The volume of mobile transactions has
increased so much, that in 1,200
stores they account for 20% of all
transactions at peak time
particular period. This differs from the
company’s cash profits as we’re going
to see later. The operating income, or
earnings before interests and taxes of
the company, has remained fairly
constant as a percentage of sales in the
last two years. It ranges from 16% to
19% which represents stable behavior
in the company’s operations. We expect
Starbucks operating margins to rise to
23%-25% as a proportion of sales in the
next five years as they are expanding
their business into more profitable
segments. As I mentioned before,
Starbucks is expanding in their
“Channel Development” division which
in many cases is just a way of licensing
Starbucks’ brand to put in other
products.
Like
their
possible
partnership with Nespresso to make
Starbucks branded coffee pods for
Nespresso espresso machines. Another
way margins are going to be improved
is by moving to more premium
segments which gives the company the
opportunity to also raise prices.
Finally, we have to see how the
accounting profits translate into cash
profits to assess how much the
company’s stock is really worth. As a
first step, to convert earnings into
operating cash flows. Then, we deduct
the capital expenditures which is what
the company spent in plant property
and equipment for the period.
The result of this is the free cash flow.
The end step would be to divide all the
future free cash flows to bring them to
1. Starbucks Corporation (SBUX)
2. One Up On Wall Street
3. Millenial Financial Times
4. Starbucks Corporation (SBUX)
You can find more of Juan's work
at his website
https://medium.com/millennial-
finance-times
Starbucks: A Growth Story