This report was prepared to analyze a company from an investment point of view by performing both financial and non-financial analysis. In terms of financial analysis, the economic value added (EVA) valuation model was selected for use in determining the true value of the company. This report includes EVA analysis of the company as a whole as well as separately as per its business segments or divisions. For this purpose, Starbucks Corporation was selected in order to determine whether its market value as a whole is higher than the sum of the value derived separately on the basis of its divisions or business segments.
Starbucks Corporation is a roaster and retailer of whole bean and ground coffee, tea and spices, ready to drink bottled coffee drinks, coffee and tea brewing equipment, mugs and accessories, packaged goods, book and gifts, as well as an array of fresh foods and pastries (Starbucks.com, 2019). Starbucks officially started operating its first retail store in 1971 in Seattle Washington (Starbucks.com, 2019). Starbucks operates in four main regions, the Americas inclusive of the US, Canada, and Latin America, China/Asia, Europe, Middle East, and Africa and Channel Development (Reuters.com, 2019). Its Channel Development segment includes roasted whole bean and ground coffees, Tazo teas, Starbucks- and Tazo-branded single-serve products, a range of ready-to-drink beverages, such as Frappuccino, Starbucks Doubleshot and Starbucks Refreshers beverages and other branded products sold across the world through channels, such as grocery stores, warehouse clubs, specialty retailers, convenience stores and the United States foodservice accounts (Reuters.com, 2019). The main segments operated by Starbucks Corporation are the company-operated store revenues, licensed store revenues, CPG, foodservice and others revenues (Fourweekmba.com, 2018). This report includes an estimation of Starbucks Corporation economic profit by considering this as one unit as well as determining EVA separately for each segment then added to get total value of the company. Additionally this report also discusses potential strategic advantages that can be gained from a breakup in individual elements.
Starbucks Corporation value and trade market
Starbucks Corporations net worth is $30 Billion dollars (Dennison, 2018). Starbucks Corporation market value is in the range of $69.5 billion – $85.5 billion dollars (Dennison, 2018). The market value is defined as the price an asset can be sold for in the marketplace (Chen, 2019). The trade market value price is at $85.75 USD (Reuters.com, 2019).
Starbucks Corporation current segment of operations
Company-operated store revenues, licensed store revenues, CPG, foodservice and other revenues operate in the regions of the Americas, China/Asia Pacific, EMEA (Europe, Middle East, & Africa), and Channel Development. Starbucks Corporation reported net revenues in the Americas of a total of $4,254.2 Billion in 2018 (Starbucks.com, 2019). Its reported income of operations totaled $928.5 Million (Starbucks.com, 2019). Starbucks Corporation reported net revenues in China/Asia Pacific of a total of $1,214.6 Million in 2018 (Starbucks.com, 2019). Its reported income of operations totaled $232.2 Million in 2018 (Starbucks.com, 2019). Starbucks Corporation reported net revenues in Europe, Middle East, and Africa of a total of $267.3 Million in 2018 (Starbucks.com, 2019). Its reported income of operations totaled $10.8 Million (Starbucks.com, 2019). Starbucks Corporation reported net revenues in Channel Development of a total of $539.3 Million in 2018 (Strabucks.com, 2019). Its reported income of operations totaled $190.8 Million (Starbucks.com, 2019).
EVA used to access a company
The Economic value added is a common way an investor can assess a companys value, it is used to measure a companys economic success, or lack thereof over a period of time (Gallant, 2019). It can be calculated by taking a companys net after tax operating profit and subtracting it from the companys total assets minus the current liabilities multiplied by its weighted cost of capital (Gallant, 2019).
Starbucks reported capital investments
Starbucks Corporation reported an increase in capital expenditures totaling $1,976.40 Million compared to last years total of $1,519.40 Million (Csimarket.com, 2019).
EVA calculation for Starbucks Corporation
The Formula for Economic Value Added: Net Operating Profit after Taxes (NOPAT) (Total Assets – Current Liabilities)* Weighted Average Cost of Capital (WACC). The EVA analysis for Starbucks as a whole was completed in a separate Excel file attached to this paper. Please look at file 2 for calculations completed. The Economic value added as a whole for Starbucks Corporation was $2,619,642.92 Billion for the fiscal year of 2018.
EVA calculations for Starbucks Corporation segments of operation
Starbucks reported total revenues of $24,719.50 Million for retail and licensed stores, and consumer packaged goods, CPG, foodservice and others (Csimarket.com, 2019). The calculations for these segments are incomplete as the income statements and balance sheets for each separate segment were not available or provided on finance websites. The information that was available from Starbucks.com was the total revenues for each segments and total operating expenses. The total net revenues for company operated/retail stores were $19,690.30 Million (Starbucks.com, 2019). The net revenues for licensed stores were $2,652.20 Million (Starbucks.com, 2019). The net revenues reported for CPG, foodservice and others was $2,377.00 Million (Starbucks.com, 2019). Total operating expenses were $5,434.70 Million (Starbucks.com, 2019). From the following data above it appears that company operated stores are very profitable compared to other business segments. The licensed stores and CPG, foodservice and others only provide revenues of about $5 Million when compared to the total stores operated which is more than triple the amount of reported revenues.
Advantages of a Starbucks Corporation split
The advantages of a Starbucks corporation split help to lower the stock price making it easier for individual investors to purchase and sell its shares. This helps to gain investors attention so that more individual rapid growth can occur. Another advantaged that can be gained from a Starbucks Corporation split can be that by breaking up the company they can reorganize and gain focus to help grow and manage the company more effectively (Feloni, & Baer, 2014). In doing this the company has the opportunity to break away from slow growing business segments that can hold the company back from its full potential in growing their equity.
In conclusion from the EVA calculation computed for Starbucks as a whole its economic value added was $2,619,642.92 Billion for the fiscal year of 2018. The company operates using the following business segments: retail and licensed stores, and consumer packaged goods, CPG, foodservice and others. The business segments did not have separate income statements and balance sheets in the financial market pages therefore; EVA could not be computed for them separately to effectively determine if it was more beneficial to do a corporation split. However, it was determined that Starbucks is more profitable with their company operated stores (retail) when compared to licensed stores, and CPG, foodservice and others.
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