Question
Between about December 2007 and June 2009, the United States was considered to be in a recession...
Main question document with supporting figures in following documents.
Between about December 2007 and June 2009, the United States was considered to be in a recession. The U.S. Gross Domestic Product fell approximately 3% from the third quarter of 2008 to the third quarter of 2009. Also, during December 2007 and June 2009, the Standard and Poor's 500 index dropped by 38% and the unemployment rate climbed from 5% to 9.5%. The macroeconomic situation affected almost all companies since higher unemployment affected personal consumption, which dropped from 10,140.3 Billion Dollars in Aug 2008 to 9,807 Billion Dollars in June 2009, a drop of 3.8 percent Starbucks is one of the companies affected by the December 2007 recession. The following table shows sever al ratios for Starbucks corresponding to the years 2006, 2007, and 2008. Use a stock price of 10.9 dollars per share for the year 2009 2006 2007 2008 Year ROE ROA ROIC asset turnover 0.253 0.106 0.207 1.758 0.115 0.0009 0.987 0.970 0.462 0.000 1.000 6.088 0.294 0.126 0.250 1.761 0.746 0.241 1.340 0.787 0.466 0.000 1.000 3.099 9.450 0.127 0.056 0.121 1.830 0.048 0.221 1.277 0.798 0.482 0.000 1.000 1.374 4.68 rofit margin term debt ratio D/E ratio current ratio uick ratio out ratio lowback ratio market to book ratio stock price used for market/book By using the financial statements provided, calculate the ratios presented in the table for the year 2009 and answer the following questions a- Were sales per dollar of assets impacted by the recession? a. Yes no b- Which ratio shows the impact of the recession on sales per dollar of assets? a. ROA b. Asset turnover ratio c. Quick ratio d. ROE Did the company operating profit margin increased, decreased, or was the same, between the years 2007 and 2009? c- a. Increase b. Decrease c. Did Not change d- Did the mix of debt and equity changed for Starbucks between the years 2007 and 2009? a. Yes
Explanation / Answer
a) Sales per dollar is asset turnover ratio
Asset turnover ratio in 2009 = Net sales / average assets
= 8180.1 / (5672.6+5576.8)/2
= 1.45
a) Yes, the asset turnover ratio has decreased as a result of recession.
b) b. Asset turnover ratio shows the impact of recession on sales per dollar of assets.
c) Operating profit margin in 2009 = operating profits / net sales
= 562 / 8180.1
= 0.067
b. decrease
d) Mix of debt equity in 2009 = TL / equity
= 2531.1 / 3045.7
= 0.83
a. Yes, the mix of debt and equity has chnaged between 2007 and 2009. The ratio has decreased as the company has shifted to more equity than debt in 2009.
e) c. Debt to equity ratio.
The chnage in mix of debt and equity can be seen in debt to equity ratio.
