Chapter 7 covers one of the largest assets on many companies’ books, inventory.
ID: 2539370 • Letter: C
Question
Chapter 7 covers one of the largest assets on many companies’ books, inventory. Managing inventory ties to profitability through pricing decisions when selling product. One way managers can measure this is via Gross Profit Percentage (GPP).
Link to Starbucks 10-k: https://www.sec.gov/Archives/edgar/data/829224/000082922414000041/sbux-9282014x10k.htm#s6571E5A222BF69F5F8068EA40E001FDA
Calculate the GPP for Starbucks for its year ended 2014. Please type the equation and show your work in calculating GPP. How does it correlate to Starbucks and their business?
Explanation / Answer
Gross Profit = Net Revenues - Cost of Sales (figures in $ million)
= $16,447.8 - $6,858.8 = $9,589
Gross Profit Percentage = Gross Profit / Net Revenues
Gross Profit Percentage = $9,589 / $16,447.8 = 0.5819 or 58.19%
Gross profit is very important for any business. It should be sufficient to cover all expenses and provide for profit. There is no norm or standard to interpret gross profit ratio (GP ratio). Generally, a higher ratio is considered better. It shows the relationship between gross profit and total net sales revenue. It is a popular tool to evaluate the operational performance of the business. GPP of Starbucks is on higher side which shows their operational efficiency.