Financial Statement Analysis: Starbucks Vs. Dunkin' Donuts

Summary

Long-Term investments are significant for most people or companies to help bring profitable income to either an individual or company. Anyone or business would need to understand the company that they would invest and understand various sections of the Financial Statement to make proper analysis to determine which company to invest. I have two companies to consider, Starbucks and Dunkin’ Donuts, which are a familiar coffee brand, shops, and products to most people around the world. Both corporations are presented in public trade on NASDAQ, and consumers can invest with either corporation to bring profitability to themselves or their company.

After careful research with the two companies, I would prefer to long-term invest with Starbucks to see steady profits over time. With the proper analysis that I have created with Starbucks and Dunkin Donut’s financial statements, it will conclude that Starbucks will hold constant profitability overtime versus Dunkin Donuts. After reading this paper, you will explore various ratios and analysis that Starbucks will great a significant outcome for long-term investors compared to Dunkin’ Donuts. One primary importance that Starbucks has shown higher than Dunkin’ in the study is that Starbucks demonstrates a higher shareholder value, which investor love. Dunkin’ Donuts is an excellent corporation with parts in the financial statements better than Starbucks, but overall, Starbucks holds a better long-term investment for the shareholders or stakeholders.

Industry and Company Overview

Coffee is a popular drink all around the world that consumers love to drink or to make. Coffee is caffeine, and any caffeine is supposed to bring more alertness to someone’s attention or even some energy to a person. People will drink coffee before going to work or even when they are working on something. Coffee shops or product are available anywhere in the world and are easily accessed for consumers that are in need. We can find these coffee shops in almost every local community or city and can see the product at nearly any grocery store or gas station. Coffee shops are not just a place to grab a drink, but understanding the culture of the coffee shops is to bring more people together. The culture has brought meetings in place, first dates, or the enjoyment of life with sitting and drinking coffee.

There are so many coffee shops in the world like Starbucks, Dunkin’ Donuts, Tim Hortons, and more that available for consumers. In the United States, Starbucks and Dunkin’ Donuts are the most popular coffee shop places. Living in Seattle, Washington, we can see that there a Starbucks at almost every corner and easily accessed. Dunkin’ Donuts is famous all on the East Coast of the United States and convenient for every consumer. The reason why I would invest in either of these two companies that you can imagine that if coffee is so accessible to ever consumer, you can imagine how busy Starbucks and Dunkin’ Donuts will be.

Starbucks is well known in Seattle, Washington, and all over the world because it is the leading coffee brand. The company is known for its ‘premier roaster, marketer and retailer of specialty in the world.’ Starbuck shops have high-quality coffee and will serve with tea, high-quality food items, and other coffee-related beverages. Starbucks has a goal to help with various healthy items on their menu and ensure their products beneficial for the customers. They also created coffee products that consumers can get from the store rather than going to the coffee stops. Their coffee shops are made to ensure significant meeting areas, studying, reading, and more for the consumers. The company has various market strategies to be able to compete in the coffee industry and had made investments to better their company in the long run. Starbucks has competition with any other coffee store or corporation with a little market with quick food restaurants. The company tries to treat its employers with proper respect by offering good wages, benefits, and opportunities for educations or growth.

Dunkin Donuts is a restaurant that is popular for its coffee and donuts but has open the market to various food. The company has provided multiple food options and made it affordable for the industry market to its consumers. Dunkin Donut is one of the largest ‘quick service’ restaurants in the world, and it is in the leading market with competitive markets. We might not see many Dunkin Donuts on the West Coast, but we do have many Baskin-Robbins, which is franchised by Dunkin’ Donuts. Baskin Robbins is an ice cream shop that mostly serves ice cream and cakes for its consumers. Dunkin’ Corporation has an operation in 60 countries worldwide and would grant to open more if there is proper distance between another. The company has four different segments with Dunkin’ Donuts Domestic, Dunkin’ Donuts International, Baskin Robbins Domestic, and Baskin Robbins International. Most of the revenues will come from the Domestic, and while little contrition comes from international. The company is growing and becoming more popular than in the past couple of years. It has significant competition with Starbucks, but with opening more food menus with their service, it has competition with various quick-service restaurants and coffee stops.

Evidential Matter

The short-term liquidity ratios can determine which company to long-term investment by observing how efficiently the company can pay-off their debit. I had analyzed both the company’s short-term liquidity and found that both companies had increased after Year 1 then declined after Year 3, due to various investments. We can review some key ratios that can help determine long-term investments like Current Ratio, Acid Test Ratio, Account Receivable Turnover, and Working Capital. In Year 1, Dunkin Donuts started with a Current Ratio with 1.33 and increased over time to Year 4 to 1.51. Between Year 1 and Year 4, the company had a significant increase, then a slight decline between those two years but still with a more excellent ratio than Year 1. We can review the Acid Ratio to determine if Dunkin’ can pay their liabilities and if it is favorable to make the long-term investments. In Year 1, Dunkin’ will start with .93 and increase in Year 4 to 1.22 while having an increase and Decline in Year 2 and 3. Investors would want to know how the company can turn their products into cash with Dunkin’ increasing in the last four years. The working capital in Dunkin’ had increased over time, with increased substantially then decreased over time.

Starbucks has a similar ratio and the same analysis with Dunkin, but comparably Dunkin’ has done better than Starbucks. The Current Ratio had Declined over time by Year 1 being 1.05 to Year 4 as 0.92 with a significant decline in Year 3 to Year 4. As we review the Acid-Test Ratio, we can also see that there was a slight decline in Year 1 as .64 to Year 4 as .58. The information demonstrates the company has less ability to meet the current obligations because the current ratio and acid-test ratio went down. The level of current ratio and the acid-test ratio is at its lowest for the past four years. Starbucks has proved better than Dunkin’ with turning product over cash quickly by having a consistent increase over the past four years while Dunkin increase and Decline. I assume that Starbucks is making more significant investments that reducing its ratio’s results to Dunkin’ Donuts.

The capital structure will demonstrate outstanding debt, and equity and that information will inform us how the company is positively growing with its financial income. After careful analysis with the statements and 10-Ks, I concluded that both companies rely heavily reliant on long-term liabilities, which show that companies have a high level of debt on. We can review the financial statement and focus on the various stocks that the company has issued. Dunkin’ Donuts has a treasury stock constant for the past four years at -.03% and Common Stock between Year 1 at 92 to Year 4 at 82. Starbucks has a Common Stock consistent at Year 1 with 1.50 to Year 4 at 1.20. Both companies have a similar situation with Capital Structure and would suggest going with Starbucks because it has little better ratio analysis.

After understanding the Capital Structure of both companies, we need to explore the return on invested capital to demonstrate the effect on profits the company earned. The data show that Starbucks is more solvent than Dunkin’ Donuts because of enormous total debt to equity, current liabilities to total liabilities, earnings to fixed charges, and cash flow to fixed costs. We can review Starbucks and Dunkin Donuts’ financial statements to prove that Starbucks is more solvent. The total debt to equity of Starbucks at Year 1 was 1.43 and reduced to -4.08 in Year 4. The company had reductions every year from year 1 to year 4. Dunkin Donuts had started in Year 1 with -15.48 and increase to -5.85 in Year 4, which is still less than Starbucks, and Starbucks can expect an excellent growth rate. Another information we can examine is that Cash flow to fixed charges because the results are substantially different, from Starbucks starting at 75.76 in Year one from the significant decrease at 18.88 in Year 4. While Dunkin Donuts had at Year 1 1.92 and grew at Year 4 with 2.09. I understand that Starbucks took a significant hit within the four years, but the information demonstrates that it would still be higher than Dunkin’ Donuts.

Overall the information provided in the Return on Invested Capital explains that Starbucks is a better company to invest than Dunkin’ Donuts. Dunkin’ has either had small growth or no growth with any profitable income they earned, and the company stayed consistent. While you can explore, Starbucks had significant growth or low growth with profits that they had accomplished. We can review both the company’s ROCE and RNOA results, and it would conclude that Starbucks has better growth in the industry than Dunkin’. As an investor, I would undoubtedly invest long-term in Starbucks with the information provided because I can positively see growth with my investment. At the same time, Dunkin’ would show small growth or stability.

The asset of Utilization is essential to understand when deciding on Long-Term investments because it will demonstrate how the company uses its assets and manages its assets. This information is ratios like Cash Equivalent, Receivable, Inventories, Working Capital, and various Assets. We can determine that Starbucks has better asset utilization because it utilizes more sales per dollar of assets invested versus Dunkin’ Donuts. As we can explore the results, it demonstrates that Starbucks has done way better than Dunkin. In examining Year 4, Cash Equivalent was about 2.55 with Dunkin’ and Starbucks at 9.87, which is a clear difference. Another result to explore would Receivables, and in Year 4 Dunkin’ is at 17.40 and Starbucks is at 30.15 with is also a significant difference. The other Asset ratios show considerable variation in the different years between each company and demonstrate Starbucks is better.

Financial Forecasting is essential for companies and investors to determine future profit growth or decline the company can face. I believe that as deciding on long-term investments that this data is necessary to understand and know because we can determine the returns on investments. When we look at both companies, we can conclude that both companies have done well at Year One and Two, but as soon as Year Three, the market for both businesses had dropped, and Revenue had fallen. After Year Three, both companies had successfully inclined the market shares and revenues, but we need to determine which company did better. I had made calculations and ratios for four years, and the data results show that Starbucks had done a little better than Dunkin’ Donuts. After forecasting the Balance Sheet and Income Statement, it became conclusive that Starbucks can do better than Dunkin’ in the long-run and would be profitable for long-term investments.

There can be many reasons that Starbucks can be more popular than Dunkin’ Donuts, but the primary reason I believe that Starbucks can provide more ‘coffee culture.’ Most people love to drink coffee or coffee-related beverage, and the consumer’s first instance would be a coffee shop. Dunkin’s Donuts is becoming and is a ‘fast food’ service restaurant versus a coffee shop where you can grab a quick beverage. Starbucks has also made huge investments that should significantly see positive progress on long-term investments.

After careful analysis with the two companies, we can determine that Starbucks would be the best long-term investment in the coffee industry. Dunkin’ Donuts is an excellent corporation and would be preferred for short-term investments or ‘quick turn arounds,’ but for the long-term, it would be preferred Starbucks. The data showed that Short-Term liquidity was favorable to Dunkin’ Donuts and the operating performance with profitability. While you can observe that Starbucks was more solvent in invested capital, Starbucks has a better asset Utilization and has a higher shareholder value. We can also find that Starbucks, in the long-run, would be more efficiently run compared to Dunkin’ Donuts.

A critical factor in reviewing this analysis is the Stock as an Investment between the two companies because that would be an essential data the investor would know. We can review Dunkin Donut at Year 1, starting the pricing per earnings ratio at 37.13, with decreasing overtime at Year 4 with 23.57. That is a steady drop and would accept it to drop more over time unless the company decides on positive investment. They have been keeping it stable with their corporation, while Starbucks had made growth and positive investment. Starbucks has a price per share ratio at Year 1 at 27.17 and Year 4 growth at 30.18. The company can demonstrate growth in the future and can receive positive shareholder and stakeholder growth.

Conclusion

After all the analysis, the company I would choose for long-term investments would be Starbucks because the company had better ratio analysis and a better outcome for the future. Starbucks had forecasted growth in Revenue by about 6% greater than the year 2019. In Dunkin Donuts, the growth rate in Revenue 3.6%, which is half of Starbucks. Other analyses had concluded that overall, Starbucks is better than Dunkin’. In the future, we can estimate that the company will have stronger growth than other industry competitors because the company has grown and anticipated that.

I love drinking Starbucks coffee like most consumers do and cannot resist. I mention that for a quick coffee or hot beverage than Starbucks would be favorable than other places. I believe it would be harder for Starbucks to lose capital and revenues over time because of how consumer popular it is. Dunkin’ is a great corporation but comparing Starbucks, and the investments would be greater when working with that company than Dunkin’

Works Cited

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