Below is my essay. Please help me get more information on my research for the Starbucks SBUX stock market. Thank you!

The Investment Decision final presentation

Starbucks Corp (SBUX) is a globally recognized coffeehouse chain that has become synonymous with high-quality coffee and a distinct caf culture. Founded in 1971 in Seattle, Washington, Starbucks initially began as a retailer of whole-bean coffees before transitioning into the caf model that defines its brand today. With over 30,000 locations worldwide, Starbucks not only serves premium coffees but also offers a diverse range of beverages, pastries, and snacks, catering to a wide variety of consumer preferences.

As of September 2, 2025, Starbucks' stock is trading at approximately $88.19, contributing to a total market capitalization of about $100.05 billion. This assessment will evaluate Starbucks' financial performance to support an informed investment decision, focusing on various elements, including revenue growth, profitability, financial structure, and associated risks.

The income statement provides critical insights into Starbucks' revenue, operating income, and net income over the past few fiscal years. Over the past five years, Starbucks has experienced significant fluctuations in revenue. The most noteworthy surge occurred between fiscal year (FY) 2021 and FY 2022, where revenues increased by an impressive 23.6%. This spike is primarily attributed to a robust post-pandemic recovery, as consumers return to their pre-pandemic coffee shop habits.

However, this positive trajectory faced challenges in subsequent years, with revenue growth diminishing to a mere 0.6% by FY 2024. This slowdown could be indicative of market saturation as Starbucks expands its global footprint, as well as intensified competition from rival coffee chains and emerging local cafs.

A closer examination of operating income reveals volatility that mirrors the revenue trends. In FY 2022, operating income surged by 199.0%, reflecting operational efficiencies and strong sales. However, the company encountered substantial headwinds in FY 2023, resulting in a 19.5% decline, followed by a further 7.9% drop in FY 2024. This decline raises concerns about potential inefficiencies within operational management, such as increased labor and supply chain costs.

Net income, reflecting the bottom line, exemplifies similar volatility. Following a substantial increase in FY 2022, net income fell by 21.9% in FY 2023 and by 8.8% in FY 2024. This trend underscores the challenges Starbucks faces in maintaining profitability amidst escalating operational expenses and a competitive landscape.

An analysis of Starbucks' balance sheet provides key insights into its financial position, including assets, liabilities, and equity. Total current assets have grown steadily, which is vital for ensuring liquidity and operational flexibility. Specifically, the company has increased its cash reserves and accounts receivable, fostering a strong short-term financial position. However, total liabilities have also increased, which could raise concerns regarding financial leverage and risk exposure. The increase in long-term debt may be a strategic move for funding expansion, but it simultaneously places additional pressure on the company's operational cash flows.

When conducting a common-size analysis, it becomes clear that Starbucks maintains a balanced approach to assets, allocating appropriate portions to current and non-current assets. This suggests operational prudence, but the rising liabilities indicate a need for close monitoring to ensure that the debt levels remain manageable and do not impair financial stability.

Financial ratios serve to benchmark Starbucks' performance against industry peers. An examination of liquidity ratios, such as the current ratio, reveals that Starbucks has maintained sufficient short-term assets to cover its liabilities effectively, reflecting solid operational management. A current ratio above 1.0 indicates the company is well-positioned to meet its short-term obligations.

Profitability ratios, such as return on equity (ROE), are essential for assessing how efficiently Starbucks utilizes its shareholders' investments. Despite profitability challenges in recent years, Starbucks' ROE remains competitive, suggesting that the company has effectively leveraged equity even during periods of declining net income.

Additionally, the efficiency ratio, which measures the company's ability to manage its operational expenses relative to its revenues, highlights areas where improvement is necessary. Comparing these metrics to industry standards reveals that while Starbucks excels in brand equity, its operational and profit margins have taken a hit compared to competitors, raising flags about future profitability.

Examining Starbucks' cash flow performance provides further understanding of its financial viability. Operating cash flows have been stable, indicating that the company continues to generate cash from its core operations. This consistency is crucial for maintaining daily operations and addressing any short-term financial obligations.

In contrast, trends in investing cash flows indicate that Starbucks is actively reinvesting in growth initiatives, including new store openings, technology enhancements, and product innovations. While these capital expenditures are essential for long-term expansion, they have resulted in negative investing cash flows, indicating that more cash is being spent than generated in this area.

The financing cash flows depict the company's strategic balance between debt financing and equity returns. Starbucks has a history of returning value to shareholders through dividends and stock buybacks; however, increased debt levels resulting from expansion efforts may necessitate a recalibration of this approach to maintain balance sheet health.

A simple cash flow analysis indicates that while Starbucks generates sufficient operating cash, its significant commitments to investments in growth and returns to shareholders could influence its financial flexibility in the future.

Risk Analysis

Risk evaluation is a critical component when considering investments. Starbucks is subject to three primary risks: business risk, financial risk, and market risk.

1. Business Risk: This pertains to the inherent operational volatility faced by the company in an industry that involves consumer preferences and changing market trends. High competition and evolving consumer tastes can impact revenues and margins.

2. Financial Risk: This risk stems from the company's debt levels. A higher debt-to-equity ratio elevates financial risk; while leverage can enhance returns, excessive debt may pose a challenge in downturns.

3. Market Risk: Economic fluctuations, global trade tensions, and changes in consumer spending can affect Starbucks' revenue streams.

The diversification benefits inherent in Starbucks' product offerings can help mitigate some of these risks. By offering a wide range of beverages and food items, Starbucks can cater to diverse consumer preferences and adapt to shifting market conditions.

The company's beta, currently at 0.90, measures its stock volatility relative to the market (Guru Focus News, 2025). A beta greater than 1 indicates a higher risk associated with market movements, while a beta below 1 suggests stability. This beta provides insights into how the company's stock is expected to react to overall market trends.

The Capital Asset Pricing Model (CAPM) formula is used to calculate the required rate of return for an investment, in this case, Starbucks, based on its level of risk. The formula is as follows:

Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market - Risk-Free Rate of Return)

The Risk-Free Rate is the return on an investment with no risk, typically represented by government bonds. Beta measures how much the stock's price moves relative to the market. A beta of 1 means the stock moves with the market, while less than 1 means it moves less than the market, and greater than 1 indicates it moves more. A market return is the average return expected from the market as a whole (Guru Focus News, 2025)

To get the required return, you would input the risk-free rate and the expected market return into the formula. After calculating the required return, you can compare it to the historical returns of large-cap and small-cap companies. This helps investors determine if the potential return on Starbucks justifies the risk involved in investing in it.

When evaluating Starbucks' calculated required rate of return against the historical returns of large-cap and small-cap companies, investors must consider the risk-reward trade-off. Large-cap companies generally provide stability and regular dividends, while small-cap firms often present higher growth potential but with enhanced risks.

Starbucks' position as a well-established large-cap player would suggest that while returns may be lower than those of smaller companies, they also carry a lower risk, making it a more stable, long-term investment option in comparison to more volatile small-cap stocks.

Upon thorough analysis, Starbucks' overall financial performance can be reasonably categorized as neutral. Although the company exhibits strong brand equity and maintains adequate liquidity, recent challenges in revenue growth and declining profitability metrics indicate a loss of momentum.

The volatility in earnings, rising operational costs, and heightened market pressures create an environment of uncertainty regarding Starbucks' future trajectory. Investors would do well to remain cautious until there is clearer evidence of improved operational efficiencies and profitability.

In conclusion, based on the comprehensive financial analysis, my investment recommendation for Starbucks at this stage is "do not buy." While the company has exhibited resilience and is a prominent player in the coffee industry, the current trends reflect operational challenges and profitability issues that warrant a more conservative investment approach.

Key considerations influencing this recommendation include revenue and income volatility, declining profit margins, rising operational costs, and increasing competitive pressures. Until Starbucks demonstrates consistent improvement in these areas, it may be prudent for investors to adopt a wait-and-see strategy before committing new capital to the stock. Ultimately, while Starbucks remains a revered leader in its market, the evolving financial landscape suggests that potential investors should exercise caution.

Reference

Starbucks Corp. (2023). Gurufocus.com. https://www.gurufocus.com/term/beta/SBUX

Mergent Market Atlas. (2025, August).Consumer Discretionary/ Restaurants and Bars. Starbucks Corp (SBUX).

Hickman, K. A., Byrd, J. W., & McPherson, M. (2024).Essentials of finance(2nd ed.). University of Arizona Global Campus.

Starbucks Corp (NASDAQ:SBUX). (n.d.). AlphaSpread.com. https://www.alphaspread.com/security/nasdaq/sbux/discount-rate