Parsimonious Forecasting For Starbucks

1. Parsimonious Forecasting For Starbucks Mitchell Schmitt

2. Agenda • Elimination of one-time expense for 2013 EPAT • Calculating Return on Net Enterprise Assets • Enterprise Profit Margin • Enterprise Asset Turnover • Forecasting 5 Years using Historical and Industry Trends

3. EPAT With Litigation Charge

4. Litigation Charge • Kraft contracted with Starbucks to sell its products • Starbucks terminated the agreement citing breach of contract • Arbitrator ruled in favor of Kraft awarding $2.9 billion in damages and attorney’s fees • One-time expense, eliminate for 2013 EPAT value

5. EPAT- No Litigation Charge *Assumed 37% tax rate in finding tax expense for increased earnings resulting from removal of litigation charge

6. EPAT/ SALES X SALES/avg. (NEA)

7. Profit Margin has remained very consistent for the last four years • As a result, I will use the Average EPM for forecasting purposes

9. Enterprise Asset Turnover • 2013 number, 3.55, is distorted by effects of litigation liability • $2.784 billion was removed from the liability section • Starbucks may have constructed its balance sheet differently • Will use 4.5 for EATO

11. Growth Rate • Forecasts reflect growth rate of 7.5 % (Unlikely to maintain double digit growth indefinitely) • 10-K notes state Starbucks intends to maintain large growth rate due to: • Increased packaged goods sales • Expanding Coffee Market • Expansion in China/Asia Pacific and the Americas

12. Projections

13. Discounted Cash Flow Analysis

14. DCF Assumptions

15. Questions?