Dunkin’ Vs. Starbucks: Who Is More Leveraged?
- Net Debt-to-EBITDA ratio shows the number of years that a company would require to repay its debt (excluding cash and cash equivalents) at the current rate of profits. EBITDA is the operating profit of a company before interest, taxes, depreciation, and amortization.
- The comparison between the two coffee chains reveals that Starbucks performs far better than Dunkin’ in terms of leverage ratios.
- The higher net debt to EBITDA ratio at Dunkin’ indicates that the firm’s ability to pay off its debt is worse than that of Starbucks. Typically, a ratio of 4 or 5 is a reason to ring alarm bells because this shows that the company is less able to handle its debt burden, and thus is less likely t0 take on the additional debt required to grow the business. As such, Dunkin’ Brand’s ratio of 4.54 is very close to the border, and may call for worry.
- On the other hand, Starbucks net debt to EBITDA ratio is negative due to the fact that it has more cash on its balance sheet than debt. This is a good thing for the company as it will be easily able to raise more debt in the future.
- Interest coverage ratio shows a company’s ability to fulfill its interest obligations.
- As compared to Dunkin’, Starbucks is less burdened by interest expense. The 338.94 ratio indicates that Starbucks will be able to service its debt expense or interest expense quite comfortably.
- In contrast, Dunkin’s interest coverage ratio of 4.97 is quite close to the red alert level of 1.5. If it doesn’t manage its debt better or grow its operating profit at a higher rate, the company could have problems.
Have more questions on Dunkin’ Brands (DNKN)? See the links below.
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- Breakfast Sandwiches, Coffee Sales Lead Dunkin’ To Profitability In Q2’16, Even As The International Segments Suffer
- Dunkin’ Brands’ Q2 FY’16 Earnings Preview: Product And Digital Innovation To Support Earnings
- Dunkin’ Brands To Enjoy Robust Revenue Growth In 2016, Despite International Segments Struggling in First Quarter
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- Dunkin’ Brands’ FY 2015 Earnings Review: Dunkin’ Donuts US & K-Cups Drive Revenue Growth, Baskin-Robbins International Struggles
- Dunkin’ Brands’ Q1 FY’16 Earnings Preview: All Eyes On Comp Sales Growth Of International Segments
- What’s Dunkin’ Brands’ Fundamental Value Based On Expected 2016 Results? (Updated After Q1 2016 )
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