publication . Article . 2015

Return on Capital and Cost of Capital: How does their Relation Affect Firm Value?

Halil D. Kaya; Julia S. Kwok; Elizabeth C. Rabe;
Open Access
  • Published: 20 Jun 2015 Journal: International Journal of Academic Research in Business and Social Sciences, volume 5 (eissn: 2222-6990, Copyright policy)
  • Publisher: Human Resources Management Academic Research Society (HRMARS)
Abstract
The Great Recession of 2008-2009 hurt almost all of the companies’ stock values in the United States. Interestingly, for Starbucks, the deterioration started a few years before the recession. From 2005 to 2007, the company’s stock price declined by approximately 40%. This case encourages students to examine the company’s return on capital, compare it to its cost of capital, and then relate this to the decline in the company’s stock price. First, they will establish a single formula for return on invested capital. Then, they will calculate the return on invested capital for Starbucks in each year. They will learn about different costs of capital including cost of...
Subjects
free text keywords: Financial Statement Analysis, Return On Capital, Return On Invested Capital, Cost Of Capital, Weighted-Average Cost Of Capital
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