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Starbucks Corporation

Starbucks Corporation, a leading global coffeehouse chain, reported a significant decline in its operating cash flow from $11.94 billion in 2018 to $5.05 billion in 2019, indicating reduced cash generation from operations. The company experienced a decrease in investing cash flow outflows, from $2.36 billion in 2018 to $1.01 billion in 2019, suggesting a more cautious investment approach. Additionally, financing activities showed an increase in cash outflow from $3.24 billion in 2018 to $10.06 billion in 2019, reflecting a trend of returning more capital to investors, positioning Starbucks in the maturity stage of its business life cycle.

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5 views5 pages

Starbucks Corporation

Starbucks Corporation, a leading global coffeehouse chain, reported a significant decline in its operating cash flow from $11.94 billion in 2018 to $5.05 billion in 2019, indicating reduced cash generation from operations. The company experienced a decrease in investing cash flow outflows, from $2.36 billion in 2018 to $1.01 billion in 2019, suggesting a more cautious investment approach. Additionally, financing activities showed an increase in cash outflow from $3.24 billion in 2018 to $10.06 billion in 2019, reflecting a trend of returning more capital to investors, positioning Starbucks in the maturity stage of its business life cycle.

Uploaded by

kevin wabwile
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Starbucks Corporation

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Starbucks Corporation is an American multinational chain of coffeehouses and roastery

reserves headquartered in Seattle, Washington. Starbucks is the premier roaster, marketer

and retailer of specialty coffee in the world, operating in 81 markets. Starbucks’ financial

statements are provided in the supplementary material file.

Cash Flow Analysis

a. Analyze the firm’s CFO in 2019 and 2018. Is the firm creating cash from its operations?

What trend do you observe?

CFO in 2019 amounted to $5.05 billion, making for a positive operating cash flow. This

demonstrates that Starbucks made a lot of money from its main operations in the said

year. However, CFO in 2018 was $11.94 billion, much more than in 2019. This is another strong

indicator of an excellent operating cash flow. Cash generated from operations in the CFO

witnessed a significant decline during this period. In 2018, Starbucks realized almost $12 billion

from its operations while it realized approximately $5 billion in 2019. The decrease in the

amount of operating cash flow implies a decline in the power of this company to generate cash

out of its business performance in 2019 than in 2018. Changes in revenue, capital expenditures,

working capital, as well as operating activities or financial structure of the company may account

for this trend.

b. Analyze the firm’s CFI in 2019 and 2018. Is the firm growing or contracting? What

trend do you observe? Briefly explain how the firm is growing/contracting. Remember

what is and what isn’t evidence of growth.

In this case, we should consider the investing cash flow section of the cash flow

statement for these years in order to analyze Starbuck’s CFI and determine whether the firm is in

growth or contraction. In 2019, Starbucks had a net cash outflow of $1.01 billion that was
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recorded under its investing activities. In doing so, the corporation consumed more resources in

investments than it generated from them in a single year. In the case of net cash outflow in

investing activities, it was higher in 2018, at $2.36 billion, meaning more cash was spent on the

activities than it was in 2019.

Trend Analysis:

A decreasing trend of net cash outflow as CFI indicates in 2018 compared with that of

2019. For instance, in 2018, the company made expenditures exceeding $2.36 billion, and in

2019, expenditures amounted to approximately $1.01 billion. Contraction, as perceived by this

definition, is not always accompanied by net cash outflows from investing

activities. Surprisingly, it may, at times, also signify a company’s development. Spending on

investments in property, plant, and equipment, commonly referred to as capital expenditures, is

often an indicator of growth as it means the opening of new stores, infrastructure improvement,

or business expansion. The drop in CFI from 2018 to 2019 could suggest that the company is

taking a more prudent approach to how invested capital should be allocated or that the company

is cutting back on its expansion plans. Nevertheless, it does not automatically imply the

shrinkage in the business.

c. Analyze the firm’s CFF in 2019 and 2018. Is the firm paying back investors and creditors

or taking money from them? What trend do you observe?

In 2019, its financing activities involved a net cash outflow of $10.06 billion. This

implies that the company made extra money from financing rather than received from such

financing. In 2018, there was a net cash outflow of $3.24 billion in financing activities, which is

significantly less as compared to 2019. The trend in CFF observed in between 2018 and 2019

indicated an increased net cash outflow from financing activities. In 2018, Starbucks experienced
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a cash outflow of $3.24 billion, while in 2019, it went up to $10.06 billion.

Interpretation:

The net cash outflow from financing activities shows that the company spent more than it

collected through financing. CFF outflow almost doubled in 2019 compared to 2018 – this

means that Starbucks paid more money to its shareholders and borrowers, or Starbucks bought

some shares to itself in 2019. Repurchasing of common stocks and dividend payments were the

main financing activities of Starbucks as of 2019. These are cash outflows signaling the return of

capital. The capital structure of a company is important and can be used to enhance shareholder

value or even to manage it. CFF shows that Starbucks paid back its investors and creditors more

in 2019 than it did the previous year.

In general, Starbucks seemed, on average, to be giving back more money to investors and

creditors, something which may have been taken as a capital allocation decision as opposed to a

case of financial distress for the year 2019. Therefore, it is necessary to understand the motives

behind these financing ventures and how it relate to the overall financial plan and targets of the

business.

d. In your opinion, in which life cycle phase is Starbucks? Briefly explain.

Personally, I would say that Starbucks is in the maturity stage of its life cycle. The firm

has attained an international status, high depth, and broad recognition of its identity. It has more

than eighty markets and has numerous chain stores around the world. The company is slowing

down its rate of expansion and innovation to optimize ongoing operations, pay back dividends to

stockholders, and create more diverse products for client loyalty boosting via digital
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methods. The features of a mature stage in corporate development are evident in the approach of

Starbucks toward cost control and efficiency, along with the maturity of its core product offering.

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