Keeping Starbucks Hot And Strong

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The chain’s success is tied to somewhat unusual business strategies. Its mission statement emphasizes creating a better work environment for employees first, then satisfying customers and promoting good corporate citizenship within its communities. For example, Starbucks was one of the first companies to offer part-time employees health benefits and equity (ownership). The goal is to create an experience that builds trust with the customer. Profits are among the last of the company’s guiding principles.

Starbucks’ bond with employees and customers has translated into sales and earnings as strong as its coffee. Annual sales growth from 1997 to 2000 ranged from 28 to almost 40 percent, and annual growth in earnings per share ranged from about 12 to 81 percent. A share of Starbucks’ stock purchased in November 1996 increased in value by 17 percent over the five years ended November 2001. That compares favorably with the 15 percent gain realized by its industry peers and the 7 percent gain for companies in the Standard & Poor’s 500 Index.

Despite the U.S. economic slowdown in 2001, the company expects to keep its growth perking over the next five years. Although some fear that Starbucks has saturated the domestic market, same-store sales keep rising as the company introduces new products. Starbucks has even become quite successful in unexpected markets, such as Japan.

Accomplishing its business objectives while building shareholder value requires sound financial management—raising funds to open new stores and build more roasting plants, deciding when and where to put them, managing cash collections, reducing purchasing costs, and dealing with fluctuations in the value of foreign currency and with other risks as it buys coffee beans and expands overseas. To finance its growth, Starbucks went public (sold common stock) in 1992, and its stock trades on the Nasdaq national market. Its next securities offering was the sale of convertible bonds, debt securities that could be converted into common stock at a specified price. Those bonds were successfully converted into common stock by 1996, and today the company has almost no long-term debt.

Like Starbucks, every company must deal with many different issues to keep its financial condition solid. Chapter 1 introduces managerial finance and its key role in helping an organization meet its financial and business objectives.

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