Starbucks corportation cash flow

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Starbuck’s Cash flow
Starbuck deals with mainly coffee sales, marketing, and packaging. The company buys raw coffee from farmers, process it and package it. It also has restaurants where customers enjoy readymade coffee. Starbucks relies heavily on leases since it does not operate on its own premises. The operating leases have seen the company have off-balance sheet operations as it strives to cater for the rent expenses. This has been the major financial issue that threatens Starbuck’s cash flow.
Certain financial ratios need to be considered to determine the company’s capability of handling a loan. Firstly, the fixed charge coverage ratio which shows if the company has the capability of paying for its fixed costs such as insurance payments and rent payments. The company is struggling to meet its lease expenses and is already in debt with a low fixed charge coverage ratio. It might not necessarily be unable to pay but giving a loan will help the company set off its payments and lead to an increase in debt. ( Blokhin, www.investopedia.com, n.p.)
The current ratio shows the ability of the company to meet its long term and short term obligations. This can help to determine whether Starbuck’s credit should be extended or it might lead to the solvency of the company. The firm had a current ratio of 1.25 in 2015, and 1.05 in 2016. This indicates the ability of the company to pay its debts from its assets is decreasing and therefore it might need a loan for it sustain itself.

It also shows that the company’s liquidity is declining.
Secondly, the debt ratio of the company which shows the amount of debts it has compared to the assets on the balance sheet. Starbuck had a debt ratio of 1.87 in 2015, the ratio reduced to 1.68 in 2016. This means that the company’s dependency on borrowed money reduced and therefore it stands a chance to be given a loan. Moreover, lenders want the debt ratio to be too low for them to be able to extend credit.
Despite having debts in leasing expenses, Starbucks has a relatively good cash flow. Getting a loan will help it clear its debts so that it can gain stability and increase its profit margin.
Works Cited
Blokhin, Andriy. “Starbucks’ 6 Key Financial Ratios (SBUX).” Investopedia, 10 Nov. 2015, www.investopedia.com/articles/markets/111015/starbucks-6-key-financial-ratios.asp.