Understanding ROE (Part 6)

In Part 5, I discussed the misleading return on equity (ROE) for BKNG. Today I want to look at Starbucks (SBUX).

Recall with BKNG that ROE can be confusing because:

• Standard financial formulas crash when shareholder equity [the denominator; see (1) in Part 1] is negative. Some platforms will show “N/A,” while others might show a massive positive or negative percentage based on automated math calculation failing to account for the negative equity context.
• Negative equity suggests a company is near bankruptcy. BKNG, however, is highly profitable with ~$8B in annual free cash flow. The negative equity is a management decision rather than a sign of failure.
• BKNG has spent over $52B on share buybacks. Buybacks reduce shareholder equity artificially inflating (or breaking) ROE calculation making it impossible to use for comparison with companies employing different capital structures.

Google AI reports SBUX 2026 ROE of -17%. ROE is +16% for ’25—a sharp decline from the 12-month average of +32%. Before shifting to negative shareholder equity (’19), its high positive ROE peaks > 386% in ’18 due to high leverage.

To illuminate and clarify, FinanceCharts.com (cited by Google AI) literally says:

      > The return on equity (roe) for Starbucks (SBUX) stock is 16.32% as of
      > Wednesday, April 22 2026. It’s worsened by -49.51% from its 12-month
      > average of 32.33%. The 5 year average return on equity (roe) is 43.04%.

Worsening by a negative value is the same as improving by the positive. 16.32% worsening by negative 49.51% means it has increased from a 12-month average of 16.32% – 49.51% = -33.19%: inconsistent with the above-stated +32.33%. I consider this a prime example of how broken some of these math algorithms can be when shareholder equity is negative.

Like BKNG, persistent negative equity is a result of deliberate capital allocation strategies. First, SBUX historically returns significant capital to shareholders via share buybacks often funded using debt. Second, SBUX maintains a streak of over 60 consecutive quarters of dividend payouts that further reduce shareholder equity. Finally, long-term debt has climbed to over $15B as the company invests in store expansions and its “Back to Starbucks” turnaround strategy.

Given the distortion in ROE, a stock analyst is advised to use other efficiency metrics. ROA (see Parts 3 and 4) is currently +4.3%. This measures profit against the total asset base rather than just shareholder equity. Return on Invested Capital (ROIC; see Part 2) is currently +6.8%. This is another more reliable metric for SBUX that accounts for both debt and equity.

For more details on financial health, Google AI suggests tracking SBUX ROE trends on Macrotrends or viewing quarterly growth performance on FinanceCharts.com. You can also read the latest valuation reports on Yahoo Finance or explore long-term return trends on Stock Analysis on Net (https://www.stock-analysis-on.net/).

I hope to conclude next time with one more case study.