Case Study
Starbucks Corporation is an American coffee company and coffeehouse chain. Starbucks was founded in Seattle, Washington in 1971. As of November 2016, it operates in 23,768 locations worldwide, including 13,107 (+170) in the United States, 2,204 (+86) in China, 1,418 (-12) in Canada, 1,160 (+2) in Japan, and 872 in South Korea (bumping United Kingdom from the 5th place) (Differences reflect growth since January 8, 2016).
Starbucks first became profitable in Seattle in the early 1980s, and despite an initial economic downturn with its expansion into the Midwest and British Columbia in the late 1980s, the company experienced revitalized prosperity with its entry into California in the early 1990s. The first Starbucks location outside North America opened in Tokyo in 1996; overseas properties now constitute almost one third of its stores. The company opened an average of two new locations daily between 1987 and 2007.
On December 1, 2016, Howard Schultz announced he would resign as CEO effective in April 2017 and will be replaced by Kevin Johnson.
A. Forecast Development Tab – Sales Revenue Forecast Development
- As an analyst, how would you analyze the sales growth projections of Starbucks?
- How many years into the future would you as an analyst be willing to commit to in the sales forecast?
- Going back to the risks, what are the external factors that could change (increase or decrease) the sales revenue forecasts of Starbucks?
B. Forecast Development Tab – Foreign Operations. CPG and CAP (Segments) - Which region/market is growing the fastest? Which is the most profitable? As an analyst, would you invest in the fastest growing or most profitable segment?
- What method will Starbucks use to translate its foreign subsidiaries’ financial statements so that they can be consolidated?
C. Forecast Development Tab – Capital Expenditures, FF&E - As an analyst, what can you ascertain from the capital expenditure forecasts? Is this good or bad?
- As an analyst, what can you ascertain from the FF&E forecasts? Is this good or bad?
D. Valuation Tab – Valuation Parameter Assumptions - In the parameters, as an analyst, what are the most important variables and why?
- Are dividends an important variable in the valuation of Starbucks?
E. Valuation Tab – Estimated Value per Share
Describe each of the following and identify strengths and weaknesses in each. Why are there so many different valuations?
- Dividend Based Valuation
- Free Cash Flow Valuation
- Residual Income Valuation
- Residual Income Market-to-Book Valuation
- Free Cash Flow for All Debt and Equity Valuation
- Intrinsic Valuation
- Market Based Valuation
F. Valuation Tab – General Questions - What is the actual Beta of Starbucks (research required)? Why is Beta important data?
- On our Course Excel Spreadsheet, the estimated (Intrinsic) value per share is $63.55. Assuming this is correct and calculated on the same day as the market value of Dec. 30th 2016 of $52.52 (picture on Page 1), what would be your recommendation as an analyst to the market?
Financial Statement Analysis Package (FSAP): Version 8.0
Financial Reporting, Financial Statement Analysis, and Valuation: A Strategic Perspective, 8th Edition FSAP User Guides:
By James Wahlen, Steve Baginski and Mark Bradshaw
The FSAP User Guides appear in column J to the right. The Analysis worksheet in FSAP automatically computes a wide array of financial statement analysis ratios using the amounts entered on the Data worksheet.
The FSAP User Guides next to each row provide brief descriptions of ratio computations. See the text for more in-depth discussion of how to compute and interpret each ratio.
Analyst Name: Wahlen, Baginski & Bradshaw
Company Name: Starbucks
DATA CHECKS
Assets – Liabilities – Equities 0 0 0 0 0 FSAP checks the Data worksheet for an equality between total assets and total liabilities plus shareholders’ equity. A non-zero amount in this row indicates a likely data input error in one or more balance sheet accounts.
Net Income (computed) – Net Income (reported) 0 0 0 0 0 FSAP checks whether the net income amounts determined by revenue and expense amounts entered in the Data worksheet equal the reported amount of net income. A non-zero amount on this row likely indicates an input error in one or more income statement accounts.
Cash Changes 0 0 0 0 FSAP checks that the change in cash on the statement of cash flows equals the change in cash on the balance sheet in the Data worksheet. A non-zero amount indicates either a data input error on one or more rows of the cash flow statement or the use of a different definition of cash on the two financial statements. The user should identify the reason for and correct any non-zero amount.
In the computations below, a #DIV/0! message indicates that a ratio denominator is zero.
PROFITABILITY FACTORS: Profitability Factors:
Year 2008 2009 2010 2011 2012
RETURN ON ASSETS (based on reported amounts): Return on assets measures the rate of return the firm earns per average dollar invested in assets.
Profit Margin for ROA 3.4% 4.3% 9.1% 10.9% 10.6% Profit margin for ROA measures how much profitability the firm derives from its revenues. For this ratio, profitability is measured before the effects of financing costs (after tax) and minority interest in earnings.
x Asset Turnover 1.9 1.7 1.8 1.7 1.7 Asset turnover measures how efficiently the firm uses its assets to generate sales. It measures the number of sales dollars generated per average dollar invested in assets.
= Return on Assets 6.4% 7.4% 16.2% 18.5% 18.0% Rate of return on assets is the product of the firm’s profitability and its efficiency.
RETURN ON ASSETS (excluding the effects of nonrecurring items): See the preceding FSAP User Guides on ROA.
Profit Margin for ROA 5.9% 7.7% 9.5% 10.6% 10.6% These computations of ROA exclude the after-tax effects of nonrecurring items in income to measure the firm’s persistent ROA.
x Asset Turnover 1.9 1.7 1.8 1.7 1.7
= Return on Assets 11.2% 13.3% 17.1% 18.0% 18.0%
RETURN ON COMMON EQUITY (based on reported amounts): Return on common equity measures the rate of return the firm earns per average dollar in common shareholders’ equity.
Profit Margin for ROCE 3.0% 4.0% 8.8% 10.6% 10.4% Profit margin for ROCE measures the net profit margin per dollar of sales. Profit margin for ROCE is measured after deducting any preferred dividends from net income, in order to compute the amount of net income available to common equity shareholders.
x Asset Turnover 1.9 1.7 1.8 1.7 1.7 Asset turnover measures how efficiently the firm uses its assets to generate sales. It measures the number of sales dollars generated per average dollar invested in assets.
x Capital Structure Leverage 2.3 2.0 1.8 1.7 1.6 Capital structure leverage measures the average amount invested in assets divided by the average amount financed by common equity shareholders.
= Return on Common Equity 13.2% 14.1% 28.1% 30.9% 29.2% Rate of return on common equity is the product of the firm’s profitability, efficiency, and leverage.
RETURN ON COMMON EQUITY (excluding the effects of nonrecurring items): See the preceding FSAP User Guides on ROCE.
Profit Margin for ROCE 5.6% 7.4% 9.3% 10.4% 10.4% These computations of ROCE exclude the after-tax effects of nonrecurring items in income to measure the firm’s persistent ROCE.
x Asset Turnover 1.9 1.7 1.8 1.7 1.7
x Capital Structure Leverage 2.3 2.0 1.8 1.7 1.6
= Return on Common Equity 24.4% 26.1% 29.7% 30.2% 29.2%
OPERATING PERFORMANCE:
Gross Profit / Revenues 55.3% 55.8% 58.4% 58.0% 56.3% Gross profit margin as a percent of revenues.
Operating Profit / Revenues 4.9% 5.7% 13.3% 14.8% 15.0% Operating income as a percent of revenues.
Net Income / Revenues 3.0% 4.0% 8.8% 10.6% 10.4% Net income as a percent of revenues.
Comprehensive Income / Revenues 3.0% 4.2% 8.8% 10.6% 10.2% Comprehensive income as a percent of revenues.
PERSISTENT OPERATING PERFORMANCE (excluding the effects of nonrecurring items):
Persistent Operating Profit / Revenues 4.9% 5.7% 13.3% 14.5% 15.0% Operating income as a percent of revenues after excluding the effects of non-recurring operating income items (such as non-recurring operating expenses and losses).
Persistent Net Income / Revenues 5.6% 7.4% 9.3% 10.4% 10.4% Net income as a percent of revenues, after excluding the effects of non-recurring items in income.
GROWTH:
Revenue Growth 10.3% -5.9% 9.5% 9.3% 13.7% Year-on-year growth rate in revenues.
Net Income Growth -53.1% 23.9% 142.0% 31.7% 11.1% Year-on-year growth rate in net income.
Persistent Net Income Growth -13.4% 24.2% 38.1% 21.7% 13.8% Year-on-year growth rate in net income, after excluding the effects of non-recurring items in income.
OPERATING CONTROL:
Gross Profit Control Index 96.1% 100.9% 104.7% 99.4% 97.1% The rate of change in gross profit relative to the rate of change in revenues.
Operating Profit Contol Index 43.3% 118.5% 230.6% 111.4% 101.7% The rate of change in operating income relative to the rate of change in revenues.
Profit Margin Decomposition:
Gross Profit Margin 55.3% 55.8% 58.4% 58.0% 56.3% Gross profit margin as a percent of revenues.
Operating Profit Index 8.8% 10.3% 22.7% 25.5% 26.7% Operating profit as a percent of gross profit. The complement of this percentage is the percent of gross profit absorbed by overhead and operating expenses.
Leverage Index 91.2% 99.6% 101.2% 104.8% 103.1% Income before tax as a percent of operating profit. The complement of this percentage is the percent of operating profit absorbed by (net) financing costs. If this index is great than 100%, it implies financing income (interest income, income from equity affiliates) exceeds financing costs (interest expense).
Tax Index 68.7% 69.9% 66.0% 68.9% 67.2% Net income as a percent of income before tax. The complement of this percentage is the average effective tax rate. This index is also affected by items such as extraordinary gains and losses, discontinued operations, and changes in accounting principles.
Net Profit Margin 3.0% 4.0% 8.9% 10.7% 10.4% Net income as a percent of revenues. The net profit margin will also equal the product of the gross profit margin times the operating profit index, the leverage index and the tax index.
Comprehensive Income Performance:
Comprehensive Income Index 98.0% 104.3% 99.1% 99.1% 98.3% Comprehensive income as a percent of net income.
Comprehensive Income Margin 3.0% 4.2% 8.8% 10.6% 10.2% Comprehensive income as a percent of revenues.
RISK FACTORS: Risk Factors:
Year 2008 2009 2010 2011 2012
LIQUIDITY:
Current Ratio 0.80 1.29 1.55 1.83 1.90 Current assets divided by current liabilities.
Quick Ratio 0.30 0.59 0.98 1.17 1.14 More liquid current assets (cash and cash equivalents, marketable securities, accounts receivable) divided by current liabilities.
Operating Cash Flow to Current Liabilities 57.9% 73.7% 101.5% 83.7% 80.2% Operating cash flows divided by the average amount of current liabilities.
ASSET TURNOVER:
Accounts Receivable Turnover 33.6 32.6 37.3 34.0 30.5 Total revenues divided by the average balance in accounts receivable.
Days Receivables Held 11 11 10 11 12 The number of days in receivables is measured as 365 divided by the accounts receivable turnover rate. This measures the average number of days to collect receivables.
Inventory Turnover 6.7 6.4 7.4 6.51 5.27 Cost of goods sold divided by the average amaount of inventory.
Days Inventory Held 54 57 49 56 69 The number of days in inventory is measured as 365 divided by the inventory turnover rate. This measures the average number of days to make and sell inventory.
Accounts Payable Turnover 13.0 14.5 15.8 13.0 13.0 Inventory purchases (computed as cost of goods sold plus the change in inventory) divided by the average amount in accounts payable.
Days Payables Held 28 25 23 28 28 The number of days in payables is measured as 365 divided by the accounts payable turnover rate. This measures the average number of days to pay payables.
Net Working Capital Days 37 43 36 39 53 Net working capital days measures the number of days to make and sell inventory plus the number of days to collect receivables, minus the number of days to pay payables.
Revenues / Average Net Fixed Assets 3.55 3.56 4.32 4.90 5.31 Total revenues divided by the average balance in net property, plant, and equipment. This measures efficiency is using fixed assets to generate revenues.
Cash Turnover 37.7 22.5 12.1 10.1 11.4 Revenues divided by the average cash balance.
Days Sales Held in Cash 9.7 16.2 30.1 36.1 32.1 The number of days sales held in cash is measured as 365 divided by the cash turnover rate. It measures the average number of days of sales held in cash and cash equivalents.
SOLVENCY:
Total Liabilities / Total Assets 56.1% 45.2% 42.3% 40.4% 37.8% This ratio measures the percentage of total ssets financed by total liabilities.
Total Liabilities / Total Equity 127.7% 82.4% 73.4% 67.8% 60.7% This debt/equity ratio measures total liabiliteis as a percent of common shareholders’ equity.
LT Debt / LT Capital 18.1% 15.2% 13.0% 11.1% 9.7% This ratio measures the percent of debt financing relative to total long term capital (long term debt plus commmon shareholders’ equity).
LT Debt / Total Equity 22.1% 18.0% 14.9% 12.5% 10.7% This ratio measures the percent of long term debt financing relative to commmon shareholders’ equity.
Operating Cash Flow to Total Liabilities 40.3% 48.7% 65.3% 56.8% 56.6% Operating cash flows divided by the average amount of total liabilities.
Interest Coverage Ratio (reported amounts) 9.6 15.3 44.9 55.4 64.0 Net income before interest expense, income taxes, and minority interest in income, divided by interest expense.
Interest Coverage ratio (recurring amounts) 9.6 15.3 44.9 54.5 64.0 Net income before interest expense, income taxes, minority interest in income, and non-recurring items divided by interest expense.
RISK FACTORS:
Bankruptcy Predictors:
Altman Z Score 4.59 6.55 7.60 8.96 10.87 The Altman Z-score is a multivariate predictor of bankruptcy.
Bankruptcy Probability 0.02% 0.00% 0.00% 0.00% 0.00% The probability of bankruptcy over the next two years as indicated by the Altman Z-score.
Earnings Manipulation Predictors:
Beneish Earnings Manipulation Score -3.01 -3.42 -2.86 -2.52 -2.42 The Beneish Earnings Manipulation Score is a multivariate indicator of the likelihood reported earnings numbers have been fraudulently manipulated.
Earnings Manipulation Probability 0.13% 0.03% 0.21% 0.58% 0.78% The probability of earnings manipulation given the Beneish Earnings Manipulation Score.
DIVIDEND and STOCK MARKET-BASED RATIOS:
Stock Returns -46.2% 45.5% 25.7% 42.9% 40.4% Stock returns measure fiscal year-end share price plus dividends divided by beginning of year share price.
Price-Earnings Ratio (reported amounts) 33.0 38.9 20.2 21.8 27.4 Fiscal year-end share price divided by earnings per share.
Price-Earnings Ratio (recurring amounts) 17.9 21.1 19.1 22.4 27.4 Fiscal year-end share price divided by earnings per share after excluding the per-share effects of non-recurring items in income.
Market Value to Book Value Ratio 4.2 5.0 5.2 6.2 7.4 Market value of common equity divided by book value of common equity.
Common Dividends per Share $- $- $0.23 $0.52 $0.68
Common Dividend Payout (% of Net Income) 0.0% 0.0% -18.1% -31.3% -37.1%
Common Dividend Yield (% of Share Price) 0.0% 0.0% 0.9% 1.4% 1.4%
INCOME STATEMENT ITEMS AS A PERCENT OF REVENUES: Common-Sized Income Statements:
Year 2008 2009 2010 2011 2012
Revenues 100.0% 100.0% 100.0% 100.0% 100.0% All of the common-size income statement ratios measure a particular income amount as a percent of total revenues.
-44.7% -44.2% -41.6% -42.0% -43.7%
Gross Profit 55.3% 55.8% 58.4% 58.0% 56.3%
-36.1% -35.0% -33.2% -30.7% -29.5%
-3.2% -2.7% -2.7% -3.4% -3.2%
-5.3% -5.5% -4.8% -4.5% -4.1%
-4.4% -4.6% -5.3% -6.4% -6.0%
-2.6% -3.4% -0.5%
Other operating income (1)
Income from Equity Investees 1.1% 1.2% 1.4% 1.5% 1.6%
Non-recurring operating gains 0.3%
Operating Profit 4.9% 5.7% 13.3% 14.8% 15.0%
Interest income 0.1% 0.4% 0.5% 1.0% 0.7%
-0.5% -0.4% -0.3% -0.3% -0.2%
Income from equity affiliates
Other income or gains
Income before Tax 4.4% 5.7% 13.4% 15.5% 15.5%
-1.4% -1.7% -4.6% -4.8% -5.1%
Income from discontinued operations
Extraordinary gains
Changes in accounting principles
Net Income 3.0% 4.0% 8.9% 10.7% 10.4%
Net income attributable to noncontrolling interests 0.0% 0.0% 0.0% 0.0%
Net Income attributable to common shareholders 3.0% 4.0% 8.8% 10.6% 10.4%
Other comprehensive income items -0.1% 0.2% -0.1% -0.1% -0.2%
Comprehensive Income 3.0% 4.2% 8.8% 10.6% 10.2%
INCOME STATEMENT ITEMS: GROWTH RATES Income Statement Growth Rates:
Year 2008 2009 2010 2011 2012
COMPOUND
GROWTH
YEAR TO YEAR GROWTH RATES: RATE
Revenues 10.3% -5.9% 9.5% 9.3% 13.7% 7.2% The year-on-year growth rates indicate the annual rate of growth in a particular income item.
16.2% -6.9% 3.1% 10.2% 18.3% 7.8% The compound growth rates indicate the average compounded rate of growth in a particular income item over the five-year data period (six years of data yield five periods of growth). If fewer than six year of data have been entered into the Data Worksheet, these compounded growth rate computations should be revised to measure compounded growth over the period for which data are available.
Gross Profit 6.0% -5.0% 14.7% 8.6% 10.3% 6.7%
16.5% -8.5% 3.7% 1.2% 9.0% 4.0%
12.2% -19.9% 10.9% 34.0% 9.4% 7.9%
17.6% -2.7% -4.5% 2.5% 5.2% 3.3%
-6.8% -0.7% 25.7% 31.6% 6.9% 10.4%
24.5% -84.1% -100.0%
Other operating income (1)
Income from Equity Investees 5.2% 7.3% 21.5% 17.3% 21.3% 14.3%
Non-recurring operating gains -100.0%
Operating Profit -52.2% 11.5% 152.6% 21.8% 15.6% 13.6%
Interest income -77.8% 311.1% 35.9% 130.4% -18.6% 18.4%
39.8% -26.8% -16.4% 1.8% -1.8% -3.1%
Income from equity affiliates
Other income or gains
Income before Tax -56.5% 21.8% 156.7% 26.0% 13.7% 14.3%
-62.5% 16.9% 190.2% 15.2% 19.8% 11.9%
Income from discontinued operations
Extraordinary gains
Changes in accounting principles
Net Income -53.1% 24.1% 142.2% 31.6% 11.0% 15.5%
Net income attributable to noncontrolling interests 285.7% -14.8% -60.9%
Net Income attributable to common shareholders -53.1% 23.9% 142.0% 31.7% 11.1% 15.5%
Other comprehensive income items -135.8% -374.2% -148.2% 32.9% 116.5% -206.4%
Comprehensive Income -55.2% 32.1% 130.1% 31.6% 10.0% 14.6%
COMMON SIZE BALANCE SHEET – AS A PERCENT OF TOTAL ASSETS Common-Sized Balance Sheets:
Year 2008 2009 2010 2011 2012
Assets:
Cash and cash equivalents 4.8% 10.8% 18.2% 15.6% 14.5% All of the common-size balance sheet ratios measure a particular balance sheet amount as a percent of total assets.
Marketable securities 0.9% 1.2% 4.5% 12.3% 10.3%
Accounts and notes receivable – net 5.8% 4.9% 4.7% 5.3% 5.9%
Inventories 12.2% 11.9% 8.5% 13.1% 15.1%
Prepaid expenses and other current assets 3.0% 2.6% 2.5% 2.2% 2.4%
Deferred tax assets – current 4.1% 5.1% 4.8% 3.1% 2.9%
Other current assets (1)
Other current assets (2)
Current Assets 30.8% 36.5% 43.2% 51.6% 51.1%
Investments in noncontrolled affiliates 5.3% 6.3% 5.3% 5.1% 5.6%
Property, plant, and equipment – at cost 100.8% 102.2% 92.2% 83.7% 84.0%
-48.7% -56.7% -54.4% -51.7% -51.6%
Amortizable intangible assets (net) 5.8% 5.8% 6.5% 5.6% 4.7%
Goodwill 4.7% 4.6% 4.1% 4.4% 4.9%
Other nonamortizable intangible assets
Deferred tax assets – non current
Long-term investments 1.3% 1.3% 3.0% 1.5% 1.4%
Total Assets 100.0% 100.0% 100.0% 100.0% 100.0%
Liabilities and Equities:
Accounts payable 5.7% 4.8% 4.4% 7.3% 4.8%
Current accrued expenses 11.1% 13.8% 14.7% 12.8% 13.8%
Notes payable and short-term debt 12.6%
Current maturities of long-term debt 0.0% 0.0%
Deferred tax liabilities – current
Income taxes payable
Deferred Revenue 6.5% 7.0% 6.5% 6.1% 6.2%
Insurance Reserves 2.7% 2.8% 2.3% 2.0% 2.0%
Current Liabilities 38.6% 28.3% 27.9% 28.2% 26.9%
Long-term debt obligations 9.7% 9.8% 8.6% 7.5% 6.7%
Long-term accrued liabilities 7.8% 7.0% 5.9% 4.7% 4.2%
Deferred tax liabilities- noncurrent
Other noncurrent liabilities (1)
Other noncurrent liabilities (2)
Total Liabilities 56.1% 45.2% 42.3% 40.4% 37.8%
Preferred stock
Common stock + Additional paid in capital 0.7% 3.4% 2.3% 0.6% 0.5%
Retained earnings 42.4% 50.1% 54.4% 58.4% 61.4%
Accum. other comprehensive income 0.9% 1.2% 0.9% 0.6% 0.3%
and other equity adjustments
Total Common Shareholders’ Equity 43.9% 54.6% 57.5% 59.6% 62.2%
Noncontrolling interests 0.2% 0.1% 0.0% 0.1%
Total Equity 43.9% 54.8% 57.7% 59.6% 62.2%
Total Liabilities and Equities 100.0% 100.0% 100.0% 100.0% 100.0%
BALANCE SHEET ITEMS: GROWTH RATES Balance Sheet Growth Rates:
Year 2008 2009 2010 2011 2012
COMPOUND
GROWTH
Assets: YEAR TO YEAR GROWTH RATES: RATE
Cash and cash equivalents -4.1% 122.3% 94.1% -1.4% 3.5% 33.4% The year-on-year growth rates indicate the annual rate of growth in a particular balance sheet item.
Marketable securities -66.6% 26.3% 330.9% 215.9% -6.0% 40.1% The compound growth rates indicate the average compounded rate of growth in a particular balance sheet item over the five-year data period (six years of data yield five periods of growth). If fewer than six year of data have been entered into the Data Worksheet, these compounded growth rate computations should be revised to measure compounded growth over the period for which data are available.
Accounts and notes receivable – net 14.4% -17.8% 11.7% 27.7% 25.7% 11.0%
Inventories 0.2% -4.0% -18.3% 77.8% 28.5% 12.4%
Prepaid expenses and other current assets 13.7% -13.0% 6.3% 3.2% 21.7% 5.7%
Deferred tax assets – current 80.8% 22.4% 6.1% -24.3% 3.6% 13.0%
Other current assets (1)
Other current assets (2)
Current Assets 3.0% 16.5% 35.4% 37.7% 10.7% 19.9%
Investments in noncontrolled affiliates 16.9% 16.4% -3.1% 9.0% 23.5% 12.2%
Property, plant, and equipment – at cost 7.7% -0.3% 3.3% 4.7% 12.0% 5.4%
14.3% 14.6% 9.7% 9.7% 11.5% 11.9%
Amortizable intangible assets (net) 25.3% -1.7% 29.6% -1.8% -5.8% 8.1%
Goodwill 23.6% -2.8% 1.3% 22.6% 24.1% 13.1%
Other nonamortizable intangible assets
Deferred tax assets – non current
Long-term investments 240.0% -0.3% 169.4% -44.2% 8.4% 40.7%
Total Assets 6.1% -1.7% 14.5% 15.3% 11.7% 9.0%
Liabilities and Equities:
Accounts payable -16.9% -17.8% 5.8% 91.1% -26.3% 0.4%
Current accrued expenses 1.7% 22.3% 21.5% 0.5% 20.5% 12.8%
Notes payable and short-term debt 0.4% -100.0% -100.0%
Current maturities of long-term debt -12.5% -71.4% -100.0% -100.0%
Deferred tax liabilities – current
Income taxes payable
Deferred Revenue 24.1% 5.5% 6.5% 8.5% 13.6% 11.4%
Insurance Reserves 11.3% 1.2% -5.2% -0.4% 15.2% 4.1%
Current Liabilities 1.6% -27.8% 12.5% 16.7% 6.5% 0.5%
Long-term debt obligations -0.1% -0.1% 0.0% 0.0% 0.0% 0.0%
Long-term accrued liabilities 24.9% -11.9% -3.7% -7.3% -0.7% -0.5%
Deferred tax liabilities- noncurrent
Other noncurrent liabilities (1)
Other noncurrent liabilities (2)
Total Liabilities 4.0% -20.8% 7.3% 10.0% 4.4% 0.3%
Preferred stock
Common stock + Additional paid in capital 0.0% 366.6% -21.8% -71.8% -2.7% 0.0%
Retained earnings 9.7% 16.3% 24.3% 23.8% 17.4% 18.2%
Accum. other comprehensive income -11.4% 35.1% -12.5% -19.1% -51.0% -16.1%
and other equity adjustments
Total Common Shareholders’ Equity 9.1% 22.3% 20.7% 19.3% 16.5% 17.5%
Noncontrolling interests -32.1% -68.4% 129.2%
Total Equity 9.1% 22.7% 20.5% 19.1% 16.6% 17.5%
Total Liabilities and Equities 6.2% -1.7% 14.5% 15.3% 11.7% 9.0%
RETURN ON ASSETS ANALYSIS (excluding the effects of non-recurring items) Decomposition of ROA and ROCE:
This schematic provides a decomposition of ROA and ROCE into component ratios that determine ROA and ROCE.
Level 1 RETURN ON ASSETS
2010 2011 2012
17.1% 18.0% 18.0%
Level 2 PROFIT MARGIN FOR ROA ASSET TURNOVER
2010 2011 2012 2010 2011 2012
9.5% 10.6% 10.6% 1.8 1.7 1.7
Level 3 2010 2011 2012 2010 2011 2012 Turnovers: Level 3 component ratios provide more detail about components of income that affect the profit margin for ROA as well as turnover ratios for specific assets.
Revenues 100.0% 100.0% 100.0% 37.3 34.0 30.5 Receivables
-41.6% -42.0% -43.7% 7.4 6.5 5.3 Inventory
Gross Profit 58.4% 58.0% 56.3% 4.3 4.9 5.3 Fixed Assets
-33.2% -30.7% -29.5%
Operating Profit 13.3% 14.8% 15.0%
Income before Tax 13.4% 15.5% 15.5%
-4.6% -4.8% -5.1%
Profit Margin for ROA* 9.5% 10.6% 10.6%
*Amounts do not sum.
RETURN ON COMMON SHAREHOLDERS’ EQUITY ANALYSIS (excluding the effects of non-recurring items)
RETURN ON COMMON SHAREHOLDERS' EQUITY
2010 2011 2012
29.7% 30.2% 29.2%
2010 2011 2012 PROFIT MARGIN FOR ROCE 9.3% 10.4% 10.4%
ASSET TURNOVER 1.8 1.7 1.7
CAPITAL STRUCTURE LEVERAGE 1.8 1.7 1.6
RETURN ON COMMON SHAREHOLDERS’ EQUITY ANALYSIS: Alternative Approach to Disaggregation
RETURN ON COMMON SHAREHOLDERS' EQUITY
2010 2011 2012 ROCE 29.7% 30.2% 29.2%
INPUT VARIABLES
Total Revenues 10,707 11,700 13,300
Net Operating Profit After Tax (NOPAT) 1,023 1,241 1,407
Net Financing Expense After Tax 24 25 23
Average Net Operating Assets 3,919 4,584 5,300
Average Financing Obligations 559 554 554
Average Common Equity 3,360 4,030 4,747
Profit margin for operating ROA 0.096 0.106 0.106
Net operating asset turnover 2.732 2.552 2.509
Operating ROA (NOPAT/Average NOA) 0.261 0.271 0.265
Net Borrowing Rate 0.043 0.046 0.041
Spread 0.218 0.225 0.224
Leverage 0.166 0.138 0.117
Leverage*Spread 0.036 0.031 0.026
ROCE = Operating ROA+Leverage*Spread 0.297 0.302 0.292
STATEMENT OF CASH FLOWS: SUMMARY Summary Statement of Cash Flows:
Year 2008 2009 2010 2011 2012 The Summary Statement of Cash Flows provides an aggregated summation of the major sources of cash inflows and outlfows.
While the Statement of Cash Flows provides useful detail on specific cash inflows and outflows, this aggegation provide a high-level summary of major categories of cash being generated and used. This aggregation reveals quickly how cash is being generated and how cash is being used.
Operating Activities:
Net Income 316 392 948 1,248 1,385
Add back depreciation and amortization expenses 605 563 541 550 581
Net cash flows for working capital 15 110 111 -330 -415
Other net addbacks/subtractions 324 324 105 144 169
Net CF from Operating Activities 1,259 1,389 1,705 1,612 1,720
Investing Activities:
Capital expenditures (net) -985 -403 -441 -415 -851
Investments -50 -13 -350 -592 -81
Other investing transactions -52 -5 1 -13 -42
Net CF from Investing Activities -1,087 -421 -790 -1,020 -974
Financing Activities:
Net proceeds from short-term borrowing 2 -713 0 31 0
Net proceeds from long-term borrowing -1 -1 -7 -4 0
Net proceeds from share issues and repurchases -184 73 -121 -217 -143
Dividends 0 0 -171 -390 -513
Other financing transactions -2 -2 -48 -28 -59
Net CF from Financing Activities -185 -642 -346 -608 -715
Effects of exchange rate changes on cash 1 4 -5 -1 10
Net Change in Cash -11 330 564 -16 40
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Sample Solution
