Humaid Al-Adawi
ACC202
Professor Makur
Starbucks Corporation
Case Project
- A. What is the nature of Starbucks’ business? That is based on what you know about the company and on the accompanying financial statements, how does Starbucks make money?
The nature of Starbucks’ business is to sell tea and coffee beverages over more than seventy-five countries. The Starbucks, the original one, was founded in Seattle, Washington on November 4, 1985. On the accompanying financial statements, Starbucks makes money from selling the tea and coffee beverages, its Starbucks “brew” products, and revenues from the stores in North America, Europe, Africa, and Asia.
- What are the financial statements commonly prepared for external reporting purposes? What titles does Starbucks give these statements? What does “consolidated” mean?
The financial statements are commonly prepared for external reporting purposes; they are the statement of financial position (balance sheet), income statement, cash flow statement, and stockholders’ Equity’s statements. Starbucks‘ statements are given: consolidated balance sheets, consolidated statement of earnings, consolidated statements of cash flows and consolidated statements of Equity. The consolidated defines that Starbucks has its financial statements coming from the companies, Teavana and Digitial Ventures.
- c) How often do publicly traded corporations typically prepare financial statements for external reporting purposes?
The Starbucks-publicly traded corporations typically prepare financial statements for external reporting purposes often in following the Securities Exchange Commission (SEC) on time in submitting their reports at March, June, September, and December. If they don’t submit on time, Starbucks will face the penalty.
- d) Who is responsible for financial statements? Discuss the potential users of Starbucks financial statements and the type of information they are likely interested in.
The Chief Executive Officer and Chief Financial Officer are responsible for the financial statement. The Starbucks financial statements users are the management, lenders, suppliers, governments, auditors, and workers.
- e) Who are Starbucks’ external auditors? Describe the two “opinion” letters that Starbucks received in 2013. In your own words, what do these opinions mean? Why both opinions are dated several months after Starbucks’ year-end?
Starbucks’ external auditors are Deloitte and Touche LLP. The Deloitte and Touche LLP sent the letters to Starbucks in 2013 because they audited Starbucks’ financial statements carefully and gave them accurate answers by giving them the opinions.
- f) Refer to the excel sheet
- g)Refer to Starbucks’ balance sheet for fiscal 2013 (the year ended September 29, 2013).
- Demonstrate that the accounting equation holds for Starbucks. Recall that theaccounting equation is: Assets = Liabilities + Equity.
This is called balance sheet equation or accounting equation, as per the balance sheet of 2013 total assets are $ 11,516.70, total liability is $7,034.4, and total Equity is $4,482.30, hence $ 11,516.70=$7,034.4+$4,482.30
- What are Starbucks’ major assets? Calculate the proportion of short term and long term assets of 2013,does this seems appropriate for a company such as Starbucks’
The major assets of Starbucks are:
cash and cash equivalence –this is highly liquid instruments with a maturity of a maturity period of three months or less at time of purchase,
Short, long term investments-consist mainly of all investments which are classified as available for sale investments,
Account receivables, this represent uncollected sales of the company derived as a result of allowing customers to buy on credit.
Inventories this is good or raw materials that Starbucks’ as at hand,
Investments, property plant and equipment
The proportion of short term and long term assets of 2013
Short term assets=short term assets/total assets
=685.1/11,516.7
0.06
Long term assets=long term assets/total assets
=58.3/11,516.7
0.005
It is appropriate
- In general, what are intangible assets? What is goodwill? What intangible assets might Starbucks have?
Intangible assets are assets which luck physical substance, i.e. assets which are not material.
Goodwill represents assets that cannot be identified separately.
Starbucks might have a trade name and trademark as intangible assets.
- How is starburst finance, what proportion comes from owners
It is financed by debt and shareholder equity, 61% comes from owners.
H). Refer to Starbucks statement of earnings for fiscal 2013
- Starbucks oriented store revenue is recognized when payments are tendered at the point of sale.
Revenue on the stored-value card is recognized when they are redeemed or like the hood of redemption.
Challenges of measuring revenue include, events based revenue recognition is very hard to track. This can be solved by the automation of transactions
- Major expenses
Store operating expenses, depreciation and amortization, administrative expenses and litigation charge are major expenses
- Cost structure change in recent years
There was an increase in cost from 11,512.8 million in the year 2012 to 15,469 million in the year 2013
- litigation charge
it is an income because it as not been recognized when recognized it’s treated as a liability
- was the company profitable during the year
The company was profitable during the year because the amount of income was more than the number of expenses, it has a positive value of 52.6millions as income
i). Refer to Starbucks fiscal 2013 statement of cash flow
- Compare Starbucks net earnings to net cash provided by operating activities and explain the difference.
The net earnings of $8.8 million are less compared to net cash provided by operating activities of $2908.3 million.
The net earnings is the profit earned by Starbucks for a specific period while net cash provided by operating activities measures the flow of cash in and out as a result of the company’s daily operations.
- How much cash did Starbucks use for the expenditure of property plant and equipment during fiscal 2013
621.4million
- What amount of dividend did Starbucks pay during the year?
0.85 Million
How this account does compare to the amount of dividend as shown in the statement of Equity
The amount shown in the statement of Equity is higher
- j) Accounts which requires estimates
Goodwill, account for doubtful debts, yes they are estimates free.
Compute the following ratios for Starbucks company in 2013 and 2012, showing the difference between the two years (attach separate Excel worksheets with proper labels and Formulas:
- Based on the ratio analysis above, comment in written essays on the company performance in years by comparing 2013 vs. 2012.
| The current ratio tells the company whether the business has enough current assets to meet current liabilities payments, the current ratios of Starbucks for the year ended 2013 and 2012, respectively are 1.02 and 1.9. This tells the owners of the Starbucks that those current liabilities are covered by current assets 1.02 times in the year 2013 and 1.09 times in the year 2012. |
| The current ratio tells the company whether the business has enough current assets to meet current liabilities payments, the current ratios of Starbucks for the year ended 2013 and 2012, respectively are 1.02 and 1.9. The company was more solvent in the year 2012 compared to the year 2013. |
| The current ratio tells the company whether the business has enough current assets to meet current liabilities payments, the current ratios of Starbucks for the year ended 2013 and 2012, respectively are 1.02 and 1.9. The company was more solvent in the yea |
| The working capital ratios for the year 2012 and 2013 respectively are 1:1 and 1.9:1. In 2013 the company was finding it hard to pay bills compared to the year 2012 |
| Total debt to total assets is an indicator of the company’s leverage. In 2013 and 2012, the total debt to total assets was 61% and 38% respectively. In 2013 a greater portion of debt-funded by assets as compared to 2102, i.e. the company had more debts than assets in 2013 compared to 2012 |
| Total Equity to total asset for the year 2013 and 2012 were 39% and 62% respectively. Total Equity to the total asset was higher in 2012 as compared to 2013; it shows that 39% of assets were owned by investors in 2013 while in 2012 62% of assets were owned by investors. |
| Return on Sales for the year 2013 and 2012 were 0.35% and 10% respectively.in 2013 Starbucks converted 0.35% of his sales while in 2013 it converted 10% of his sales into a profit |
| The gross profit margin for 2013 and 2012 were 2.1% and 15% respectively. The company did well in managing is the cost of sales in 2012 as compared to 2013 |
| Inventory turnover rate of 2013 and 2012 were 0.63 times and 0.32 times respectively. There was the highest inventory turnover in 2013 compared to 2012.ie healthy sales and efficient purchasing in 2013 compared to 2012 Days sale inventory for the year 2013 and 2012 are 63 days and 77 days respectively; it indicates that starburst sells its entire inventory within 63 days in 2013 and 77 days in 2012
The average collection period for 2013 and 2012 were 15 and 21.6, respectively. Its means the average collection period of 2012 was higher than the average collection period of 2013.the general collection period of the two years are much higher than the recommended period of 30 days. |
- Is the company funded on debt or Equity? Explain why both the debt and equity change in both years.
The company is funded by both debt and Equity, it changes over the years because as the years go the liability of the company decreases.
- If you were a loan officer of a bank, would you grant a loan of $2.5 million?
No, Total debt to total assets is an indicator of the company’s leverage. In 2013 and 2012, the total debt to total assets was 61% and 38% respectively. In 2013 a greater portion of debt-funded by assets as compared to 2102, i.e. the company had more debts than assets in 2013 compared to 2012
- Based on your commons size and ratios analysis, would you consider Starbucks a good investment opportunity?
Yes because it is profitable