Between about December 2007 and June 2009, the United States was considered to b
ID: 2786342 • Letter: B
Question
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 several 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.
Year
2006
2007
2008
2009
ROE
0.253
0.294
0.127
ROA
0.106
0.126
0.056
ROIC
0.207
0.250
0.121
Asset Turnover
1.758
1.761
1.830
Op. Profit Margin
0.115
0.746
0.048
Long Term Debt Ratio
0.0009
0.241
0.221
D/E Ratio
0.987
1.340
1.277
Current Ratio
0.970
0.787
0.798
Quick Ratio
0.462
0.466
0.482
Payout Ratio
0.000
0.000
0.000
Plowback Ratio
1.000
1.000
1.000
Market to Book Ratio
6.088
3.099
1.374
Stock Price Used for Mark/Book
17.71
9.450
4.68
i- Use the ratios for the years 2007 and 2009 to explain if, in your view, Starbucks is in a better or worse situation in the year 2009 due to the recession.
Year
2006
2007
2008
2009
ROE
0.253
0.294
0.127
ROA
0.106
0.126
0.056
ROIC
0.207
0.250
0.121
Asset Turnover
1.758
1.761
1.830
Op. Profit Margin
0.115
0.746
0.048
Long Term Debt Ratio
0.0009
0.241
0.221
D/E Ratio
0.987
1.340
1.277
Current Ratio
0.970
0.787
0.798
Quick Ratio
0.462
0.466
0.482
Payout Ratio
0.000
0.000
0.000
Plowback Ratio
1.000
1.000
1.000
Market to Book Ratio
6.088
3.099
1.374
Stock Price Used for Mark/Book
17.71
9.450
4.68
Explanation / Answer
Looking at the ROE,ROA and ROIC for starbucks from 2006 to 2008, their is an downturn in these ratios which implies that the firm is providing a lower return every year from 2006 to 2008.Coupling above information with the reduction in public consumption we can conclude that the firm is not perforning at current moment and in worse situation in 2009 because of recesion.
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