Management Accounting in the Starbucks - Research Paper Example

April, Financial_Analysis Introduction The Starbucks is a global food company. The paper focuses on the financial ment analysis of Starbucks. The company sells is coffee-related products to clients in over 74 countries around the world. The company’s main product uses roasted coffee beans. The company’s other food products include snack items, tea, as well as other popular beverages. The company’s other similarly popular coffee brands are Seattle’s_Best Coffee, Ethos, La_Boulange, Teavana and Tazo (Starbucks, 2015). Further, the company’s financial operations are divided into four major market segments. The first market is the Americas market segment. The second is the Europe market segment. The third is the Middle_East & Africa market segment. The last major market segment is called China/Asia Pacific (Starbucks, 2015). Starbucks’ financial statement ratios firmly describe the company’s viable two year financial performance. Financial Statement Ratios Table 1 Abstract The above table 1 shows the abstract of the financial performance of Starbucks for 2013 and 2014. In terms of the current asset financial statement ratio, the company’s 2014 financial performance was better than its prior 2013 financial performance. In terms of the Debt to Equity or leverage financial statement ratio, the company’s 2013 financial performance was better than its 2014 financial performance. In terms of the Net Profit Ratio financial statement ratio, the company’s 2014 financial performance was better than the 2013 financial performance. In terms of the Return on Equity financial statement ratio, the company’s 2014 financial performance was significantly better than its previous 2013 financial performance. The company’s return on total assets financial statement ratio, the company’s 2014 financial performance was better than its prior 2013 financial performance. Current Ratio Table 2 Current Ratio The above table 2 shows the current ratio financial statement performance of Starbucks for 2014 and 2013. The 2014 current assets, $ 4,168.70 million figure represents 137 percent of the 2014 current liabilities, $3,038.70 million. The 2013 current assets, $ 5,471.40 million amount is 102 percent of the 2013 current liabilities, $5,377.30 million. Clearly, the company’s 2014 current ratio financial performance is significantly better than the 2013 current ratio output. The two years’ performance shows there are more than enough current assets available for the payment of the current liabilities (Epstein, 2011). It is highly recommended that Starbucks branches should further increase its current ratio financial statement performance. This is be done by reducing the current liabilities amounts through quicker payment to the company’s creditors and reducing future liability-related transactions. The company should continue to set up more Starbucks branches around the world to increase current asset amounts (Epstein, 2011). Inventory Turnover Ratio Table 3 Inventory Turnover Ratio The above table 3 shows the inventory turnover financial statement performance of Starbucks for 2014 and 2013. The 2014 cost of sales figure, $ 6,858.80 million is 6.23 times the 2014 average inventory amount, $1,101.05 million. The 2013 cost of sales figure, $ 6,382.30 is 5.74 times the 2013 current average inventory figure, $1,111.20. Surely, the company’s 2014 inventory turnover ratio financial performance is significantly better than the 2013 inventory turnover ratio financial performance. The two years’ performance shows the company was able to convert cash to inventory to cash (from Starbucks coffee and other product revenues) better in 2014 compared to the prior 2013 accounting period (Debarshi, 2011). The company should increase its inventory turnover ratio. Increasing the company’s global marketing activities will help increase revenues. With more revenues, there will be lesser inventory end amounts (Debarshi, 2011). Debt to Equity Ratio Table 4 Debt to Equity Ratio The above table 4 shows the debt to equity ratio financial statement performance of Starbucks for 2014 and 2013. The ratio is commonly called the leverage ratio. The total liabilities include the amounts borrowed from individuals, banks, and other financial intermediaries. The 2014 total debt amount, $ 5,479.20 million is 104 percent of the 2014 total stockholders’ equity figure, $5,273.70 million. The 2013 total debt figure, $ 7,034.40 million is 157 percent of the 2013 stockholders’ equity figure, $4,482.30 million. Vividly, the company’s 2014 total debt to stockholders’ equity ratio financial performance is significantly better than the 2014 leverage financial performance, the benchmark best performance being 100 percent. The two years’ performance shows there are more liabilities compared to the stockholders’ equity amounts (Mittal, 2010). More importantly, the 2014 debt to equity ratio is better than the 2013 debt to equity ratio, since the 2014 ratio is nearer the ideal 100 percent debt to equity ratio. The best ratio is a one to one sharing between the total liabilities and the stockholders’ equity amount. Borrowing money from creditors increases the company’s liabilities. The liabilities entail the payment of interests. An increase in borrowings will increase interest payments. Consequently, a decline in the borrowings will lead to a favorable drop in the company’s loan interest amounts (Mittal, 2010). Likewise, the total equity figure includes the investments of persons or entities. People and entities funnel their hard earned cash into the business entity with the hope of receiving dividends and stock market gains. Some investors sell their stock market investments at a higher than stock market acquisition prices in order to generate stock market gains. Clearly, the best debt to equity ratio is a 100 percent or one to one total debt to stockholders equity inputs (Chapman, 2011). Net Profit Ratio Table 5 Net Profit Ratio The above table 5 shows the net profit ratio financial statement performance of Starbucks for 2014 and 2013. The net profit for 2014 amount, $ 2,068.1 million is 15.94 percent of the 2014 net sales (revenues) figure, $12,977.9 million. The net profit for 2013 figure, $ 8.3 million is 0.07 percent of the 2013 net sales (revenues) figure, $11,793.2 million. Undoubtedly, the company’s 2014 net profit ratio financial performance is significantly better than the 2013 net profit financial performance. The two years’ performance shows 2014 generated a higher $ 2,068.1 net profit compared to the very minimal $ 8.3 million net profit generated during the past 2013 year (Hilton, 2011). By focusing on increasing global revenues, the company’s net profits will continue to increase. By setting up more branches around the world, the revenues will increase. By reducing the avoidable global operating expenses, the company’s net profit output will favorably rise. The avoidable operating expenses include employees’ salaries, electricity expenses, water expenses, and phone communication expenses. The avoidable expenses include reducing food spoilage by ordering only enough ingredients that are needed to serve the average monthly customer requirements. Reducing the costs of each global branch, the company’s net profit ratio financial performance will favorably increase (Hilton, 2011). Return on Equity Ratio Table 6 Return on Equity Ratio The above table 6 shows the return on equity ratio financial statement performance of Starbucks for 2014 and 2013. The net income for 2014 amount, $ 2,068.1 million is 39.23 percent of the 2014 stockholders’ equity figure, $5,272 million. The net income for 2013 amount, $ 8.3 million is 0.02 percent of the 2013 stockholders’ equity amount, $4,480.2 million. Without a doubt, the company’s 2014 return on equity ratio financial performance is very significantly better than the 2013 return on equity financial performance. Compared to the 2013 return on equity performance, the 2014 financial operations had better maximized the use of the stockholders’ equity amounts, including investments, to generate the same year’s net profit outputs (Chapman, 2011). Similarly, increasing the company’s marketing activities will lead to the increase in the company’s return on equity figure. Marketing activities include advertising the benefits of sipping a cup of Starbucks coffee blend. With the massive global marketing efforts, the global revenues will rise. With the rise, the net profits will increase. With the increase in net profits, the return on equity ratio financial performance will similarly increase (Chapman, 2011). Return on Total Assets Ratio Table 7 Return on Total Assets Ratio The above table 7 shows the return on assets ratio financial statement performance of Starbucks for 2014 and 2013. The net income for 2014 amount, $ 2,068.1 million is 19.23 percent of the 2014 total assets figure, $10,752.9 million. The net income for 2013 amount, $ 8.3 million is a minimal 0.07 percent of the 2013 total assets amount, $11,516.7 million. Similarly, the company’s 2014 return on total assets ratio financial performance is very significantly better than the 2013 return on total assets margin financial performance. Compared to the 2013 return on total assets performance, the 2014 financial operations had better maximized the use of the company’s total assets to generate the same year’s net profit results (Epstein, 2011). Likewise, increasing the company’s global marketing activities will precipitate to the increase in the company’s return on equity figure (Mittal, 2010). The marketing activities include offering discount coupons to current and future Starbucks business customers and promoting the benefits of sipping a cup of Starbucks coffee product. With the effectively timed massive global marketing efforts, the global revenues will increase. With the increase, the net profits will increase. With the increase in net profits, the return on total assets ratio financial performance will favorably similarly rise. Conclusion The financial statement analysis affirms Starbucks’ global food business is viable. The company’s 2014 current ratio performance is favorably better than the 2013 current ratio performance. The company’s 2014 inventory turnover ratio performance and net profit ratio performance are favorably better than the 2013 inventory turnover ratio performance and net profit ratio performance. The company’s 2014 return on equity ratio performance, debt to equity ratio performance, and return on assets ratio performance are favorably better than the 2013 return on equity ratio performance and return on assets ratio performance. Evidently, Starbucks’ financial statement ratios affirmed the company performed financially better during the 2014 accounting period compared to 2013 accounting period. References: Chapman, C. (2011). Handbook of Management Accounting. New York: Elsevier Press. Debarshi, B. (2011). Management Accounting. New York: Pearson Press. Epstein, M. (2011). Advanes in Management Accounting. New York: Emerald Press. Hilton, R. (2011). Managerial Accounting. New York: McGraw Hill Press. Mittal, R. (2010). Management Accounting. New York: FK Press. Starbucks. (2015). Financial Reports. Retrieved from Read More