Using the valuation models, along with the stock and bond selected that you selected in previous modules (Starbucks - there is a financial analysis about the company in the attached document), determine the value of each commodity. After you have determined value, look up each securities current market price. How does your value determination compare to market price? (Hint: Prior to your stock valuation you will need to determine the investor "required rate of return".)

Deduce if your stock and bond is undervalued or overvalued in relation to market price.

Show any formulas used in your valuations and cite all referenced sources.

You may include the formulas in your narrative or provide a separate formula worksheet. Your report should be a minimum of 2 written pages in APA formatting.

Financial Analysis 1 Financial Analysis The Starbucks Corporation is a company listed in the New York securities exchange that engages in the manufacture and sale of coffee and tea products. The company operates through various segments such as America, Europe, china, Asia pacific, Middle East and Africa. The company brand portfolio includes Starbucks corp.'s Coffee, Seattle's Tazo tea, evolution coffee and Seattle's best Coffee. Starbucks Corporation has been issuing common stock since 1992, and now the common stock sells for $13 per share. It has a convertible debentures at 10% that is issued at par= $1,000 thus selling for $325. Each debenture issued is convertible and can be converted into 30 shares of common stock at any given time before end of 2016. STARBUCKS CORP.'S FINANCIAL RATIOS FOR THE YEAR ENDED DEC. 31, 2016 LIQUIDITY Current Ratio : $1.05 Quick Ratio: $0.74 VALUATION P/E Current $ 30.69 P/E Ratio (with extraordinary items) $29.76 P/E Ratio (without extraordinary items) $28.49 Financial Analysis 2 PROFITABILITY Gross Margin $24.62 Operating Margin $18.24 Pretax Margin $19.70 Net Margin $13.22 Return on Assets $21.05 Return on Equity $48.16 Asset Turnover $1.59 CAPITAL STRUCUTURE Total Debt to Total Equity $62.27 Total Debt to Total Assets $25.57 Long-Term Debt to Equity $55.40 Interest Coverage $52.64 Explanation The Starbucks corp.'s listed by (NASDAQ: SBUX) is an operations company in the restaurant industry. The analysis of the company's financial ratios should take into account a few beneficial aspects. Starbucks intends to rely very heavily on the operating leases, on which to my observation represents the company's off-balance sheet obligations. The analysis of Starbucks' financial effectiveness should also take into account the company's financial leverage, because the company also has a significant amount of debt on its balance sheet. Fixed-Charge Coverage Ratio Financial Analysis 3 Every investor who has an intention of investing in this company has an obligation of checking the financial health of Starbucks which is an important step in ratio analysis. Therefore, the fixed-charge coverage ratio generally looks at the company's ability in covering its fixed charges. The fixed charge includes interest and lease payments and its earnings. As of Sept. 28, 2015, there was an annual rent expense of $974.2 million, while interest rate expense was $64.1 million with earnings before interest and taxes (EBIT) of $3,081.1 million. The Starbucks' fixed coverage ratio then was 3.9. This literally means that, the higher fixed-charge coverage ratio is what it always hedge Starbucks Corp.'s fixed charges. Debt/Equity Ratio The debt/equity ratio assesses a company's financial health for purposes of making decisions on investment. As of Sept. 28, 2015, Starbucks' Debt/Equity ratio without the operating leases was standing at 38.8%, while the company's Debt/Equity ratio with operating leases was standing at 133%. Operating Margin Ratio The Starbucks corporations must generate profit margins and investment returns that are relatively higher than those of their competitors in the restaurant industry. Looking at Starbucks' profitability ratios over time from 2012 to 2016, it provides information of how the company has been and is doing in terms of cost efficiency and in generating returns that exceeds the company's cost of capital. As of June 28, 2016, the Starbucks Corp.'s operating profit margin was standing at 18.9%, which to me was much higher than its competitors when compared to the operating profit margin of 5% in the restaurant industry. Net Margin Ratio Financial Analysis 4 The Net margin is an important metric for Starbucks Corp. because it shows the company's efficiency and effectiveness in covering its operating costs, financing and taxation expenses. This ratio is different from the operating margin, because the net profit margin shows Starbucks Corp.'s financial effectiveness and efficiency from the perspective of its common equity shareholders only. As of June 28, 2016, the Starbucks' net profit margin was standing at 14.6%, which according to analysts is crucial and beneficially it's higher than the industry's average of 3.2%. Return on Equity (ROE) Looking at the Starbucks Corp.'s return on equity (ROE) is significantly important as it reveals how much funds have the company generated with its equity shareholders. Companies with strong economic moats usually have higher ROE as compared to its industry rivals. As of June 28, 2016, the Starbucks Corp.'s ROE was standing at 49.3%, which according to investment analysts is significantly higher than its competitors' average return of 10.7%. Return on Invested Capital It is misleading to only focus on ROE; this is because high ROEs can be achieved with a high degree of financial leverage. For this reason therefore, we have to look into another metric called return on invested capital (ROIC), and it is calculated as after-tax operating income divided by invested capital. The Invested capital always represents total equity, debt and capital lease obligation. It is universally agreed among analysts that a consistently high ROIC in excess of 15% and above is an indication of a strong economic moat. So as of June 28, 2016, the Starbucks Corporation was having an ROIC of 32.35%. From the above analysis, I confidently state that Starbucks Corporation's securities are safe as they are financially health for investors. Financial Analysis 5 References Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis: a practitioner's guide (Vol. 597). John Wiley & Sons. Geereddy, N. (2014). Strategic analysis of Starbucks corporation. Wahlen, J., Baginski, S., & Bradshaw, M. (2014). Financial reporting, financial statement analysis and valuation. Nelson Education