How Did Starbucks Report Starting In Fiscal 2012
MIM517
Starbucks Assignment Week 1
Fall 2013
Objective: To ensure that you are familiar with the main components of a U.S. Financial Statement
References: Starbucks 10K printed as a pdf (not html) file; Textbook chapters 14, 1, 2, 3, 5, 6
Required: Working in groups of 2-3, answer the following questions using Starbucks 2012 10K. Also note the page number where you found each item.
1. Find and read the description of Starbucks’ business in Item 1 of the 10K.
a. What are Starbucks’ primary lines of business?
b. What segments did Starbucks report prior to fiscal 2012?
c. What segments does Starbucks report starting in fiscal 2012?
d. What percentage of revenue came from each segment in fiscal 2012?
e. What risk factors does Starbucks identify?
2. What four financial statements are included in the 10K?
3. What measures of company size are available for Starbucks in the:
a. Description of business
b. Income statement
c. Balance sheet
d. Anywhere else you could think of? …show more content…
4. Locate the Management Discussion and Analysis section. What are the major items discussed by management in this section of the 10K?
5.
Accounting involves the use of estimates and judgment. According to the MD&A, what are the primary areas of accounting most affected by estimates and judgment?
6. Identify each of the following reports. What is the purpose of each report and who signs each report?
a. Report of Independent Auditors on the Financial Statements
b. Report of the Independent Auditors on Internal Controls
c. Management’s report on Internal Controls over Financial Reporting
7. What basis of accounting (i.e., what GAAP) is used by Starbucks?
8. What is Starbucks’ fiscal year end? Do you notice anything unusual about the year end?
A: Starbucks’ fiscal year ends on the Sunday closet to September 30th. Fiscal years 2012 and 2011 included 52 weeks. Fiscal year 2010 included 53 weeks, with the 53rd week falling in the fourth quarter. It means the fiscal year could be movable.
9. What is the title and purpose of footnote
1?
A: The title is summary of significant accounting policies. The purpose is to highlight important factors like description of business, principles of consolidation, fiscal year, estimates and assumptions, cash and cash equivalents, short-term and long-term investments, fair value, derivative instruments, allowance for doubtful accounts, inventories, property, equipment and plant, goodwill, other intangible assets, long-lived assets, insurance reserves, revenue recognition, marketing & advertising, store preopening expenses, operating leases, asset retirement obligations to show how important these factors are in Starbucks.
10. Read through Starbucks’ balance sheet. Select one line item (i.e., account) that you believe you don’t currently have a good understanding of. Use the footnotes to research this accounting and explain what it represents.
A: I am very confusing with the indication of Inventory, because when I calculated the quick ratio and I got the data from Starbucks’ 10k, I found the data were 965.8 million and 1241.5 million in 2011 and 2012, respectively. However, from the Inventory of footnote, it indicates the inventory reserves 22.6 million and 19.5 million in 2012 and 2011, respectively. Therefore, which data of Inventory I am supposed to use in the calculation of quick ratio?
11. Using the financial statements, calculate the following for 2011 and 2012. Comment on whether you believe the ratio has improved or deteriorated.
a. Current ratio
A: 2011 Current Ratio=Current Assets/Current Liabilities= 3794.9/2075.8=1.828 2012 Current Ratio=Current Assets/Current Liabilities=4199.6/2209.8=1.900. (Currency in Millions of U.S Dollars) The current ratio shows a firm’s ability to pay current liabilities using assets that can be converted to cash in the near term. Ratio should definitely be higher than 1.0; ratios of 2 or higher are better still. The curren ratio of Starbucks were higher than 1.0, and the ratio was really close to 2. Moreover, the ratio increased from 1.828 to 1.900 in 2011 and 2012, it improved Starbucks did really well in operation.
b. Acid test or quick ratio
A: 2011 Quick Ratio= (Current Assets-Inventory)/Current Liabilities= (3794.9-965.8)/2075.8=1.3629 2012 Quick Ratio= (Current Assets-Inventory)/Current Liabilities= (4199.6-1241.5)/2209.8=1.3386. (Currency in Millions of U.S Dollars) The quick ratio shows a firm’s ability to pay current liabilities without relying on the sale of its inventories. Thus, the most important factor of quick ratio is inventory. A firm could reduce their inventories to enhance quick ratio. Moreover, the same theory as current ratio, which means the result of quick ratio should be higher than 1.0. In general, economists claim that the current ratio and quick ratio should keep a best ratio of 1:1; thus, the Starbucks’ current ratios and quick ratios were all good.
c. Days’ Cash
A: Days’ Cash means Day sale, and the formula is Net Sale/ 365 Days.
2011 Days’ Cash= 11700.4/365=32.0559
2012 Days’ Cash=13299.5/365=36.4370 (Currency in Millions of U.S Dollars)
Economists and businessmen usually use Day’s Cash to prove a firm’s Days’ Receivable. In economics, we usually called it average daily sale.
d. Days’ Receivables
A: 2011 Day’s Receivables= Accounts Receivable/ Days Cash=386.5/32.0559=12.0571 2012 Day’s Receivables= Accounts Receivable/ Days Cash=485.9/36.4370=13.3353 (Currency in Millions of U.S Dollars) Days’ Receivables indicates the average length of time the firm must wait after making a sale to receive cash payment. Thus, a shorter collection time is better. Therefore, a firm which has higher operating income could reduce account receivables; the collection time could be shorter. That’s why Starbucks’ days’ receivables were so short in 2011 and 2012, because they had a good days’ receivable.
e. Inventory turnover and Days’ inventory A: 1). 2011 Inventory turnover=Cost of goods sold/365=4915.5/365=13.4671 2012 Inventory turnover=Cost of goods sold/365=5813.3/365=15.9268 (Currency in Millions of U.S Dollars) The inventory turnover measures the number of inventory turns per year. Thus, the result should be higher is better. However, inventory turnover cannot be a very accurate value to measure a firm’s operation, because the management is totally different in all industries. It could be only used in the same industry, like Starbucks, Costa Coffee, Coffee Beans, etc. The same industry could fine some problems that they all had. But then again, the inventory turnovers of Starbucks were not good. According to my individual estimate, I believe that the normal range should be 45 to 60 days is better.
f. Gross margin percentage A: 2011 Gross margin percentage= (Sales-Cost of goods sold)/Sales= (11700.4-4915.5)/11700.4=0.5799=57.99% 2012 Gross margin percentage= (Sales-Cost of goods sold)/Sales= (13299.5-5813.3)/13299.5=0.5629=56.29%. (Currency in Millions of U.S Dollars) Gross margin shows the percentage of revenues available to cover operating expenses and yield a profit. Thus, higher is better and the trend should be upward. However, we can clearly see that the indication had a downward trend from 57.99% to 56.29% in 2011 and 2012. It’s a bad signal for Starbucks.
g. Profit margin percentage
A: 2011 Profit margin percentage=Net income/Revenue=1245.7/11700.4=0.1065=10.65% 2012 Profit margin percentage=Net income/Revenue=1383.8/13299.5=0.1041=10.41%
Profit margin represents the percentage of revenue that a company keeps as profit after accounting for fixed and variable costs. The profit margins were not high.
Starbucks Assignment Week 1
Fall 2013
Objective: To ensure that you are familiar with the main components of a U.S. Financial Statement
References: Starbucks 10K printed as a pdf (not html) file; Textbook chapters 14, 1, 2, 3, 5, 6
Required: Working in groups of 2-3, answer the following questions using Starbucks 2012 10K. Also note the page number where you found each item.
1. Find and read the description of Starbucks’ business in Item 1 of the 10K.
a. What are Starbucks’ primary lines of business?
b. What segments did Starbucks report prior to fiscal 2012?
c. What segments does Starbucks report starting in fiscal 2012?
d. What percentage of revenue came from each segment in fiscal 2012?
e. What risk factors does Starbucks identify?
2. What four financial statements are included in the 10K?
3. What measures of company size are available for Starbucks in the:
a. Description of business
b. Income statement
c. Balance sheet
d. Anywhere else you could think of? …show more content…
4. Locate the Management Discussion and Analysis section. What are the major items discussed by management in this section of the 10K?
5.
Accounting involves the use of estimates and judgment. According to the MD&A, what are the primary areas of accounting most affected by estimates and judgment?
6. Identify each of the following reports. What is the purpose of each report and who signs each report?
a. Report of Independent Auditors on the Financial Statements
b. Report of the Independent Auditors on Internal Controls
c. Management’s report on Internal Controls over Financial Reporting
7. What basis of accounting (i.e., what GAAP) is used by Starbucks?
8. What is Starbucks’ fiscal year end? Do you notice anything unusual about the year end?
A: Starbucks’ fiscal year ends on the Sunday closet to September 30th. Fiscal years 2012 and 2011 included 52 weeks. Fiscal year 2010 included 53 weeks, with the 53rd week falling in the fourth quarter. It means the fiscal year could be movable.
9. What is the title and purpose of footnote
1?
A: The title is summary of significant accounting policies. The purpose is to highlight important factors like description of business, principles of consolidation, fiscal year, estimates and assumptions, cash and cash equivalents, short-term and long-term investments, fair value, derivative instruments, allowance for doubtful accounts, inventories, property, equipment and plant, goodwill, other intangible assets, long-lived assets, insurance reserves, revenue recognition, marketing & advertising, store preopening expenses, operating leases, asset retirement obligations to show how important these factors are in Starbucks.
10. Read through Starbucks’ balance sheet. Select one line item (i.e., account) that you believe you don’t currently have a good understanding of. Use the footnotes to research this accounting and explain what it represents.
A: I am very confusing with the indication of Inventory, because when I calculated the quick ratio and I got the data from Starbucks’ 10k, I found the data were 965.8 million and 1241.5 million in 2011 and 2012, respectively. However, from the Inventory of footnote, it indicates the inventory reserves 22.6 million and 19.5 million in 2012 and 2011, respectively. Therefore, which data of Inventory I am supposed to use in the calculation of quick ratio?
11. Using the financial statements, calculate the following for 2011 and 2012. Comment on whether you believe the ratio has improved or deteriorated.
a. Current ratio
A: 2011 Current Ratio=Current Assets/Current Liabilities= 3794.9/2075.8=1.828 2012 Current Ratio=Current Assets/Current Liabilities=4199.6/2209.8=1.900. (Currency in Millions of U.S Dollars) The current ratio shows a firm’s ability to pay current liabilities using assets that can be converted to cash in the near term. Ratio should definitely be higher than 1.0; ratios of 2 or higher are better still. The curren ratio of Starbucks were higher than 1.0, and the ratio was really close to 2. Moreover, the ratio increased from 1.828 to 1.900 in 2011 and 2012, it improved Starbucks did really well in operation.
b. Acid test or quick ratio
A: 2011 Quick Ratio= (Current Assets-Inventory)/Current Liabilities= (3794.9-965.8)/2075.8=1.3629 2012 Quick Ratio= (Current Assets-Inventory)/Current Liabilities= (4199.6-1241.5)/2209.8=1.3386. (Currency in Millions of U.S Dollars) The quick ratio shows a firm’s ability to pay current liabilities without relying on the sale of its inventories. Thus, the most important factor of quick ratio is inventory. A firm could reduce their inventories to enhance quick ratio. Moreover, the same theory as current ratio, which means the result of quick ratio should be higher than 1.0. In general, economists claim that the current ratio and quick ratio should keep a best ratio of 1:1; thus, the Starbucks’ current ratios and quick ratios were all good.
c. Days’ Cash
A: Days’ Cash means Day sale, and the formula is Net Sale/ 365 Days.
2011 Days’ Cash= 11700.4/365=32.0559
2012 Days’ Cash=13299.5/365=36.4370 (Currency in Millions of U.S Dollars)
Economists and businessmen usually use Day’s Cash to prove a firm’s Days’ Receivable. In economics, we usually called it average daily sale.
d. Days’ Receivables
A: 2011 Day’s Receivables= Accounts Receivable/ Days Cash=386.5/32.0559=12.0571 2012 Day’s Receivables= Accounts Receivable/ Days Cash=485.9/36.4370=13.3353 (Currency in Millions of U.S Dollars) Days’ Receivables indicates the average length of time the firm must wait after making a sale to receive cash payment. Thus, a shorter collection time is better. Therefore, a firm which has higher operating income could reduce account receivables; the collection time could be shorter. That’s why Starbucks’ days’ receivables were so short in 2011 and 2012, because they had a good days’ receivable.
e. Inventory turnover and Days’ inventory A: 1). 2011 Inventory turnover=Cost of goods sold/365=4915.5/365=13.4671 2012 Inventory turnover=Cost of goods sold/365=5813.3/365=15.9268 (Currency in Millions of U.S Dollars) The inventory turnover measures the number of inventory turns per year. Thus, the result should be higher is better. However, inventory turnover cannot be a very accurate value to measure a firm’s operation, because the management is totally different in all industries. It could be only used in the same industry, like Starbucks, Costa Coffee, Coffee Beans, etc. The same industry could fine some problems that they all had. But then again, the inventory turnovers of Starbucks were not good. According to my individual estimate, I believe that the normal range should be 45 to 60 days is better.
f. Gross margin percentage A: 2011 Gross margin percentage= (Sales-Cost of goods sold)/Sales= (11700.4-4915.5)/11700.4=0.5799=57.99% 2012 Gross margin percentage= (Sales-Cost of goods sold)/Sales= (13299.5-5813.3)/13299.5=0.5629=56.29%. (Currency in Millions of U.S Dollars) Gross margin shows the percentage of revenues available to cover operating expenses and yield a profit. Thus, higher is better and the trend should be upward. However, we can clearly see that the indication had a downward trend from 57.99% to 56.29% in 2011 and 2012. It’s a bad signal for Starbucks.
g. Profit margin percentage
A: 2011 Profit margin percentage=Net income/Revenue=1245.7/11700.4=0.1065=10.65% 2012 Profit margin percentage=Net income/Revenue=1383.8/13299.5=0.1041=10.41%
Profit margin represents the percentage of revenue that a company keeps as profit after accounting for fixed and variable costs. The profit margins were not high.