The DuPont analysis of Starbucks for 2011-2012 showed that return on equity decreased from 28.39% to 27.06%. This was primarily due to a slight decline in net profit margin from higher cost of sales. Asset turnover ratio increased due to growth in cash balances and property/equipment. Leverage remained low and stable. While the return on equity decline was small, Starbucks can improve profitability further by better hedging coffee bean costs.

1. Du Pont Analysis for Starbuck for Year 2011 & 2012
Three stage Du Pont Analysis performed on Starbucks (NASD: SBUX) has shown that
the Return on Owners Equity has decreased by 133 basis points from 28.39% in year 2011 as to
27.06% in year 2011.
1. Net Profit Margin Ratio:
Net Profit Margin ratio declined by 24 basis point in 2012 compared to 2011. On closer
analysis we have come to the conclusion that much of it can be attributed to the change in cost of
sales to revenue. Cost of sales were 43.71% of revenues in 2012 compared to 42.013% in 2011.
Starbucks has improved on every other front compared to 2011 levels and one sign of cheer for
the company is the improvement by 125 basis points in the store operating expense, which is a
major expense for the company. Starbucks also improved on other operating expenses, general
and administration expenses and the operating income.
2. Asset Turnover Ratio
Asset turnover increased in 2012 by almost 1.8%. It increased from 1.589 to 1.618 in
2012. Under the current asset segment cash & cash equivalents and short term investments are
the drivers; however we are skeptical of its ability to affect the ‘real turnover’. In the fixed asset
segment property plant & equipment contribution towards revenue has slightly improved. Total
net revenue increased substantially from long term available for sale securities as well. Important
to note is that Starbucks isn’t in a capital intensive business and the nature of the business makes
it complicated to directly attribute revenues generated from assets. However Starbucks stores
which provide the ambience and the environment can surely be seen as boosting revenues.
3. Equity Multiplier/ Gearing Ratio
Leverage has mostly remained the same for the Starbucks. Debt to equity remains low at
10.7 percent in 2012 and has not changed. Lower leverage leads to lower interest expense and
higher profitability. We believe that the higher dividends paid by Starbucks reduced the flow of
retained earnings to the shareholders equity.

2. Conclusion:
We believe that the 133 point decrease in Return on owners’ equity isn’t matter of
concern for Starbucks. Our five step Du pont Starbucks’s business model is intact, revenues are
increasing, gearing is low, asset turnover is high and cash flow from operations is increasing.
Since coffee beans are the major cost of sales for the company, we recommend that Starbucks
should follow better hedging practices in the ‘coffee futures’ to have better control. High returns
on owners’ equity earned by Starbucks stock rewarded investors with increasing dividend and
stock price has also substantially increased.
Appendix:
Return on Owners Equity – Different Steps
Components required to Calculate ROE
Net Earning Attributable to Starbucks
Operating Income
Total Net Revenue
Total Assets
Total Equity
Earnings Before Income Taxes
Operating Income
Single Step
ROOE = Net Earnings Attributable to Starbucks/ Total Equity
2,012
2,011
1,383.8
1,997.4
13,299.5
8,219.2
5,114.5
2059.1
1997.4
1,245.7
1,728.5
11,700.0
7,360.4
4,387.3
1,811.10
1,728.50
27.06%
28.39%
Three Step
Net Profit Margin ( Net Earning Attributable to Stabucks/ Total Net
Revenues)
Total Asset Turnover ( Total Net Revenues/ Total Assets)
Equity Multiplier ( Total Assets/ Total Equity)
Return on Owners Equity - 3 Step
0.10404902 0.1064701
1.61810152 1.5895875
1.6
1.7
27.06%
28.39%
Five Step
Tax Burden ( Net Income attributable to Starbucks /Earnings Before
Income Taxes)
Interest Burden ( Earnings Before Income Taxes/ Operating Income)
Operating Income Margin (Earning Before Income Taxes/Total Net
Revenues)
Total Asset Turnover ( Total Net Revenues/ Total Assets)
Equity Multiplier ( Total Assets/ Total Equity)
Return on Owners Equity - 5 Step
0.67
0.69
1.03089016 1.0477871
0.15
0.15
1.61810152 1.5895875
1.60703881 1.6776605
27.89%
29.75%

3. Du Pont Analysis Starbucks 2011 & 2012
Total Net Revenue
13299.5
11,700
Year
2012
2011
27.06%
28.39%
Total Net Revenues
Cost of Sales including
occupancy costs
43.711%
42.013%
29.461%
30.718%
3.23%
3.36%
2011
Total Net
Revenue
Total Net
Revenue
Total Net
Revenue
Total Net
Revenue
4.138%
4.47%
Total Net
Revenue
1.618
1.589
6.40%
Total Net
Revenue
Total
Assets
Total
Equity
11.189
10.191
15.676
12.963
27.371
30.272
10.712
12.114
67.682
72.446
Inventories
6.02%
2012
2011
1.607
1.677
Equity
Multiplier
Accounts
Receivables
Net
Total Net Revenue
General and
administrative Expense
2012
Short term
Investments
Total Net Revenue
Depreciation and
amortization Expense
Year
Cash and
Cash
Equivalents
Total Net Revenue
Other Operating
Expense
28.39%
Total Assets
Total Net Revenue
Store Operating
Expense
27.06%
Total Asset
Turnover
Net Profit Margin
Net Earnings
Attributable to
Starbucks
ROOE

4. Prepaid
Expense
Total Net Revenue
Total Operating
Expense
86.57%
86.97%
1.58%
1.48%
15.019%
14.774%
Total Net Revenue
Operating Income
0.710%
0.991%
Total Net Revenue
Total Net
Revenue
Long Term
Investments avaliable for
sale
securities
114.651
109.346
Total Net
Revenue
28.918
31.426
Total Net
Revenue
5.002
4.968
33.324
36.381
Property,
Plant &
Equipment
Net
Total Net Revenue
Income Taxes
3.083
Equity and
cost
investments
Total Net Revenue
Interest Income and
other
3.167
Total Current
Assets
Total Net Revenue
Income from equity
investees
Total Net
Revenue
5.07%
0.04813
Total Net
Revenue
Goodwill

5. ROE Calculations – All Steps