conversion cycle of company from 2017-2018 has been

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reduced from 38.19 to 25.94 days. This means that days taken by company for receiving cash
from the customer from initial outlay of cash for inventory has reduced, which is good. This
reflects that company is operating efficiently (Muscettola, 2014).
Dupont Analysis
The analysis of Dupont is framework to analyze fundamental performance. It was
promoted by the Dupont Corporation. Its analysis is most important technique used for
decomposing various drivers of the return on equity. It examines ROE by analyzing net profit
margin, total asset turnover as well as equity multiplier. It is calculated by expanding the
formula of return on equity. This analysis calculates by multiplying the net profit margin by
asset turnover and lastly by equity multiplier. The calculation of Dupont analysis has
analyzed that return on equity has been increased from 0.53 to 4.84. This indicates that ability
of management for generating income from its equity has increased from 2017-2018, which
is a good sign (Rakićević et al. 2016).
Conclusion
Therefore, this report concludes that Starbucks efficiency has been increased because
the time taken by company for receiving cash from the customers has been reduced. It is a
good sign because company’s cash will be increased, which will be helpful in maintaining
good working capital. Further, Dupont analysis shows that the ability of Starbuck’s
management to generate earning from its equity has been increased.

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Reference
Muscettola, M. (2014). Cash conversion cycle and firm's profitability: An empirical analysis
on a Sample of 4,226 Manufacturing SMEs of Italy. International Journal of business
and management, 9(5), 25.
Rakićević, A., Milošević, P., Petrović, B., & Radojević, D. G. (2016). DuPont financial ratio
analysis using logical aggregation. In Soft computing applications (pp. 727-739).
Springer, Cham.
S22.q4cdn.com. (2019). Retrieved 10 December 2019, from
https://s22.q4cdn.com/869488222/files/doc_financials/annual/2018/2018-Annual-
Report.pdf
Yazdanfar, D., & Öhman, P. (2014). The impact of cash conversion cycle on firm
profitability: An empirical study based on Swedish data. International Journal of
Managerial Finance, 10(4), 442-452.