Starbucks Financial Analysis Paper

For this assignment, I decided to access the inherent risk of Starbucks Corp. We all might have heard of Starbucks in the past. On our campus alone, there are two Starbucks locations. I frequently go there for tea or hot water before my evening classes to stay awake. Although Starbucks sell teas, salads, drinks, muffins, and cakes, its primary product line is coffee. This is how management described its operations “Starbucks purchases and roasts high-quality whole bean coffees and sells them, along with handcrafted coffee and tea beverages and a variety of fresh food items, through company-operated retail stores” (Starbucks Corp., 2016)

Starbucks Corp. is an American company with locations all over the world. As of 2015, it had 23,043 stores of which 10,808 were licensed stores and 12,235 company operated. Most of these licensed stores are international locations. In terms of revenue generation, the Americas (US, Canada, and Latin America) stores accounted for 69% of the total revenues in 2015 (Starbucks Corp., 2016). This high

operations are highly susceptible to economic factors outside its control. For instance, the price of coffee beans, which is the raw material for its primary product line, fluctuates every year. The company might be able to hedge against these fluctuations for a period, but this is something that will persist for a long time.

In addition to fluctuations in commodity prices, Starbucks Inc. is highly susceptible to negative economic conditions. Its main product line is not a necessity and as such it depends on the discretionary fund of customers. During economic hardships, customers will easily cutback on their coffee purchases, especially expensive ones. To save costs, they might purchase plain coffee or a coffee bag from retailers like Walmart, or Costco. This is something that is beyond Starbuck’s control and it is a huge part of its inherent