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Discussion of Starbucks Profitability

The current COVID-19 epidemic has hit many businesses, especially those providing face-to-face services. That is why many restaurant chains and shops are now in dire straits. Starbucks, being a relatively large chain, does not have the same problems as many small businesses. However, this network has also suffered a severe blow, undermining its profitability and efficiency.

As one can see from the statistics, almost all economic coefficients underwent a significant decrease in 2019, when the above-mentioned epidemic began. The company’s net profit margin dropped significantly by almost 14 percent, which led to a corresponding decrease in the company’s return on assets. Before the pandemic, Starbucks had a ROA of nearly 19 percent, but by 2020 it had dropped to 3 percent. The reason for this is the interconnectedness of these components, since the lower the company’s profitability as a whole, the lower the profitability of its assets. At the same time, it should be noted that due to the lower workload of the company, the depreciation of assets naturally decreased, which made it possible to reduce losses slightly. However, the relationship between ROA and net profit margin is much more robust, due to which the company’s profitability has significantly decreased.

However, this does not mean that Starbucks is in an emergency and absolutely unsuitable for investment. Despite the initial failure in parameters, the chain is gradually beginning to find alternative ways to sell its goods, which is reflected in the slow growth of some of the parameters in 2020. Starbucks has several significant advantages at this point: as a massive premium chain, it doesn’t suffer as much from the competition as other brands. What’s more, now that many smaller stores have closed, Starbucks is even more promising than before. Secondly, the company is actively using new technologies, implementing programs for the delivery of goods. At the moment, Starbucks is showing a high P/E ratio, which could mean high hopes for investors for the future. While investing in a company cannot provide instant profit at the moment, there is a reasonably high probability that it will become much more profitable in the future, along with the lifting of restrictions due to the pandemic.

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Essay4Business. 2022. "Discussion of Starbucks Profitability." November 13, 2022. https://essay4business.com/discussion-of-starbucks-profitability/.

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Essay4Business. (2022) 'Discussion of Starbucks Profitability'. 13 November.

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