FIne 518 Term paper

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1 FINE 518 Final Paper December, 2023
2 Dutch Bros Inc. Valuation The Dutch Brothers Inc. Coffee retailer (BROS NYSE) currently trades at $27.60 per share. Having lived in the Pacific North West (PNW) for several years, I have been exposed to the relentless positivity and the perpetual great environment synonymous with the Dutch Bros name. When selecting a stock to invest with, it is important to understand some key metrics to ensure the investment is worthwhile. Metrics such as value, risk, and firm value are helpful in selecting the appropriate firm for investment. The Dutch Bros formula is simple, supply quality coffee and energy beverages to drive-thru customers with over-the-top hospitality. Some of Dutch Bros competitors Starbucks (SBUX), The Human Bean (Privately owned), and small privately owned drive-thru coffee stands presiding predominately in the PNW. This paper will provide an analysis into why an investment with BROS is advantageous. Positivity has built a culture of growth and success for Dutch Bros in the PNW. The total value of the organization, or firm value, is a helpful tool in understanding some raw numbers concerning the companies state of financial health. Additionally, the current share price is another valuable metric. The New York Stock Exchange (NYSE) values Dutch Bros at 4.89 billion dollars and $27.60 per share ( Everything you need to know , n.d.). The second method of firm value will be (Earnings before interest, taxes, depreciation, and amortization) EBTIDA over a four-year span. According to Macrotrends (2023), Dutch Bros has observed a generally positive EBITDA aside from a single year of negative EBITDA. The following graph, illustrates Dutch Bros EBITDA in millions by year (Macrotrends, 2023).
3 2019 2020 2021 2022 $(100,000,000.00) $(80,000,000.00) $(60,000,000.00) $(40,000,000.00) $(20,000,000.00) $- $20,000,000.00 $40,000,000.00 $60,000,000.00 EBITDA YEAr Annual EBITDA Firm ratios are another beneficial method for observing financial health before investing with an organization. BROS currently offers a price-to-sales ratio of 1.78 (Tradingview, n.d.). Price-to-sales ratio is calculated by dividing the market value per share by the sales per share. This metric essentially illustrates how much a value is inherent to the stock when weighed against the sales of shares. Alone, this metric is not incredibly transparent, however, when measured against competitors in the same market niche, it can help to explain the financial health and growth of an organization. Dutch Bros chief competitor, SBUX, currently operates with a 3.106 price-to-sales ratio (Macrotrends, n.d.) By this ratio, Dutch Bros is behind competitive similarities in the same market. Return on Equity (ROE) is another helpful metric for measuring the financial health of an organization and determining the risk factor before investing. For this metric, a DuPont analysis will be the method of determining the ROE. The DuPont analysis formula for analyzing this data point will be ROE=Net income/Revenue*Revenue/average total assets*Average total assets/average total equity. The spreadsheet below details the associated data points and sums the final ROE.
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4 ROE DUTCH BROS 0.0627796 Net Income $ 42,100,000.00 Revenue $ 264,510,000.00 Average total assets $ 1,186,000,000.00 Average total Equity $ 670,600,000.00 (Macrotends, n.d.) The final measure of financial health for Dutch Bros will be the cost of capital. This section will examine Dutch Bros Weighted Average Cost of Capital (WACC) and the cost of equity. Dutch Bros WACC, as of this analysis, is 8.27% (BROS, n.d.). WACC, representing the blended cost of capitol across multiple sources such as shares and debt, tells us Dutch Bros should make investments that have a return higher than 8.27% and respectively to the appropriate WACC at the time of investment. Private investors will take interest in the WACC before investing with Dutch Bros. Dutch Bros maintains a current cost of equity of 7.68% (BROS, n.d.). This cost of equity means that Dutch Bros pays a 7.68 return to its investors. Risk is also impactful when deciding to invest with an organization. While risk impacts virtually every aspect of human life, financial risk can easily be quantified to assist with making decision. Dutch Bros currently maintains a 4.15% risk free rate, meaning a 4.15% return on investment exists with no financial loss. The final topic of discussion for this analysis will be dividend policy. Currently, Dutch Bros does not offer dividends to investors ( Resource-Investor , n.d.). This can be viewed as positive or negative depending on the mindset. While some may immediately consider a lack of dividend to be harmful to the investment opportunity, it can also be observed that earnings will be used to stoke additionally growth which will positively impact the future financial health of the firm.
5 In conclusion, we have analyzed Dutch Bros for a possible investment. Dutch Bros currently trades at $26.70 per share, with a series of competitors that are also enjoying success in the market. With a total valuation of 4.8 billion dollars, Dutch Bros is smaller than power house competition such as Starbucks. Dutch Bros has also exhibited a bit of an up-and-down EBITDA that currently sits at $40,000,000 but has been as low as -$86,000,000 as recent as 2020. It is clear that Dutch Bros has positive and negative aspects of financial health. The dividend policy is showing a positive commitment to growth. In finality the recommendation is, with the currently health and direction of the company, it is recommended to invest with Dutch Bros. Positivity has built a culture of growth and success for Dutch Bros in the PNW.
6 References BROS (Dutch Bros) WACC % . (n.d.). Dutch Bros Inc. https://www.gurufocus.com/term/wacc/BROS/WACC-Percentage/BROS Everything you need to know about investing in Dutch Bros Inc - Ordinary shares - Class A . (n.d.). https://money.usnews.com/investing/stocks/bros-dutch-bros-inc-ordinary-shares- class-a Resources - Investor FAQs - Dutch Bros, Inc. (n.d.). https://investors.dutchbros.com/resources/investor-faqs/default.aspx Jordan, B. D., Westerfield, R. W., & Ross, S. A. (2021). Loose leaf for fundamentals of corporate finance . McGraw-Hill Education. Macrotrends. (2023). Dutch Bros EBITDA 2020-2023 | BROS . Macrotrends.net. Retrieved December 7, 2023, from https://www.macrotrends.net/stocks/charts/BROS/dutch- bros/ebitda TradingView. (n.d.). Dutch Bros Inc. Key Stats and Ratios – NYSE:BROS – TradingView . https://www.tradingview.com/symbols/NYSE-BROS/financials-statistics-and-ratios/
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