In this final presentation, you will prepare a presentation on the financial performance, required rate of return, and risk of your selected publicly traded company. Your presentation will be designed to support your investment decision regarding this company's stock. Your investment decision may be "buy" or "do not buy" based on the company's financial information and your interpretation of its likely future performance and its risk. Your investment decision must be supported by financial facts as reviewed in your Weeks 1, 2, 3, and 4 assignments.

Throughout this course, you have analyzed many different components of a publicly traded company's financial performance. You have learned about each of the four main factors that impact value, time, cash, risk, and opportunity cost. Ultimately, when purchasing a company's stock, the investor is purchasing the company's future performance. In this project, you should consider how the company's past performance may inform your expectations about its future performance and risks, while keeping in mind that the past is not a guarantee of the future.

In your final presentation,

• Introduction, including the following:
  • The name of the company and a brief description of what it does.
  • The current market price per share and total market capitalization of the company.
• Explain the company's financial performance based on its income statement.
  • Common Size, Growth
• Explain the company's financial performance based on its balance sheet.
  • Common Size, Growth
• Describe the company's ratio performance.
• Compare the company's financial and ratio performance to the industry.
• Explain the company's cash flow performance.
  • State trends in operating, investing, and financing cash flow
  • Describe the company's simple cash flow
• Risk
  • Explain the three types of risk, the benefits of diversification, beta, and how these concepts relate to a company's required rate of return.
  • Identify the company's beta and explain its meaning based on risk relative to the market portfolio.
• Capital Asset Pricing Model
  • Include your calculation of the required rate of return based on the capital asset pricing model (from Week 5 Discussion Forum)
• Comparison of Returns
  • Compare your company's required rate of return (based on the CAPM) to the historical returns of large-cap and small-cap companies.
• Categorize the overall financial performance as strong, neutral, or weak.
• Justify your categorization based on the company's financial performance
• Conclusion
  • State your investment recommendation of "buy" or "do not buy" for your chosen company.
  • Summarize the key financial considerations that support your investment recommendation.

My past essays........

The Financial Statement Analysis paper

Starbucks Corp (SBUX) has experienced notable fluctuations in its financial performance over the past five years. This analysis delves into the trends in revenues, operating income, and net income, as well as changes in margin metrics that illuminate the company's economic health. Furthermore, it examines shifts in total current assets, total assets, total liabilities, and total shareholders' equity to identify the financial strengths and weaknesses inherent in Starbucks' operations. These insights will inform expectations regarding future risks and cash flow projections.

Revenue, Operating Income, and Net Income Trends

Examining Starbucks' revenue over the past five years reveals a mixed trajectory. The most evident peak came between fiscal year (FY) 2021 and FY 2022, when revenue surged by 23.6%, reflecting a robust recovery following pandemic-induced disruptions. However, this growth trend did not sustain, as revenue growth slowed significantly to 0.6% by FY 2024, suggesting either market saturation or heightened competition that could hinder further expansion.

Operating income exhibited a similar volatility. While it skyrocketed by 199.0% in FY 2022, this impressive figure belied subsequent struggles, with a 19.5% drop in FY 2023 and a further decline of 7.9% in FY 2024. These diminishing returns underscore operational challenges that Starbucks faces as it navigates its market landscape. In the same vein, net income reflected the same pattern of volatility, demonstrating a 21.9% decrease in FY 2023 following the substantial boost in FY 2022. The continued decline into FY 2024, where net income fell by 8.8%, underscores the pressures stemming from escalating expenses and the struggle to maintain profitability.

Changes in Margins

The trends in gross margin, operating margin, and net profit margin provide further insights into Starbucks' profitability dynamics. The gross margin has shown a downward trend, with a 1.4% decrease recorded in FY 2024. This decline can be attributed to a rise in costs of revenue that has outpaced revenue growth, indicative of challenges associated with pricing strategies or increased supply chain costs.

Operating and net profit margins also reflected adverse trends. The operating margin fell by 7.9% in FY 2024, signaling increased operational expenses relative to revenues. This decline suggests a potential inefficiency in cost management practices. Likewise, the net profit margin's decline of 8.8% in FY 2024 illustrates the cumulative effect of reduced operating income and pressures from taxation and extraordinary items on the bottom line.

Trends in Assets, Liabilities, and Shareholders' Equity

In terms of balance sheet metrics, insights into total current assets, total assets, total liabilities, and total shareholders' equity reveal important trends. Total current assets exhibited a decrease of 6.2% in FY 2024, which raises concerns regarding liquidity management within the company. Conversely, total assets increased modestly by 6.4%, driven by ongoing investments in infrastructure as Starbucks seeks to capitalize on post-pandemic consumer behaviors.

The liabilities picture painted a slightly different story. Total liabilities continued their upward trajectory, increasing by 3.6% in FY 2024, suggesting heightened leverage that may introduce financial risk. On a more favorable note, total shareholders' equity showed a stable increase of 6.8%, reflecting effective retained earnings management and reinforcing capital structure.

Common Size Ratios

When looking at the balance sheet ratios, several trends emerge. The percentage of total current assets to total assets has declined, reflecting rising total assets without a proportional increase in current asset efficiency. Conversely, total liabilities as a percentage of total assets have risen, indicating a growing reliance on debt financing that could elevate future risk. Meanwhile, total shareholders' equity as a percent of total assets remained stable or increased slightly, suggesting a commendable foundation for equity financing relative to liabilities.

Strengths and Weaknesses

The analysis indicates several strengths and weaknesses in Starbucks' current financial framework. On the strength side, the company maintains a strong market presence, enhanced by its brand recognition. The growth in total assets and shareholders' equity enhances its resilience, indicating a solid foundation for long-term viability. However, weaknesses primarily manifest in declining margins that point to challenges with cost control and profit generation. The volatility in income growth highlights increased sensitivity not just to market fluctuations, but also to operational efficiency issues.

Future Implications

Understanding these financial strengths and weaknesses provides critical insights into the future financial outlook for Starbucks. While the firm has substantial assets and equity backing its operations, the identified weaknesses could result in increased risk in future operational performance. The declining margins pose a potential threat to future cash flows, particularly if current challenges persist or worsen.

In conclusion, the analysis of Starbucks Corp's financial performance underscores the importance of monitoring trends in revenue, operating income, net income, and related margins. As the company navigates its competitive landscape, recognition of its financial strengths and acknowledgment of its vulnerabilities will be vital for informed decision-making regarding capital investments and growth strategies. Stakeholders should remain vigilant in assessing how these dynamics will influence the sustainability and profitability of Starbucks in the face of evolving market conditions.

Reference

Starbucks (2020-2024). Starbucks (SBUX): As reported annual balance sheet August 7,2025. Mergent Online.

The Cash Flow Analysis paper

When assessing a company's financial health, cash flow performance is a crucial indicator that offers insights into its operational efficiency and profitability. This evaluation focuses on key cash flow metrics, including the EBITDA percentage, Free Cash Flow (FCF), and Cash from Operations, examining their trends over the current, 5-year, and 10-year periods. By analyzing these metrics, we can develop a clearer understanding of the company's ability to generate cash and sustain its operations in the long term (Hickman et al., 2024).

Here's an analysis of the company's cash flow performance metric retrieved from Mergent Market online.

Metric	Current (%)	5-Year (%)	10-Year (%)
EBITDA %	8.1	9.6	13.0
Free Cash Flow %	-4.8	9.9	3.0
Cash from Operations %	0.6	32.2	3.4

Growth in EBITDA Percentage

With a 10-year average of 13.0%, a 5-year average of 9.6%, and a current value of 8.1%, the EBITDA percentage (Earnings Before Interest, Taxes, Depreciation, and Amortization) is decreasing (Mergent, 2025, Starbucks). A falling EBITDA percentage signals a gradual decline in the company's core operating profitability. This could be due to slower revenue growth or higher operating expenses.

Growth in Free Cash Flow The trend of the Free Cash Flow (FCF) percentage is erratic. Its current value is negative at -4.8%, but its 10-year and 5-year averages are 3.0% and 9.9%, respectively (Mergent, 2025, Starbucks). A company with a positive free cash flow (FCF) has money left over after operating and capital expenses are covered. This money can be used for debt reduction or dividend payments. Because it indicates that the business isn't generating enough revenue to cover its capital expenditures, the current negative value is alarming. Growth in Cash from Operations There has also been a notable drop in the Cash from Operations percentage. The current value is 0.6%, compared to the 5-year average of 32.2%. This sharp decline indicates a substantial decrease in the company's ability to generate revenue from its core operations.

Cash Flow Metrics Explained Although each of these three metrics offers a unique viewpoint, they are all essential for comprehending a company's financial health. The most straightforward indicator of a company's ability to generate profits from its core business operations is Cash from Operations (CFO). After deducting costs such as rent and salaries, it shows the profit made from the sale of goods or services. This is a critical measure of operational effectiveness and profitability (Seth, 2024).

A company's profitability before the effects of capital structure (interest, taxes) and non-cash expenses (depreciation, amortization) is indicated by the accounting metric known as EBITDA. Since it overlooks changes in working capital (such as inventory or accounts receivable), it is often used as a proxy for a company's operating cash flow; however, it is not an accurate measure of cash flow. When comparing the core profitability of businesses in the same industry, it is helpful.

Compared to CFO, free cash flow (FCF) is a more thorough indicator of financial health. It is the amount of money a business has left over after all of its capital expenditures (CapEx) and operating costs have been paid. The cash that is actually "free" for the business to use for purposes such as dividend payments, stock buybacks, and debt repayment is known as free cash flow (FCF).

Analysis of Cash Flow Performance According to the provided image, the company's cash flow performance indicates a higher risk profile. The substantial drop in Cash from Operations and the negative free cash flow indicate a declining capacity to raise money from core business operations, as well as a possible inability to finance future expansion or pay debts without taking on additional debt. This pattern suggests a risk to the company's future cash flow, which may impact its ability to make investments, distribute dividends, or settle debt.

Classification of Overall Financial Performance I would classify the company's overall financial performance as weak, based on the provided cash flow performance metrics. Rationale The notable drop in important cash flow indicators primarily justifies this classification. A significant warning sign is the decline in Cash from Operations, which went from a 5-year average of 32.2% to its current value of 0.6%. This suggests that the business is struggling to generate revenue from its core operations. Additionally, the current period's negative free cash flow indicates that the business is not generating sufficient funds to cover its capital expenditures, which is not a long-term viable strategy. Although the business may have performed well in the past, current trends indicate that its financial situation has deteriorated significantly. This assessment evaluates the company's cash flow performance based on the financial data provided. Assessment of Cash Flow Growth Key cash flow metrics for the company show a worrying decline. The current EBITDA percentage of 8.1% shows a decrease in core operating profitability from a 10-year average of 13.0%. In a similar vein, the rate of Cash from Operations has plummeted from a 5-year average of 32.2% to a pitiful 0.6% at present (Mergent, 2025, Starbucks). This indicates a significant decline in the company's ability to generate revenue from its core operations. The most concerning is that, in sharp contrast to its 5-year average of 9.9%, Free Cash Flow % is currently negative at -4.8%. A negative free cash flow indicates that the business isn't generating enough revenue to cover its capital expenditures and ongoing expenses.

An explanation of cash flow metrics The term "cash from operations" (CFO) refers to the money made from a business's regular operations. It is a basic indicator of financial well-being. By subtracting non-cash costs, such as interest, taxes, and depreciation and amortization, EBITDA a profitability metric roughly represents operating cash flow. It helps compare the operational performance of businesses. The money a business has left over after covering its operating and capital expenses is known as free cash flow, or FCF. It is the most thorough indicator of a business's financial adaptability.

Classification and Rationale This analysis indicates that the company's overall financial performance is subpar. The primary defense is that its capacity to produce revenue has drastically decreased. Two severe warning signs are the sharp decline in Cash from Operations and the negative Free Cash Flow. This pattern suggests that the business is losing efficiency and may struggle to pay its debts or finance future expansion. The current downward trend suggests an increased financial risk, despite some metrics demonstrating historical strength.

In summary, this assessment of the company's cash flow performance reveals concerning trends across critical financial metrics. The decline in EBITDA, the negative free cash flow, and the sharp drop in cash from operations indicate significant challenges to the company's economic stability and operational efficiency. These trends suggest a pressing need for management to address the underlying issues that are impacting profitability and cash generation. Without decisive action, the company's long-term viability and growth potential could be jeopardized, highlighting the urgency for strategic realignment and improved financial management.

Reference

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

Seth, S. (2024, May 29). Cash Flow From Operating Activities (CFO) Defined, With Formulas. Investopedia.https://www.investopedia.com/terms/c/cash-flow-from-operating- activities.asp

Starbucks (2020-2024). Starbucks (SBUX): As reported in the annual balance sheet on August 28, 2025. Mergent Online.

The Financial Rate Analysis paper

Starbucks' five-year forecast for FY2020-FY2024 indicates that while margins and returns have significantly improved since the pandemic, they have not fully recovered to pre-pandemic levels. The company demonstrates steady asset efficiency, but it has weaker liquidity, characterized by sub-1 quick and current ratios, along with more negative working capital. Additionally, Starbucks exhibits higher balance-sheet leverage, with an increase in the debt-to-assets ratio compared to 2020, although it maintains sufficient interest coverage.

When comparing Starbucks to McDonald's, it performs worse on most margin, return on assets (ROA), and liquidity metrics. However, Starbucks has better efficiency, evident in superior receivables and asset turnover, though it has poorer inventory turnover and a longer cash cycle. Overall, Starbucks' financial performance can be characterized as average. While it is profitable and efficient, its structural margins are lower, liquidity is constrained, and balance sheet risk is higher than that of its competitors.

In this analysis, we draw upon various financial figures sourced from the Mergent and FTSE Russell pages, specifically focusing on Starbucks Corp (SBUX) and its competitor, McDonald's (MCD). The data spans annual ratios from fiscal years 2020 to 2024 for SBUX, along with a comparative ratio analysis between the two companies using both the trailing twelve months (TTM) and five-year averages. Standard definitions for financial ratios have been utilized, including margin as a measure of sales profit, quick ratio calculated from current liabilities, cash, short-term investments, and receivables, and current ratio derived from current liabilities and assets. Additionally, asset turnover is expressed as total assets against sales, and interest coverage is approximated through interest and EBIT. It's important to note that both SBUX and MCD exhibit negative book equity, rendering equity-based ratios like ROE and debt/equity not meaningful in this context; thus, the focus shifts to more applicable metrics such as ROA, ROIC/ROI, coverage ratios, and debt/assets for insights on solvency and returns.

Over the past five years, Starbucks has demonstrated a notable trend in profitability, showcasing significant improvements in both margins and returns. The gross margin peaked at 28.9% in 2021, while operating margins saw a strong rebound, reaching 19.7%, before settling slightly lower at 15.0% in the most recent year in 2024. This upward trajectory in profitability underscores the brand's resilience and operational efficiency. Notably, returns on assets (ROA) averaged impressive figures, peaking at 14.2% in 2023, and return on invested capital (ROIC) reached an outstanding 78.2%. However, both operating and net margins experienced a mild decline compared to earlier peaks. Overall, the trends reveal that Starbucks has effectively maintained healthy ROA and ROIC, contributing to its overall value and financial health.

The analysis of liquidity and leverage reveals several critical trends. Efficiency metrics indicate solid performance, with asset turnover remaining stable at around 1.2 and receivables turnover consistently high, hovering between 27.4 and 31. Inventory turnover has shown some improvement compared to 2020 but remains flat year over year.

In terms of liquidity, both the quick and current ratios are deteriorating, with values falling below 1, and net working capital has become increasingly negative, indicating a decline in short-term financial health. Regarding leverage, total debt as a percentage of assets has increased since 2020, suggesting higher leverage, although the interest coverage ratio remains adequate despite a downward trend from 2021. Long-term debt relative to market value has remained stable, while debt-to-equity ratios reflect negative equity across all years. The cash flow metrics show a healthy operating cash flow, with operating cash flow per share demonstrating a positive trajectory, although free cash flow per share has fluctuated. Dividend coverage is strong, indicating that cash dividends are well-supported by operating cash flow. In summary, while operational efficiency is solid, the company's liquidity position has weakened, leverage has increased since 2020, but coverage remains adequate.

In assessing the financial performance highlighted in the recent analysis, we note a mixed picture regarding profitability margins and returns, which show slight deterioration compared to the peak observed in FY2021 but remain better than those in FY2020. This overall assessment reflects a mild slippage within FY2024. Efficiency has seen improvements followed by stability, whereas liquidity presents a concerning trend with deteriorating quick and current ratios falling below 1, alongside increasingly negative net working capital, raising short-term liquidity risks. Although leverage has increased since 2020, interest coverage remains adequate, indicating low near-term solvency risk, although attention should be paid to refinancing costs.

Notably, operating and net margins are pressured due to cost inflation and mix challenges, meaning a 100 basis point change can significantly impact operating and free cash flow. While high asset and receivable turnover contribute to a resilient cash conversion cycle despite current margin pressures, there has been a decline in free cash flow per share in FY2024, which limits the capacity for buybacks without taking on further leverage.

Key ratios for evaluating forward risk and cash flow sustainability include operating and cash flow margins, quick and current ratios, and net working capital metrics, all vital for assessing financial health and liquidity during downturns (Hickman et al., 2025). Furthermore, the interest coverage ratio and debt-to-assets ratio provide insights into solvency and balance-sheet flexibility, while inventory and receivable turnovers demonstrate resilience in cash conversions amid fluctuating demand. Lastly, the figures for free cash flow per share and dividend coverage are essential for understanding the company's ability to support dividends and growth without relying on additional leverage.

Peer comparison: Starbucks vs. McDonald's

Profitability & management effectiveness (TTM unless noted)

Margins & returns.

Metric	MCD	SBUX	Lead
Gross margin % (TTM)	57.0	23.74	MCD
Operating margin % (TTM)	45.80	10.81	MCD
Pretax margin % (TTM)	40.57	9.64	MCD
Net margin % (TTM)	32.21	7.18	MCD
Gross margin 5yr avg %	55.38	26.46	MCD
Operating margin 5yr avg %	42.62	14.78	MCD
Pretax margin 5yr avg %	37.57	13.46	MCD
Net margin 5yr avg %	30.03	10.38	MCD
ROA % (TTM)	14.81	8.26	MCD
ROI / ROIC 5yr avg %	14.66	16.00	SBUX (historical)
ROE %	N/M	N/M	N/M (negative equity)

Growth context (CAGR).

Growth	MCD	SBUX	Lead
Revenue 3yr %	3.7	7.6	SBUX
Revenue 5yr %	3.9	6.4	SBUX
EPS 3yr %	4.3	-2.3	MCD
EPS 5yr %	7.4	2.5	MCD
Free OCF 3yr CAGR %	-17.3	-32.7	MCD (less negative)
Free OCF 5yr CAGR %	-3.4	-13.1	MCD

Verdict (profitability & effectiveness):SBUX underperforms on current margins & ROA; historically competitive on ROIC but recent earnings/FCF growth trails MCD.

Financial strength (liquidity & leverage)

Metric	MCD	SBUX	Lead
Current ratio (x)	1.30	0.76	MCD
Quick ratio (x)	1.29	0.55	MCD
LT debt / total capital %	105.6	151.1	N/M (negative equity distorts)
LT debt / assets %	68.5	43.3	Mixed (MCD higher leverage)
Interest coverage (x)	9.5	24.4	SBUX

Verdict (financial strength):SBUX underperforms on liquidity (sub1 ratios) but outperforms on interest coverage. Interpretation of "debt/capital" is not meaningful for either firm due to negative equity.

Efficiency (turnover)

Metric	MCD	SBUX	Lead
Receivable's turnover (x)	10.5	30.7	SBUX
Inventory turnover (x)	22.1	19.6	MCD
Asset turnover (x)	1.0	1.2	SBUX
Revenue/employee (US$)	173,733	101,632	MCD
Avg net trade cycle (days)	7	16	MCD

Verdict (efficiency):Mixed.Starbucks turns assets and receivables faster; McDonald's runs a leaner cash cycle and generates more revenue/profit per employee (franchiseheavy model).

Starbucks' overall financial performance is assessed as "Average," showing mixed profitability with deteriorating margins compared to previous peaks but remaining better than pandemic lows. While efficiency metrics indicate stable asset turnover and healthy inventory management, liquidity has worsened, evidenced by low quick and current ratios. Compared to McDonald's, Starbucks struggles with lower margins due to its store-operated model and weaker liquidity, despite strong interest coverage. Future risks include margin compression and tight liquidity, while upside potential lies in effective pricing strategies and maintaining high store productivity. Key indicators to monitor for improvement include operating margins, cash flow metrics, and liquidity ratios (Hickman et al., 2025).

In Conclusion, Starbucks has bounced back quickly from the lows it hit during the pandemic in 2020. Its margins, returns on assets, and efficiency have all improved, but they haven't quite reached the highs they saw in 2021. Asset and receivables turnover are still high, which helps generate cash. However, liquidity has gotten worse, with quick and current ratios below 1 and net working capital becoming more negative. Leverage, as defined by debt-to-assets, is higher than it was in 2020, but interest coverage is still good. Starbucks is less profitable, less liquid, and less efficient than McDonald's, although it does better in terms of receivables and asset turnover and has better interest coverage. Starbucks' overall financial performance is assessed as average. Its strong brand, large turnover, and solid ROIC make it strong, but its low margins, restricted liquidity, and high leverage make it risky for future cash flow and financial flexibility.

References

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

Mergent Market Atlas. (2025, August). Peer Competitor Ratio Comparison. McDonalds's Corp.

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