Comparing Capital Expenditures
In certain industries there are clear leaders. For example, Wal-Mart is a clear leader in the retail industry and Google is a clear leader in search engines. But with smaller companies find ways to thrive in those giant’s shadows. Competition in the coffee industry is hard to distinguish at times, but Starbucks is a brand name that stands out on its own. Coffee competitors have done a good job of differentiating themselves by using environments and product mix. Coffee is the second largest U.S. import, and specialty coffee is forecasted to be an $11 billion dollar a year industry.
In order to strive in this industry, companies must have the appropriate buildings, properties and equipment. Capital …show more content…
Because the Starbucks Corporation has a business model that is giving positive results, the swift raise in capital expenditures is not being wasted. This is largely due to the fact that return on shareholder equity has been constant, range between 25-30% over the last three years.
QUARTER ENDED Dec. 30, 2012 Jan. 1, 2012 % change
Net Revenues: Company Operated Stores $ 150.50 $ 111.30 35.2 Licensed Stores 63.6 55.6 14.4
Starbucks has a proven business model that continues to be successful. The business environment has a low interest rate that encourages management to expand its capital expenditure, although it can cause an increase in the amount of liabilities on the corporation’s balance sheet. The increase in liabilities in order to capitalize on returns in the China/Asia/Pacific division that has an environment of high economic growth and lower interest rates, is a great investment opportunity. The financial debt to total debt ratio in 2009 was 0.11 to 0.0138 in 2012. This debt is comparatively low to the equity of shareholders.
The expansion of capital expenditures for the Starbucks Corporation did not produce a decline in the profit margin, but instead the profit margins increased from 2009-2012. The income GDP per capita worldwide in 2010 was $7329 and by 2020 it is forecasted to be at