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Running Head: FINANCIAL REVIEW OF STARBUCKS ANNUAL REPORT 2017 1

FINANCIAL REVIEW OF STARUCKS ANNUAL REPORT FOR 2017 2

Financial Review of Starbucks Annual Report –Year 2018

Introduction

Financial statement review describes the process through which a business organization’s accounting reports are reviewed and analyzed so that a financial professional can gauge its performance whether in the past, present or projected future. This enables investors and other stakeholders to make informed economic decisions.

Worldwide, the law of the land prescribes that public listed companies file their accounting reports with the authorities concerned. In this, all publicly listed companies must submit their financial statements to the Securities and Exchange Commission (SEC). The companies are also under an obligation to avail their financial statements annually which they distribute to their shareholders. In the US, one of a company’s greatest achievement is to appear on the Fortune 500 list, an annual list of the top 500 most profitable firms in the country that is compiled and published by Fortune magazine. The ranking is premised on their revenues, profits and market value as collected by business magazine. Consequently, the purpose of this essay is to provide the analysis of Starbucks Corporation (ranked at position 131 in the Fortune 500 -2017 list) annual report for the year 2016.

Description of Starbucks Corporation (Starbucks)

Starbucks Corporation commonly known as Starbucks is rated as one of US leading international coffee brewers with over 28, 200 outlet stores located across the entire world including the UK, China, Japan, Canada, Indonesia and Malaysia among others. Starbucks is reputed for its high-end coffee houses which serve wide range of coffee types and flavors (Sakal, 2018). Within the coffee and snacks industry, Starbucks, which controls about 40 % of the market share in the US as of 2018, main competitor is Dunkin’ Brands Group, Inc. commonly referred to as simply Dunkin which controls approximately 25% of the market share. Dunkin with about 13 000 distribution outlets spread in 55 countries operates a franchise of quick-service restaurants serving hot or cold coffee with baked products while Starbucks through its acquisition of Teavana Tea Bars continues to diversify its high-end coffee by selling tea alongside gourmet food (Butler, 2018).

Cyclicality Related To Starbucks Product Sales

For Starbucks to retain its top position, the entity requires to have a strong financial position whose performance like that of any other company can be measured in terms of profitability and productivity premised on the magnitude of its investment. One reliable indicator is the return of asset (ROA) meaning the return which each dollar invested as an asset generates which for Starbucks rose from 7 % in 2009 to 18% in 2012. In order to indicate profitability and productivity of Starbucks over the same period, ROA can further be broken down into net income over sales (profit margin) and sales over average assets (assets turnover) respectively. Within the period lasting 2009-2012, Starbucks profit margin increased more than 6% to 10% in 2012, up from 4% in 2009. However, its assets turnover marginally decreased from 1.74 to 1.71 between 2009 and 2012. This means that Starbucks profitability increased whereas the productivity decreased. Between 2007 and 2017, Starbucks revenues almost grew threefold to reach $ 22.4 billion US dollars

Starbucks Accounting Principles

According to Starbucks Fiscal 2017Annual Report, the firm uses the Generally Accepted Accounting Principles (GAAP) accepted in the US to prepare its financial statements. GAAP demands that business management make assumptions and estimates which impact on the amounts of assets reported as well as revenue, expenses and liabilities. To identify which accounting method a firm has utilized in its financial reporting, one needs to read the summary of significant accounting policies section of form 10-K which is SEC’s version of the company’s annual report only that it follows a specific format unlike the fiscal annual report prepared by the company. If not GAAP, the other method is the International Financial Reporting Standards (IFRS).

Summary of Information from the Article on Starbucks

Overall, Starbucks net revenues increased from 2016 to 2017 just as did the cost of goods sold which captures the cost of materials needed to produce the beverages, manpower as well as occupancy costs. All these factors, are indicative of the fact that the general performance of the company is trending positively and that sales objectives are being realized. One can argue that Starbucks should endeavor to lower the costs of goods sold in order to have profit margins which are higher and also increase the net operating profit. A critical examination of Starbucks financial performance indicates that return on equity (ROE), the return on net operating assets (RNOA) and net non- operating return (NNOR) will continue to grow courtesy of the increased overall profitability.

Conclusion

In conclusion, Starbucks has continued to outperform its closest competitors such as Dunkins and McDonald’s by huge percentage points every year while maintaining healthy margins. As such Starbucks has the option of investing its cash and cash equivalents into operating assets or convert them into non-operating assets like stocks. Alternatively, it can retain the cash as is to be used as a buffer in case of liquidity needs in future.

References

Butler, L. (2018). Coffee's Dark Secrets: Linguistic Variation in Starbucks and Dunkin Donuts. Lingua Frankly, 4.

Sakal, D. V. (2018). COMPANY ANALYSIS OF STARBUCKS CORPORATION.

Starbucks Fiscal 2017 Annual Report