M14MBA 037

Horizontal Analysis (Starbucks Coffee)

Comments:
Profit & Loss Account:
Sales showing an increase over the last 4 years which is may be
due to increase in volume. Operating costs also tends to increase
in same percentage so as to the sales. The increase in selling and
administrative expenses is less than the increase in sales or
operating expenses which is due to better policies of the
company. Interest expenses are increasing at high rate which is
indicating the high borrowings of the company. The major reason
behind theses borrowings may be the growth opportunities and
insufficient internal resources to avail those growth opportunities.
As the result of increase in sales the net earnings of company also
showing an upward trend indicating good performance of the
company throughout the 4 years period. Despite the good
performance and increasing trends in sales the EPS of company
are not very good. There has been a decline in book value of
equity in years 2005 and 2006 while in 2007 there is a slight
increase in book value. The company hasnt paid any dividend
during 2004 to 2005. The reason behind retention may be the
growth opportunities or insufficient earnings to maintain
competitive position in the market. The company is retaining
100% and has also borrowed from outside. The overall profit &
loss account showing increasing trend a good performance of
company for continuously 4 years.
Balance Sheet:
Financial position of the company of showing a mixed (increasing
and decreasing) trends. Total current assets of the company are
increasing except in 2005 where it shown a slight decrease. This
decrease is due to reduction in short-term investments by the
company in 2005. There has been a significant decline in shortterm investments from 2005 to 2007 as compared to 2004.
Beside short-term the long term investment has also decreased to

a great extent and it is minimum in 2006. This decrease in

investment indicating that company is utilizing it resources for
expansion purposes and for maintaining its position in the market.
Plant & equipment shown a slight decrease in 2005 as compare to
2004. This decrease may be due to sale of fixed asset. But after
2005 plant and equipment are increased approximately at 100%
rate which is justifying the retention and borrowings of the
company. It is shown that company is investing in plant and
equipment to increase in production capacity and to increase the
sales volume. It is clearly indicating the growth opportunities
available for the company.
Total current liabilities of the company are increasing at a rate
which is far higher than the increase in total current assets. The
current ratio of the company is showing that the company is
facing short-term liquidity problem in all 4 years except in 2004
where the current ratio is satisfactory. The major causes of
increase in current liabilities are the short-term borrowings and
current portion of long-term debts.
Company is meeting its capital requirements by issuing long-term
bonds which is increased to 13750% in 2007 as compared to
2004. The paid up capital of company has decreased from 100%
in 2004 to 3.92% in 2006 and 2007. The retained earnings are
continuously increasing indicating the retentions. Total common
equity has decreased due to decline in paid up capital. Decline in
paid up capital indicating that company is more relying on debts
than to own sources.

Comparison
Panera Bread

Between

Starbucks

Coffee

&

Income Statement:
Sales of both companies are increasing but rate of increase in
Panera Bread is much higher than Starbucks Coffee which is
247.1% in 2007 as compare to 2004. While in Starbucks this
increase was 177.77% in 2007 as compared to 2004. The reason

behind the higher increase in Panera Bread sales may be the

more variety of the products offered to customers. But in terms of
Volume the sales of Starbucks coffee are much higher.
General and administrative expenses in both companies are
increasing from 2004-07. But the rate of increase is higher in
Panera Bread as compared to Starbucks Coffee. This indicates
that Starbucks Coffee is appropriately managing and controlling
its general and administrative expenses.
Operating profits of Panera Bread has decreased in 2007 than to
previous years but there are still much higher than Starbucks
Coffee in term of magnitude. But if we consider it in terms of
percentage the increase is higher than Panera Bread. The one
reason behind this decline is significant increase in pre-opening
and general and administrative expenses.
Despite the heavy profits the EPS of Starbucks Coffee is much
lower and the company is not distributing any profits rather they
are going for retention. The is maintaining a sufficient amount as
retained earnings to avail growth opportunities. In case of Panera
Bread, the EPS is little higher than Starbucks Coffee. But the
increase in percentage of Starbucks Coffee is higher.
Balance Sheet:
Total Current assets of both companies are increasing form 200407. If we look at the magnitude the current assets of Panera Bread
are much lesser than Starbucks Coffee and it is indicating a good
short term financial position of the Starbucks coffee.
Starbucks has reduced its long-term investments from 2005-07 as
compared to 2004, rather it is investing in fixed assets to increase
its production capacity and to avail growth opportunity. Overall
assets of Starbucks are on increasing trend. Fixed assets of
Panera Bread is increasing but there are much lower in magnitude
as compare to Starbucks Coffee.
For Starbucks Coffee, there is a significant increase in total
current liabilities because the company has gone toward the

short-term borrowings and commercial papers. In Panera Bread

the rate of increase in current liabilities is higher than Starbucks
Coffee but in terms of magnitude it is much lesser.
Long-term liabilities of both companies are increasing. But in
Starbucks the long-term debts are much higher than Panera
Bread which is $90 million approx. while they only $12 million
approx. But if we look at the percentage change the change in
Panera Bread is higher than Starbucks Coffee.
The paid up capital Starbucks has declined approximately 97%
from 2004-07. This decline is because of the companys reliance
on borrowings. While the paid up capital of Panera Bread has
shown a slight decline in 2007. Despite the great decline in paid
up capital of Starbucks Coffee it is still much higher than Panera
Bread.
Despite the changes it paid up capital the stockholders equity is
increasing for both companies because of increased retained
earnings.

Final Remarks:
Though the Income Statement and Balance Sheet of both
companies are on increasing pattern, but if we see the
percentages of both companies the rate of increase in Panera
Bread is higher than the rate of increase in Starbucks Coffee.