ACC FINAL PAPER

Abstract

The general success of any organization may be attributed to efficient management of the organization. Effective management means that all the departments of the organization are properly managed and aligned to the set organization goals and objectives. The current business environment has seen significant changes. The changes have impacted on the business in various ways forcing the different departments to change their adopted priorities and strategies. The changes have evolved from known to the unknown complex business environment. The complex environment is full of uncertainties thus making the interactions between the economy and business players hard. As a result, the business environment is facing tough turbulent. The situation has continued to complicate the functions of financial managers. Financial managers are faced with a challenge of adopting new strategies that would ensure that the organization remain competent and avoid pitfalls that may result in financial failures. Cash flows management is one key factor that must be effectively and efficiently handled to achieve the set goals. This paper will provide cash flow analysis for the Starbuck organizations. The paper will further provide a return on capital investment for the company as well as the profitability of the organization.

Cash Flow and Cash Flow Management

The cash flow statements or reports show how various changes on balance sheet and the financial statements affect cash and other cash equivalents. The statement shows the flow of cash in and out of the organization. The cash flow statement is composed of the following information (Brooks, 2010). Cash flows into or outside the organization as a result of operating activities. In this case, all the cash involved either in production, distribution, and sales are considered under this title.

The next information would cash flow from investment activities. Investing activities may involve acquiring land new technology or advancing loans to other stakeholders such as customers. Cash flow from financing activities and disclosure on non-cash financing activities (Focardi & Fabozzi, 2012). Non-cash financing activities may include the exchange of assets for other assets such as technology among others. Cash flow is essential to organization management since it provides a clear picture of on trend for the organization cash. The cash flow statements allow organization managers to make informed decisions on what activities or project to invest in according to the current cash flow.

Cash flow management is the process of ensuring that cash flow in out of the organization is well balanced to ensure that organization continues to meets all its daily financial obligations without challenges (Finch, 2010). Poor cash flow management results to unwanted challenges that may hinder smooth daily operations of the organizations. The hindrances can fail in case the right management practices are not upheld in good time.

Starbucks Cash Flow and Management

Starbucks has effective cash flows management systems that ensure that the organization cash flows are properly tracked and managed on a daily basis. The systems help the company to effectively manage it's short-term and long-term financial obligations without making costly decisions. The effective cash flow management has been achieved through the help of modern financial technology systems. The finance department can assist on possible implications that may result from incurring costs on various projects as well as production activities.

Starbucks Company continues to experience increased and positive cash and cash equivalent. The positive results of cash flows are attributed to good costs regulations while maximizing on increased revenues and returns from investments. The approach has not only seen the company generate good profits for its stockholders but also avoid risks associated with irregular cash flows in and out of the company.

Profitability ratios

Profit ratios are measures used to demonstrate business or company ability to make profits. The ability to make profits through exploitation of the available resources whether adequate or scarce encourages shareholders and investors to continue providing the required capital. Starbuck Company has held a steady range of 21 and 22 % Gross profit margins for the last ten years. The situation shows that Starbucks has embraced the most efficient management of its largest assets as well as the biggest costs. Despite the ever changing economic tribulations Starbuck has effectively managed to control its costs structures positively. The effective costs management has seen the organization stand out even during the harsh economic times. Effective costs management has seen the company retain a competitive edge compared to its rivals

Net profit margin is the other profitability measure. Net profit margin refers to how much profits a business generates out of every dollar generated in revenue (Brooks, 2010). Starbuck net profit margin increased considerably from in the financial year 2014/2015. A decrease in the net profit ratio was experienced for the year 2015/2016. A similar case was experienced in the 2005 and 2006 financial years. The decrease in net profit ratios has been associated with unpredictable economic conditions that influencing the markets. Against all the odds the company shows a positive trend of response towards favorable economic conditions. The situations show that the company will continue increasing its net profit margins moving forwards. The increase will always depend on whether the economic conditions allow commodities to moderate moving forward.

The third profitability measure involves the operating profit margin. Operating profit margin is calculated by dividing the operating income with the generated revenue (Focardi & Fabozzi, 2012). Starbucks Company has experienced improved operating profit margin for the last two financial years. The continued improvement shows that the company has effective cash flows management systems.

Return on investment ratios

Return on investments ratios shows the value of all the investments made by the business. Return on investment ratios is given by two measures that include return on assets ratios and return on equity ratios. Return on assets is calculated by net income divided by net shareholders equity (Brooks, 2010). Starbucks is experiencing close to $ 0.15 for every $ 1 invested in Assets. Starbuck return on assets ratios improved for the year 2014 to 2015 but experienced a slim decline in the ratios for the year 2015 to 2016. The situation gives the company a good confidence that it will continue to get nice returns on investments made on assets moving forward. Good returns on investments made on assets are one of the key objectives anticipated by many businesses or organizations.

Return on equity ratios measures how much the stockholders are earning from their investment (Focardi & Fabozzi, 2012). Starbuck Company has experienced a continued bottom line growth for the last five years. The growth has steadily increased the return on equity ratios to a higher level. The company further introduced a share repurchase program that increased the shareholders' value. Good equity returns hold the key towards attracting more investors to any business or organization.

Regarding profitability, Starbuck has shown strong trends of continuous improvement. The company has managed to remain profitable despite numerous economic hardship forcing many businesses to experience huge losses. The profitability trend is fully connected to the company effective management that can exploit the scarce resources properly. The company further has shown sound costs regulation control that allows creating a good profit margin out of business activities.

The company would not be profitable in the event costs incurred on a daily basis exceeded the revenue generated. The cash flows in and out of the organization well regulated to favor the company profitability all the time. Although the company engages in risky decisions and behaviors such as uncontrolled expansions, the whole process is properly implemented to avoid negative costs implications that would result into unwanted loses.

Conclusion

The study has fully demonstrated that Starbuck Company has sound finical health that making it qualify for considerations as one of the important stock for investment. The company position in the food industry market is good making it one of the valuable investment for considerations. The company has not shown any challenges relating to cash flows or cash flow management. In the last one decade, the operations of the company have not been influenced adversely by cash flow challenges experienced by many other organizations. The stable cash flow in and out of the organizations have seen the company create a profitability edge all through. Although bad economic times have influenced the company operations negatively, the situations have only reduced the profit margins experienced but not resulted into loses.

References

Brooks, R. (2010). Financial management: core concepts. Boston: Prentice Hall.

Finch, B. (2010). Effective financial management. London: Kogan Page.

Focardi, S. M., & Fabozzi, F. J. (2012). Principal Components Analysis and Factor Analysis. Encyclopedia of Financial Models.

Iatridis, G. (2010). International Financial Reporting Standards and the quality of financial statement information. International Review of Financial Analysis, 193-204.