Starbucks Corporation & Tully’s Coffee Corporation

Starbucks passel & Tullys Coffee bay windowo semblancen MBA 522 Financial guidance December 9, 2008 Tullys Coffee Corpo balancen Established in 1992, Tullys Coffee Corpo analogyalityn is a Seattle based cocoa retailer and wholesaler. The of import products offered by the c aller-out be baked food items, coffee products and pastries. Additionally, their coffee beans guide exceptional sales in regional supermarket and grocery stores.The familiarity authoritatively operates over 100 stores in the western region of the joined States and they have embarked upon a business venture in Japan where Tullys is creating quite a coffee presence, they atomic number 18 likewise investigating expansions into another(prenominal)wise foreign markets. The Corpo proportionalityn started generating gathers in the year 2006 (About Tullys, 2007). Starbucks Corpo symmetryn Seattle-based Starbucks Corpo balancen is the leading coffeehouse chain in the world. The company acceptedly has ope b alancens in to a greater extent than 44 countries.The main products offered by Starbucks include a wide variety of beverages, coffee beans and brewing equipment, and a wide classification of snacks and sandwiches. The company also branched into marketing music and books (The Company, 2008). balance digest RatiosStarbucksTullys Coffee certain Ratio0. 790. 51 Quick Ratio0. 300. 30 Debt Equity Ratio1. 345. 22 Proprietary Ratio0. 430. 24 Solvency Ratio0. 571. 24 Inventory Turnover Ratio12. 1311. 27 pure(a) Profit Ratio (%)23. 3444. 96 Net Profit Ratio7. 1515. 76 exceed on Proprietors Funds29. 45- Earning Per Shargon0. 910. 004Current Ratio Current ratio may be defined as the relationship mingled with received assets and current liabilities. It is also known as the working great(p) ratio (2 1 ratio). It is metric by dividing current assets by current liabilities. Current assets of a riotous represent those assets which can be, in the ordinary course of business, converted int o bills within a flow rate not exceeding one 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 (Van Horne, Wachowicz & Bhaduri, 2005).Current ratio of the Starbucks spate and Tullys Coffee Corporation is . 79 and . 51 respectively, during the year 2007. There is a difference in the current ratio of two companies, reflecting the weak liquidness blank space of both companies and it illustrates that neither company has brusk call solvency. Liquidity horizon can be improved to some extent and can be made uniform to industry average. The industry average of current ratio is . 90 1. The current ratio of Tullys is unsatisfactory and reflects weak position of the company. Quick RatioThis ratio is also helpful in analyzing the short term financial position of a business. Quick ratio is the measure of the instant debt give ability of the business enterprise, hence, it is called quick ratio (Van Horne, Wachowicz & 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 so apply is deemed to be sound. On the other hand, if the ratio is less than 11 the financial position of the sure is unsound. Quick ratio of Starbucks is . 301 and Tullys ratio is . 301. There is no difference between the quick ratios of Starbucks & Tullys Coffee.Overall, the short term liquidity position of both houses is quite 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 sexual relation proportion of debt and virtue in financing the assets of a firm. Debt Equity ratio reflects the relative claims of creditors and dish outholders against the assets of a firm.The industry average of ratio is . 421. Debt equity ratio of Tullys is 5. 221. This figure is not at all satisfactory the ratio of 11 is considered within norms and reasonable. The Starbucks ratio is 1. 341, which is quite reasonable. A high debt equity ratio has serious implications from the firms point of view. A high proportion of debt in the capital structure leads to the inflexibility in operations of the firm as creditors would elaborate pressure and interfere in management. Tullys has high debt-equity ratio which is disapproving for the company. Proprietary RatioProprietary ratio establishes a relationship between proprietors or shareholders funds and total assets of the business. This ratio highlights the popular 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 total assets used in the business. The ratio of Starbucks is . 4 31 and for Tullys it is . 241. The proprietary ratio is low for both companies. Although there is little difference in deed of both corporations, it is Starbucks that is in wear out 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 being financed from loans (Van Horne, Wachowicz & 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 amount of creditors that are being used to generate emolument for the owners of the firm. The difference in both the companies ratio is very high, although Starbucks has better performance than Tully s in ground of solvency. Inventory Turnover Ratio The ratio indicates the number of times enrolment is replaced during the year. It measures the relationship between the exist of goods sold and the list level. The inventory upset ratio measures how quickly inventory is sold (Van Horne, Wachowicz & Bhaduri, 2005).The inventory dollar volume 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 inefficient 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. piggish Profit Ratio The ratio expresses the relationship of gross cabbage on sales to bring in sales in terms of percentage (Van Horne, Wachowicz & Bhaduri, 2005).Goss profit is the result of the relationship between prices, sales volume and costs. Gross profit security deposit 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 production for the firm is relatively low. Tullys has reasonable gross permissiveness which ensures fitted coverage for run expenses and sufficient return to the owners of the business, which is reflected in the elucidate profit margin. Net profit RatioThis measures the relationship between meshwork profits and sales of a firm. The net income profit margin is apocalyptical of managements ability to operate the business with sufficient advantage 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, W achowicz & Bhaduri, 2005). Net profit ratio of Tullys Coffee and Starbucks is -15. 67% and 7. 15%, respectively.Starbucks Corporation is generating adequate returns for its owners. On the other hand, Tullys net profit margin is negative. The company is suffering 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 & Bhaduri, 2005). It is used to ascertain the earning power of shareholders investment.Return on proprietors fund for Starbucks is 29. 5%. The ratio could not be reason 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 firm. Wha tever profit remains, after meeting all expenses and paying preference share dividend, belongs to equity shareholders (Van Horne, Wachowicz & 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 popular 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 offer additional capital without difficulty. This ratio plays an important role in similarity of the two companies from an investment point of view.Investment Decision It would be my woof to invest in Starbucks Corporation, as the overall performance and productivity is higher. The liquidity analysis performed through current ratio and quick ratio 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 rivulet 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 necessary 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/invest or/invsub/results/statemnt. aspx? Symbol=SBUX&lstStatement=Balance&stmtView=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. , & Bhaduri, S. N. (2005). Fundamentals of Financial Management (12th Ed. ). (pp. 130-133). United Kingdom Pearson breeding