Intrinsic value of Starbucks - SBUX

Previous Close

$59.07

  Intrinsic Value

$55.60

stock screener

  Rating & Target

hold

-6%

Previous close

$59.07

 
Intrinsic value

$55.60

 
Up/down potential

-6%

 
Rating

hold

We calculate the intrinsic value of SBUX stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 85.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  11.24
  11.20
  10.58
  10.02
  9.52
  9.07
  8.66
  8.29
  7.97
  7.67
  7.40
  7.16
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.03
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.49
  5.45
  5.40
  5.36
  5.32
  5.29
Revenue, $m
  21,316
  23,703
  26,211
  28,838
  31,583
  34,447
  37,431
  40,536
  43,765
  47,121
  50,609
  54,233
  58,000
  61,916
  65,987
  70,223
  74,630
  79,219
  83,999
  88,981
  94,175
  99,594
  105,249
  111,154
  117,322
  123,769
  130,508
  137,556
  144,930
  152,647
  160,725
Variable operating expenses, $m
 
  18,825
  20,798
  22,866
  25,026
  27,280
  29,627
  32,071
  34,612
  37,253
  39,998
  42,678
  45,642
  48,723
  51,927
  55,260
  58,729
  62,340
  66,101
  70,022
  74,109
  78,373
  82,824
  87,470
  92,325
  97,397
  102,701
  108,247
  114,050
  120,122
  126,479
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  17,144
  18,825
  20,798
  22,866
  25,026
  27,280
  29,627
  32,071
  34,612
  37,253
  39,998
  42,678
  45,642
  48,723
  51,927
  55,260
  58,729
  62,340
  66,101
  70,022
  74,109
  78,373
  82,824
  87,470
  92,325
  97,397
  102,701
  108,247
  114,050
  120,122
  126,479
Operating income, $m
  4,172
  4,878
  5,413
  5,973
  6,557
  7,168
  7,803
  8,465
  9,153
  9,868
  10,611
  11,555
  12,358
  13,192
  14,060
  14,962
  15,901
  16,879
  17,898
  18,959
  20,066
  21,220
  22,425
  23,683
  24,998
  26,371
  27,807
  29,309
  30,880
  32,524
  34,245
EBITDA, $m
  5,202
  5,905
  6,529
  7,184
  7,867
  8,581
  9,324
  10,097
  10,902
  11,738
  12,607
  13,510
  14,448
  15,423
  16,437
  17,492
  18,590
  19,734
  20,924
  22,165
  23,459
  24,809
  26,218
  27,689
  29,225
  30,831
  32,510
  34,265
  36,102
  38,024
  40,037
Interest expense (income), $m
  75
  111
  143
  176
  210
  247
  284
  324
  365
  407
  451
  497
  545
  595
  646
  700
  756
  814
  874
  937
  1,003
  1,071
  1,143
  1,217
  1,295
  1,376
  1,461
  1,550
  1,643
  1,740
  1,842
Earnings before tax, $m
  4,199
  4,767
  5,270
  5,797
  6,347
  6,921
  7,519
  8,141
  8,788
  9,461
  10,160
  11,058
  11,813
  12,598
  13,414
  14,262
  15,146
  16,065
  17,023
  18,022
  19,063
  20,149
  21,282
  22,466
  23,703
  24,995
  26,346
  27,759
  29,237
  30,784
  32,404
Tax expense, $m
  1,380
  1,287
  1,423
  1,565
  1,714
  1,869
  2,030
  2,198
  2,373
  2,554
  2,743
  2,986
  3,189
  3,401
  3,622
  3,851
  4,089
  4,338
  4,596
  4,866
  5,147
  5,440
  5,746
  6,066
  6,400
  6,749
  7,113
  7,495
  7,894
  8,312
  8,749
Net income, $m
  2,818
  3,480
  3,847
  4,232
  4,633
  5,052
  5,489
  5,943
  6,415
  6,906
  7,417
  8,072
  8,623
  9,196
  9,792
  10,411
  11,056
  11,728
  12,427
  13,156
  13,916
  14,709
  15,536
  16,400
  17,303
  18,246
  19,232
  20,264
  21,343
  22,472
  23,655

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,263
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  14,313
  13,399
  14,817
  16,302
  17,854
  19,473
  21,159
  22,914
  24,740
  26,637
  28,609
  30,658
  32,787
  35,000
  37,302
  39,696
  42,188
  44,782
  47,484
  50,300
  53,236
  56,299
  59,496
  62,834
  66,321
  69,965
  73,775
  77,759
  81,928
  86,290
  90,856
Adjusted assets (=assets-cash), $m
  12,050
  13,399
  14,817
  16,302
  17,854
  19,473
  21,159
  22,914
  24,740
  26,637
  28,609
  30,658
  32,787
  35,000
  37,302
  39,696
  42,188
  44,782
  47,484
  50,300
  53,236
  56,299
  59,496
  62,834
  66,321
  69,965
  73,775
  77,759
  81,928
  86,290
  90,856
Revenue / Adjusted assets
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
  1.769
Average production assets, $m
  4,829
  5,381
  5,950
  6,546
  7,169
  7,820
  8,497
  9,202
  9,935
  10,696
  11,488
  12,311
  13,166
  14,055
  14,979
  15,941
  16,941
  17,983
  19,068
  20,199
  21,378
  22,608
  23,891
  25,232
  26,632
  28,096
  29,625
  31,225
  32,899
  34,651
  36,485
Working capital, $m
  211
  -1,849
  -2,044
  -2,249
  -2,464
  -2,687
  -2,920
  -3,162
  -3,414
  -3,675
  -3,947
  -4,230
  -4,524
  -4,829
  -5,147
  -5,477
  -5,821
  -6,179
  -6,552
  -6,940
  -7,346
  -7,768
  -8,209
  -8,670
  -9,151
  -9,654
  -10,180
  -10,729
  -11,305
  -11,906
  -12,537
Total debt, $m
  3,585
  4,080
  5,024
  6,013
  7,047
  8,125
  9,248
  10,417
  11,633
  12,896
  14,209
  15,574
  16,992
  18,466
  19,999
  21,594
  23,253
  24,981
  26,780
  28,656
  30,611
  32,651
  34,780
  37,004
  39,326
  41,753
  44,290
  46,944
  49,720
  52,625
  55,666
Total liabilities, $m
  8,429
  8,924
  9,868
  10,857
  11,891
  12,969
  14,092
  15,261
  16,477
  17,740
  19,053
  20,418
  21,836
  23,310
  24,843
  26,438
  28,097
  29,825
  31,624
  33,500
  35,455
  37,495
  39,624
  41,848
  44,170
  46,597
  49,134
  51,788
  54,564
  57,469
  60,510
Total equity, $m
  5,884
  4,475
  4,949
  5,445
  5,963
  6,504
  7,067
  7,653
  8,263
  8,897
  9,555
  10,240
  10,951
  11,690
  12,459
  13,259
  14,091
  14,957
  15,860
  16,800
  17,781
  18,804
  19,872
  20,987
  22,151
  23,368
  24,641
  25,972
  27,364
  28,821
  30,346
Total liabilities and equity, $m
  14,313
  13,399
  14,817
  16,302
  17,854
  19,473
  21,159
  22,914
  24,740
  26,637
  28,608
  30,658
  32,787
  35,000
  37,302
  39,697
  42,188
  44,782
  47,484
  50,300
  53,236
  56,299
  59,496
  62,835
  66,321
  69,965
  73,775
  77,760
  81,928
  86,290
  90,856
Debt-to-equity ratio
  0.609
  0.910
  1.020
  1.100
  1.180
  1.250
  1.310
  1.360
  1.410
  1.450
  1.490
  1.520
  1.550
  1.580
  1.610
  1.630
  1.650
  1.670
  1.690
  1.710
  1.720
  1.740
  1.750
  1.760
  1.780
  1.790
  1.800
  1.810
  1.820
  1.830
  1.830
Adjusted equity ratio
  0.300
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,818
  3,480
  3,847
  4,232
  4,633
  5,052
  5,489
  5,943
  6,415
  6,906
  7,417
  8,072
  8,623
  9,196
  9,792
  10,411
  11,056
  11,728
  12,427
  13,156
  13,916
  14,709
  15,536
  16,400
  17,303
  18,246
  19,232
  20,264
  21,343
  22,472
  23,655
Depreciation, amort., depletion, $m
  1,030
  1,026
  1,116
  1,211
  1,310
  1,413
  1,521
  1,633
  1,749
  1,870
  1,996
  1,954
  2,090
  2,231
  2,378
  2,530
  2,689
  2,854
  3,027
  3,206
  3,393
  3,589
  3,792
  4,005
  4,227
  4,460
  4,702
  4,956
  5,222
  5,500
  5,791
Funds from operations, $m
  4,928
  4,506
  4,964
  5,443
  5,943
  6,466
  7,010
  7,576
  8,164
  8,776
  9,412
  10,027
  10,713
  11,427
  12,170
  12,942
  13,745
  14,582
  15,454
  16,362
  17,309
  18,297
  19,329
  20,405
  21,530
  22,706
  23,935
  25,220
  26,565
  27,973
  29,446
Change in working capital, $m
  353
  -186
  -196
  -205
  -214
  -223
  -233
  -242
  -252
  -262
  -272
  -283
  -294
  -305
  -318
  -330
  -344
  -358
  -373
  -389
  -405
  -423
  -441
  -461
  -481
  -503
  -526
  -550
  -575
  -602
  -630
Cash from operations, $m
  4,575
  4,692
  5,159
  5,648
  6,157
  6,689
  7,242
  7,818
  8,416
  9,038
  9,684
  10,309
  11,007
  11,733
  12,487
  13,272
  14,089
  14,940
  15,826
  16,751
  17,714
  18,720
  19,770
  20,866
  22,011
  23,209
  24,461
  25,770
  27,140
  28,574
  30,076
Maintenance CAPEX, $m
  0
  -766
  -854
  -944
  -1,039
  -1,138
  -1,241
  -1,349
  -1,461
  -1,577
  -1,698
  -1,824
  -1,954
  -2,090
  -2,231
  -2,378
  -2,530
  -2,689
  -2,854
  -3,027
  -3,206
  -3,393
  -3,589
  -3,792
  -4,005
  -4,227
  -4,460
  -4,702
  -4,956
  -5,222
  -5,500
New CAPEX, $m
  -1,440
  -552
  -569
  -596
  -623
  -650
  -677
  -705
  -733
  -762
  -792
  -823
  -855
  -889
  -924
  -961
  -1,001
  -1,042
  -1,085
  -1,131
  -1,179
  -1,230
  -1,284
  -1,340
  -1,400
  -1,463
  -1,530
  -1,600
  -1,674
  -1,752
  -1,834
Cash from investing activities, $m
  -2,223
  -1,318
  -1,423
  -1,540
  -1,662
  -1,788
  -1,918
  -2,054
  -2,194
  -2,339
  -2,490
  -2,647
  -2,809
  -2,979
  -3,155
  -3,339
  -3,531
  -3,731
  -3,939
  -4,158
  -4,385
  -4,623
  -4,873
  -5,132
  -5,405
  -5,690
  -5,990
  -6,302
  -6,630
  -6,974
  -7,334
Free cash flow, $m
  2,352
  3,374
  3,736
  4,107
  4,495
  4,901
  5,324
  5,764
  6,223
  6,699
  7,195
  7,663
  8,198
  8,754
  9,332
  9,933
  10,558
  11,209
  11,887
  12,593
  13,329
  14,097
  14,897
  15,733
  16,606
  17,518
  18,471
  19,468
  20,510
  21,601
  22,742
Issuance/(repayment) of debt, $m
  1,255
  895
  944
  989
  1,034
  1,078
  1,123
  1,169
  1,216
  1,264
  1,313
  1,365
  1,418
  1,474
  1,533
  1,595
  1,659
  1,728
  1,800
  1,876
  1,956
  2,040
  2,129
  2,223
  2,322
  2,427
  2,537
  2,654
  2,776
  2,905
  3,041
Issuance/(repurchase) of shares, $m
  -1,835
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -572
  895
  944
  989
  1,034
  1,078
  1,123
  1,169
  1,216
  1,264
  1,313
  1,365
  1,418
  1,474
  1,533
  1,595
  1,659
  1,728
  1,800
  1,876
  1,956
  2,040
  2,129
  2,223
  2,322
  2,427
  2,537
  2,654
  2,776
  2,905
  3,041
Total cash flow (excl. dividends), $m
  1,777
  4,269
  4,680
  5,096
  5,529
  5,979
  6,447
  6,933
  7,438
  7,963
  8,508
  9,028
  9,616
  10,228
  10,865
  11,528
  12,218
  12,937
  13,687
  14,469
  15,285
  16,137
  17,026
  17,956
  18,928
  19,945
  21,008
  22,121
  23,286
  24,506
  25,783
Retained Cash Flow (-), $m
  -66
  -454
  -473
  -496
  -518
  -541
  -563
  -586
  -610
  -634
  -659
  -684
  -711
  -739
  -769
  -800
  -832
  -866
  -903
  -941
  -981
  -1,023
  -1,068
  -1,115
  -1,165
  -1,217
  -1,272
  -1,331
  -1,392
  -1,457
  -1,525
Prev. year cash balance distribution, $m
 
  1,863
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  5,677
  4,206
  4,600
  5,010
  5,438
  5,884
  6,347
  6,829
  7,329
  7,849
  8,343
  8,905
  9,489
  10,096
  10,728
  11,386
  12,070
  12,784
  13,528
  14,304
  15,114
  15,959
  16,841
  17,764
  18,728
  19,736
  20,791
  21,894
  23,049
  24,258
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  5,443
  3,851
  4,003
  4,126
  4,215
  4,270
  4,288
  4,268
  4,210
  4,115
  3,962
  3,800
  3,608
  3,389
  3,150
  2,893
  2,626
  2,354
  2,083
  1,818
  1,563
  1,324
  1,104
  905
  729
  576
  446
  339
  252
  183
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Starbucks Corporation (Starbucks) is a roaster, marketer and retailer of coffee. As of October 2, 2016, the Company operated in 75 countries. The Company operates through four segments: Americas, which is inclusive of the United States, Canada, and Latin America; China/Asia Pacific (CAP); Europe, Middle East, and Africa (EMEA), and Channel Development. The Company's Americas, CAP, and EMEA segments include both company-operated and licensed stores. 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.

FINANCIAL RATIOS  of  Starbucks (SBUX)

Valuation Ratios
P/E Ratio 30.6
Price to Sales 4
Price to Book 14.7
Price to Tangible Book
Price to Cash Flow 18.9
Price to Free Cash Flow 27.5
Growth Rates
Sales Growth Rate 11.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 10.4%
Cap. Spend. - 3 Yr. Gr. Rate 4.6%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 54.1%
Total Debt to Equity 60.9%
Interest Coverage 57
Management Effectiveness
Return On Assets 21.5%
Ret/ On Assets - 3 Yr. Avg. 21.5%
Return On Total Capital 32%
Ret/ On T. Cap. - 3 Yr. Avg. 33%
Return On Equity 48.2%
Return On Equity - 3 Yr. Avg. 46.8%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 60.1%
Gross Margin - 3 Yr. Avg. 59.2%
EBITDA Margin 24.9%
EBITDA Margin - 3 Yr. Avg. 24.9%
Operating Margin 19.6%
Oper. Margin - 3 Yr. Avg. 19.6%
Pre-Tax Margin 19.7%
Pre-Tax Margin - 3 Yr. Avg. 19.8%
Net Profit Margin 13.2%
Net Profit Margin - 3 Yr. Avg. 13.4%
Effective Tax Rate 32.9%
Eff/ Tax Rate - 3 Yr. Avg. 32.2%
Payout Ratio 41.8%

SBUX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SBUX stock intrinsic value calculation we used $21316 million for the last fiscal year's total revenue generated by Starbucks. The default revenue input number comes from 2016 income statement of Starbucks. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our SBUX stock valuation model: a) initial revenue growth rate of 11.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for SBUX is calculated based on our internal credit rating of Starbucks, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Starbucks.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of SBUX stock the variable cost ratio is equal to 79.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for SBUX stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Starbucks.

Corporate tax rate of 27% is the nominal tax rate for Starbucks. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the SBUX stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for SBUX are equal to 22.7%.

Life of production assets of 6.3 years is the average useful life of capital assets used in Starbucks operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for SBUX is equal to -7.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $5884 million for Starbucks - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1443.83 million for Starbucks is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Starbucks at the current share price and the inputted number of shares is $85.3 billion.

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Financial statements of SBUX
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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