Companys Liability: Starbucks Corporation - Case Study Example

Starbucks Sec 10K Introduction: Company Overview Starbucks Corporation headquartered in Seattle, U.S. is a leading roaster, marketer, distributor and retailer dealing in coffee with global operation in 62 countries. It is a publicly traded company with its stocks listed on the NASDAQ under the name “SBUX.” Starbucks was incorporated in the year 1985 in Seattle Washington by Jerry Baldwin, Gordon Bowker and Zev Siegel Starbucks have total 17,009 stores of which 8,870 are company owned and 8,139 are licensed stores providing services almost in all the continents of the world including Europe, Asia Pacific regions, North America, Africa and Latin America (Starbucks Corporation, 2013). The fiscal year of the company ends on Sunday closest to September 30comprising total of 52 weeks. The financial report of 2013 has been audited by Deloitee &Touche LLP based on the standards of the Public Company Accounting Oversight Board. In addition, statement on income tax returns is periodically audited by domestic and foreign tax authorities (Starbucks Corporation, 2013). Company’s Assets Overview Starbucks has some flexibility in its accounting standard in order to measure the key success factor and risk. Since they are primarily engaged in selling its coffee products, and hence maintains quantum amount of inventories. Starbucks generally uses moving average cost method, which enables them to record inventories reserves of various slow and obsolete inventories. Significant portion of the overall profit earned by the company is distributed to various shareholders of the company in the form of cash dividend. It has been identified that the company during the fiscal year 2013 declared US$668.6 million as dividend (Starbucks Corporation, 2013). . Accounts Receivable was created due to selling products on credit basis, which is likely to be realized in future. Starbucks accounts receivables for financial year ended in September 29, 2013 was ascertained to be US$ 561.4 million (Starbucks Corporation, 2013). Uncollectible accounts are those expenses of the company, which are beyond the control of the company like debts, loans and other receivable due to bankruptcy, inability of lack of proper documents. Starbucks Corps uncollected allowance for doubtful accounts in the financial year ended on September 29 2013 was reckoned US$ 5.7 million (Starbucks Corporation, 2013). Company’s Liabilities Overview Starbucks liability represents the various obligations that company has to pay arising from the past events, and those undertaken by it to take economic benefits and carry out its business smoothly. As per the financial report 2013 of Starbucks it has been revealed that the current liability of the company amounted to US$5,377.3, which included US$491.7 million accounts payable, US$1,269.3 and US$2,784.1 million of accrued liability and charges for litigation respectively. Likewise, US$ 178.5 million insurance reserve and US$653.7 million deferred revenues were reckoned. Long-term debts and other long terms liabilities for the fiscal year 2013 that ended on September 29 was ascertained to be US$1657.1 million. Furthermore, the total equity for the same fiscal year was amounted to US$4,482.3 million of which retained earnings was reckoned US$4,130.3 million. Correspondingly, additional paid-up capital amounted to 282.1million US$ and common stock stood to be US$0.8 million. On the other hand, non-controlling interest was reckoned US$ 2.1 million (Starbucks Corporation, 2013). Company’s Equity Overview Starbucks corp. during the fourth quarter of fiscal year 2013 did not repurchase any shares. At the end of fiscal year income from equity investees was US$251.4 million reflecting an increase by US$41 million over the previous fiscal year i.e.2012. It was further ascertained from region based analysis of the income from investees that the company was able to generate US$2.4 million from its operation in America , US$0.4 million from EMEA (Europe Middle East, Africa), US$152 million from China/ Asia Pacific regions and US$96.6 million from channel development. Notably, during the fiscal year 2013 shareholders’ equity of the company amounted to US$4,480.2 million (Starbucks Corporation, 2013). Additionally, the company has authorized 7.5 million of shares of preferred stock out of its 1.2 billion shares of authorized common stock having the par value of $0.001 per share while none of the preferred stock was outstanding at the end of the fiscal year 2013 (Starbucks Corporation, 2013). Company’s Revenue Overview The overall revenue of the Starbucks Corp. during the fiscal year 2013 was ascertained to be US$14,892.20 million that showed an upsurge of 12.03% as compared to the previous fiscal year i.e. 2012. In addition, the global sales of the company grew by 7% that was primarily driven by 5% increase in the transactions and 2% increase in the average ticket (Starbucks Corporation, 2013). With respect to the regional performance of the company during the fiscal year2013, sales of the company grew across all the market or the regions of its operations. Evidently, 7% increase was recorded from its operation in America and 9% surge was reckoned from its operation in China/ Asia Pacific regions. The operation of the company particularly in America reflected highest percentage of revenue and operating income of US$11,000.8 million and $2,365.2 million respectively. On the other hand, the same from the region of EMEA was recorded as US$1,160 million and US$64 million while revenue and operating income from China/Asia-Pacific was reckoned to beUS$917 million and US$321.2 million (Starbucks Corporation, 2013). All markets postulated substantial growth in revenue during the fiscal year 2013 as compared to previous fiscal year i.e. 2012. It has been further observed that net revenue from Americas segment increased by $1.1 billion i.e. 10.71% while much of the contribution i.e. US$961 coming from company owned stores and US$90 million from licensed store (Starbucks Corporation, 2013). Similarly, net revenue from its EMEA segment increased by US$19 million i.e. 1.6% particularly due to the extraordinary performance of licensed stores. Nevertheless, decline of about US$36 million was recorded in terms of company owned stores. Moreover, China/ Asia Pacific regions also revealed a commendable performance was it has been ascertained that the net revenue of the company increased by US$196 million i.e. 27.11% of which the contribution of company operated stores and licensed stores was US$183 million and US$13 million respectively. It is worth mentioning that the overall company performance continues to improve even in light of an uncertain and unstable economic condition (Starbucks Corporation, 2013). Company Ratios Analysis Return on assets of Starbucks for financial year 2013 was calculated as 0.07% which demonstrates that the company earns 0.07% of profit by investing one dollar in its assets Debt ratio during the year was estimated to be 11.28%, which reflects 11% of the company’s assets are financed by debt Furthermore, the company gross profit ratio was reckoned as 57.14%, which reflects company has been efficiently managing its production, labor, supplies costs. Operating margin percentage for the company has been calculated as (2.19%) and net profit margin as 0.06%. nevertheless, the decrease in the Operating margin percentage is identified to be primarily due to high cost involved in executing core activities Current ratio of Starbucks was calculated as 1.01times, which shows that company is unable to pay off its short terms obligation (Starbucks Corporation, 2013) Company’s Expenses and Profitability Overview Cost of goods sold during the fiscal year 2013 ended on September 29 was ascertained to amount to US$6,382.3 million while gross profit earn during the same fiscal year was reckoned to be US$8,509.90 million. The gross profit as compared to the fiscal year 2012 also significantly soared by 13.67%. Moreover, the net profit of the company in the fiscal year 2013 was amounted to 8.3 million. During the fiscal year 2013, the company incurred total operating expenses of US$ 15,469.0. Gross profit percentage for the fiscal year 2013 was reckoned 57.14% that showed an upward moving trend over the previous year i.e. 43.71% (Starbucks Corporation, 2013). Further, from the financial report of Starbucks corp. revealed that the company uses multi-step method in calculation of its income statement report. The multi-step method of preparing income statement is based of sub-heads. The use of the multi-step method make easier for the stakeholders to read and select the types of information that they requires. The various subtotals included operating expenses, gross margin, and other income, further allowing the readers to analyze about company earning from the manufacturing activities i.e. gross margin, spending towards supporting operations and other core activities in an effective manner (Starbucks Corporation, 2013). Company’s Risk Factor Overview As per the fiscal report of Starbucks Corp. firm is exposed to various risk, occurrence of any is anticipated to adversely affect the firm’s financial conditions, share price and business as whole. This factor involves: Economic conditions of the US and other international market Failure in implementing any reliable strategies Intensifying competitions in each channel and market Higher dependency in American market segment Failure in pursuing values towards various stakeholders may have negative impact on brand value and financial positions Excessive dependence on EMEA and China/ Asia Pacific regions for effective growth High cost or decrease in availability of Arabic coffee beans and other community Volatility in stock level and share price Human resources issues like loss of key personal or difficulty in recruitment Health related issue which may arise due to excessive using of company’s product Higher dependency on information technology exposed to technology related issues Moreover, the risk related to any failure in compelling laws and regulations (Starbucks Corporation, 2013) Conclusion From the above discussion and analysis, it has been comprehended that Starbucks, is the worlds leading roaster, marketer, distributor and retailer dealing with coffee. It has been observed that company since its incorporation has been able to achieve unprecedented growth and expansion. The company mainly operates through three segments namely America, EMEA, China and Asia pacific. The analysis of the financial report of the company for the fiscal year 2013 ended on September 29 reflected that the performance of the company during the fiscal year was commendable despite being surrounded by economic uncertainties. The net revenue of the company across its different regions of operations has increased substantially. Nevertheless, certain risk factors are ascertained to influence the performance of the company such as increased dependence of the company on single market segment like America and volatility associated with share price among others. Thus, it can be concluded that in order to ensure stable performance of the company need to place considerable focus on mitigating the risk factors thorough effective use of available resources and assets. References Starbucks Corporation. (2013). Starbucks Corporation Annual report 2013. Retrieved from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjE4MDQyfENoaWxkSUQ9LTF8VHlwZT0z&t=1 Read More