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Laguna College of Business

and Arts
School of
Accountancy

EVALUATION OF THE POSSIBLE IMPACT OF THE COMPETITION ON


STARBUCKS SHARE PRICE

A Case Study
submitted
In partial fulfillment of the
requirements for Financial
Accounting III and Advanced
Accounting I

Submitted
by:
Dizon, Nayra Franchesca M.
Lopez, Charie Lyn O.

Submitted
to:
Jerome Gelacio, CPA, MBA
Dean, SOA Jeser P. Javier, CPA
I. Evaluation of the possible impact of competition on
Starbucks Share Price.

II. Time
Frame

The study is to examine over 2005-2007 period. (2004 as the base


year)

III. Point of
View

This case is b a s e d o n t h e p o i n t of view of an Analyst; reviewing


the reports of Starbucks and other competitors using their common-size
statements.

IV. Case
Facts.

Starbucks Cofee Companys shares had dropped roughly 40%, this


happens during
2005- 2007 period. Financial statements as of 2004, 2005, 2006, 2007 were
given. Since Starbucks is a large company, and their rivals, such as
Panera and others, is a much smaller company, the statements gathered
are in common-size form. Starbucks net profit is 10 times higher than
Panera.

V. Statement of the
Problem

(a) How did Starbucks Cofee Company end up decreasing its Share
price?
(b) Did the establishment of new competitors afect the performance of
Starbucks?

VI.
Objective
s

The study of this case is to-


a. Identify the possible impact of competitors in the industry on
Starbucks share
price.
b. Examine Starbucks performance within its time frame.
c. Evaluate Starbucks on how it will end up decreasing its share
price.

VII. AREAS OF
CONSIDERATION
Areas to be considered are:
1. The presentation of the common-size financial reports
2. The existing market competition
3. The economy on that period

These areas are highly considered to determine why Starbucks share


price decreased.
VIII. ALTERNATIVE COURSES OF ACTION

As per common-size financial statements of Starbucks and Panera


breads, it was clear that both companies, regardless of the size, are both
doing fine in the market, they have both increased their revenues from 2004-
2006 and a slight decrease on the year 2007.

Based on the comparison of the two statements, Panera Breads


performs almost the same with Starbucks, if you will focus on the percentage
of its profit to its total sales/revenue; both have increasing earnings per
share and increasing figures in the balance sheet.

Panera breads, together with other competitors, such as McDonalds,


and Dunkin Donuts really do have an impact on Starbucks share price and
considering the year 2007 there is a slight recession and economic break-
down. Both Gross profit margins of Starbucks and Panera Breads are
declining as years go by.

Based on these analysis, here are alternative

courses of Actions a.) Expand and increase new

stores internationally.
Advantage: To distribute the weight of economic factors in diferent
areas in the world. Disadvantage: More franchises and ownerships
will be admitted and control over the company will be also
distributed.

b.) Focus on Restructuring


Advantage: To be able to manage internally and externally, to k now
what is needed to be adjusted Including the customers demands.
Disadvantage: It is highly costly

IX. RECOMMENDATION

We highly recommend the first course of Action to expand and


increase new stores internationally.

X. DETAILED/ STEP BY STEP PLAN OF ACTION

As to the course of action, these steps should be observed and followed:

1. Study on the existing state of Economy in US.


2. Compare the economies of other countries.
3. Study the culture and GDP per capital of the countries where the
company plans on opening.
4. Find some credible business partners and find some people who
would like to franchise it.
XI. FALL BACK POSITION

Expansions and Franchises are risky for the company profit especially
internationally so if by any means this course of action failed, the second
course of action may take place because what more a company can do
aside from expanding is restructuring and having intensive study about what
more they can ofer to the customers such as rewards, promos, and anything
new that can withstand and outtake the existing and new competitors.