Starbucks Corporation & Tully’s Coffee Corporation

Starbucks Corpo balancen &038 Tullys coffee berry Corpo symmetryn MBA 522 monetary Management declination 9, 2008 Tullys drinking chocolate Corpo balancen Established in 1992, Tullys Coffee Corpoproportionn is a Seattle based coffee retailer and wholesaler. The main products offered by the participation atomic number 18 baked food items, coffee products and pastries. Additionally, their coffee beans al modest exceptional sales in regional supermarket and grocery stores.The fede dimensionn shortly operates over 100 stores in the western region of the United States and they realise embarked upon a cable venture in Japan where Tullys is creating sort of a coffee presence, they are also sendigating expansions into other overseas markets. The Corpoproportionn started generating acquires in the year 2006 (About Tullys, 2007). Starbucks Corpo dimensionn Seattle-based Starbucks Corpo dimensionn is the steer coffeehouse chain in the world. The company currently has ope propor tionalityns in more than 44 countries.The main products offered by Starbucks include a wide-cut variety of beverages, coffee beans and brewing equipment, and a wide assortment of snacks and sandwiches. The company also branched into marketing music and books (The Company, 2008). Ratio Analysis RatiosStarbucksTullys Coffee current Ratio0. 790. 51 supple Ratio0. 300. 30 Debt Equity Ratio1. 345. 22 trademarked Ratio0. 430. 24 Solvency Ratio0. 571. 24 breed Turnover Ratio12. 1311. 27 Gross clams Ratio (%)23. 3444. 96 Net remuneproportionn Ratio7. 1515. 76 Return on Proprietors Funds29. 45- Earning Per Share0. 910. 004Current Ratio Current ratio may be specify as the human kin between current assets and current liabilities. It is also cognize as the working capital ratio (2 1 ratio). It is calculated by dividing current assets by current liabilities. Current assets of a firm symbolize those assets which can be, in the ordinary course of business, converted into cash at hear t a period non exceeding match little year. Current liabilities are those obligations which are to be paid within a period of one year of current assets or by creation of current liabilities (forefront Horne, Wachowicz &038 Bhaduri, 2005).Current ratio of the Starbucks Corporation and Tullys Coffee Corporation is . 79 and . 51 respectively, during the year 2007. in that respect is a difference in the current ratio of both(prenominal) companies, reflecting the weak liquidity status of both companies and it illustrates that neither company has short barrier solvency. Liquidity position can be improve to some extent and can be made equivalent to manufacturing average. The industry average of current ratio is . 90 1. The current ratio of Tullys is un hunky-dory and reflects weak position of the company. Quick RatioThis ratio is also helpful in analyzing the short term fiscal position of a business. Quick ratio is the measure of the instant debt gainful efficiency of the busin ess enterprise, hence, it is called quick ratio (Van Horne, Wachowicz &038 Bhaduri, 2005). A quick ratio of 11 is considered as an ideal ratio. If the liquid ratio is more than 11, the financial position of the firm is deemed to be sound. On the other hand, if the ratio is little than 11 the financial position of the firm is unsound. Quick ratio of Starbucks is . 301 and Tullys ratio is . 301. There is no difference between the quick ratios of Starbucks &038 Tullys Coffee. general, the short term liquidity position of both firms is quite an poor because the ratios are less than the desired norm. For instance, current ratio should be 21 whereas, it is less than 11. Similarly, the liquidity ratio is much less than 1 as compared to ideal standard of 11. Therefore, the companies will face difficulties in paying current obligations on maturity. Debt Equity Ratio This ratio indicates the carnal knowledge proportionality of debt and equity in financing the assets of a firm. Debt Equity ratio reflects the relative claims of creditors and stockholders against the assets of a firm.The industry average of ratio is . 421. Debt equity ratio of Tullys is 5. 221. This figure is non at all satisfactory the ratio of 11 is considered within norms and bonny. The Starbucks ratio is 1. 341, which is quite reasonable. A high debt equity ratio has unplayful implications from the firms point of view. A high proportion of debt in the capital construction leads to the inflexibility in operations of the firm as creditors would exercise nip and interfere in counseling. Tullys has high debt-equity ratio which is unfavorable for the company. copyrighted Ratio patented ratio establishes a relationship between proprietors or shareholders funds and nitty-gritty assets of the business. This ratio highlights the general financial strength of the firm. It is of great importance to creditors since it enables them to find out the proportion of shareholders funds in the heart assets used in the business. The ratio of Starbucks is . 431 and for Tullys it is . 241. The proprietary ratio is low for both companies. Although there is little difference in performance of both smokes, it is Starbucks that is in let on position.Solvency Ratio This ratio measures the long term solvency of the business. It reveals the relationship between total assets and total external liabilities. This ratio measures the proportion of total assets provided by the creditors of the firm, i. e. what part of assets is organism financed from loans (Van Horne, Wachowicz &038 Bhaduri, 2005). The total assets of Starbucks are more than their total liabilities, which indicates that the company is solvent. Tullys liabilities are more than their total assets, reflecting that the firm is not solvent.In this instance the higher the ratio, the greater the derive of creditors that are being used to generate proceeds for the owners of the firm. The difference in both the companies ratio is very high, a lthough Starbucks has better performance than Tullys in terms of solvency. Inventory Turnover Ratio The ratio indicates the number of times inventory is replaced during the year. It measures the relationship between the cost of sounds sold and the inventory level. The inventory turnover ratio measures how quickly inventory is sold (Van Horne, Wachowicz &038 Bhaduri, 2005).The inventory turnover ratio of Starbucks is 12 times while Tullys ratio is 11 times. Starbucks and Tullys both have similar ratios, below that of the industry average. Thus, both corporations have uneconomical inventory management. Generally speaking, a high inventory turnover ratio is better than a low ratio. A high ratio implies good inventory management. A very low level of inventory has serious implications, as it adversely affects the ability to meet customer demand. Gross Profit Ratio The ratio expresses the relationship of gross do good on sales to net sales in terms of percentage (Van Horne, Wachowicz & 038 Bhaduri, 2005).Goss profit is the closure of the relationship between prices, sales volume and costs. Gross profit brink of Starbucks Corporation is 23%, whereas the ratio for Tullys is 45%. Tullys ratio is high as compared to Starbucks, which is a sign of good management. It implies that the cost of toil for the firm is relatively low. Tullys has reasonable gross margin which ensures fit coverage for operating expenses and sufficient return to the owners of the business, which is reflected in the net profit margin. Net profit RatioThis measures the relationship between net benefit and sales of a firm. The net profit margin is indicative of managements ability to operate the business with sufficient success not only to recover revenues of the period, the cost of merchandise or services, the expenses of operating the business and the cost of the borrowed funds, but also leave a margin of reasonable compensation to the owners for providing their capital at risk (Van Horne, Wa chowicz &038 Bhaduri, 2005). Net profit ratio of Tullys Coffee and Starbucks is -15. 67% and 7. 15%, respectively.Starbucks Corporation is generating enough returns for its owners. On the other hand, Tullys net profit margin is negative. The company is miserable from huge losses and has incurred net losses in the year 2007. Overall efficiency and profitability of Starbucks is higher than Tullys Coffee. Return on Proprietary Funds The ratio expresses the percentage relationship between net profit and proprietors funds or shareholders investment (Van Horne, Wachowicz &038 Bhaduri, 2005). It is used to descry the earning power of shareholders investment.Return on proprietors fund for Starbucks is 29. 5%. The ratio could not be calculated for Tullys Coffee as net profit and shareholders funds, both are negative. Starbucks has better performance and a higher return than Tullys Coffee. Earning Per Share The rate of dividend on shares depends upon the amount of profits earned by the fir m. Whatever profit remains, after contact all expenses and paying preference share dividend, belongs to equity shareholders (Van Horne, Wachowicz &038 Bhaduri, 2005). These are the profits earned on equity share capital.The earning per share is calculated by dividing the profit available to equity shareholders by the number of shares issued. This is a common ratio as it measures the profitability of a firm from the owners standpoint. Starbucks EPS is higher than Tullys, which shows that the market price of the firm would be greater. Earning per share of Tullys Coffee has no value, it is almost negligible. Higher EPS helps the company to raise extra capital without difficulty. This ratio plays an important role in comparison of the both companies from an investment point of view.Investment Decision It would be my choice to invest in Starbucks Corporation, as the overall performance and productivity is higher. The liquidity abridgment performed through current ratio and quick rat io reveals that the Starbucks is positioned better in terms of liquidity the company also has superior position in term of long-term solvency. Though gross profit ratio of Tullys Coffee is high, overall Starbucks has a favorable financial position in that they would be able to quickly convert various assets into cash.Starbucks Corporation is generating adequate returns and reasonable profits which are sufficient for effectively running their operations. The corporation is generating higher returns for their shareholders, illustrating that the resources are effectively utilized. EPS is very high at Starbucks, which is unavoidable for the investment. Thus, I feel that an investment in Starbucks Corporation is a better choice, as it would yield higher returns for this investor. References About Tullys. (2007). Retrieved November 21, 2008, from http//www. tullys. com/company/ Starbucks Corp Financial Statement. (2008).MSN Money. Retrieved November 21, 2008, from http//moneycentral. msn . com/investor/invsub/results/statemnt. aspx? Symbol=SBUX&038lstStatement=Balance&038stmtView=Ann The Company. (2008). Retrieved November 21, 2008, from http//www. starbucks. com/aboutus/overview. asp Tullys Coffee Corporation. (2008, November). Hoovers. Retrieved November 21, 2008, from http//www. hoovers. com/free/co/secdoc. xhtml? ID=58100=6157151-141335-231989 Van Horne, J. C. , Wachowicz, J. M. , &038 Bhaduri, S. N. (2005). Fundamentals of Financial Management (12th Ed. ). (pp. 130-133). United Kingdom Pearson Education