Question

Case Studies - Starbucks Corporation – Accounting for Business Decisions

Review the 2016-2018 10-Ks (Kindly google search for 2018 annual report – Starbucks Corporation Annual Report 2018 is easily available) Part 1, Items 1, 1A, 2, 3, and Part II, Items 7 and 8. Part I contains a discussion on the business model, risk factors, properties, and legal issues. Part II contains Management’s Discussion and Analyses, the financial statements and the notes to the financial statements. All these statements are referred to as management assertions. Parts I and II contain discussions on many types of risk that the business may be exposed to. You should read through all these areas. You are to answer a set of questions at the end of this section of deliverables. The following narrative elaborates on each area you are to read.

Item 1A - Risk Factors

You should carefully consider the risks described below. If any of the risks and uncertainties described in the cautionary factors described below actually occurs, our business, financial condition and results of operations, and the trading price of our common stock could be materially and adversely affected. Moreover, we operate in an increasingly competitive and rapidly changing environment. New factors emerge from time to time and it is not possible to predict the impact of all these factors on our business, financial condition or results of operations.

1. Economic conditions in the U.S. and international markets could adversely affect our business and financial results.

2. Our success depends substantially on the value of our brands and failure to preserve their value, either through our actions or those of our business partners, could have a negative impact on our financial results.

3. Incidents involving food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling, whether or not accurate, as well as adverse public or medical opinions about the health effects of consuming our products, could harm our business.

4. The unauthorized access, use, theft or destruction of customer or employee personal, financial or other data or of Starbucks proprietary or confidential information that is stored in our information systems or by third parties on our behalf could impact our reputation and brand and expose us to potential liability and loss of revenues.

5. We rely heavily on information technology in our operations and growth initiatives, and any material failure, inadequacy, interruption or security failure of that technology could harm our ability to effectively operate and grow our business and could adversely affect our financial results.

6. We may not be successful in implementing important strategic initiatives or effectively managing growth, which may have an adverse impact on our business and financial results.

7. We face intense competition in each of our channels and markets, which could lead to reduced profitability.

8. We are highly dependent on the financial performance of our Americas operating segment.

9. We are increasingly dependent on the success of certain international markets in order to achieve our growth targets.

10. Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high quality arabica coffee beans or other commodities could have an adverse impact on our business and financial results.

11. Our financial condition and results of operations are sensitive to, and may be adversely affected by, a number of factors, many of which are largely outside our control.

12. Interruption of our supply chain could affect our ability to produce or deliver our products and could negatively impact our business and profitability.

13. Failure to meet market expectations for our financial performance and fluctuations in the stock market as a whole will likely adversely affect the market price and volatility of our stock.

14. The loss of key personnel or difficulties recruiting and retaining qualified personnel could adversely impact our business and financial results.

15. Failure to comply with applicable laws and changing legal and regulatory requirements could harm our business and financial results.

You are required to: you are to submit an individual one to two-page report answering the following from an accounting perspective, not a marketing/management perspective:

1. Of the 15 risks that Starbuck’s management discloses, which one do you think could most adversely affect the balance sheet and why?

2. Of the 15 risks that Starbuck’s management discloses, which one do you think could most adversely affect the income statement and why?

3. Of the 15 risks that Starbuck’s management discloses, which one do you think could most adversely affect the Cash Flow Statement and why?

4. Risk number 10 above states “Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high-quality arabica coffee beans or other commodities could have an adverse impact on our business and financial results.” Which ratios would be adversely affected if increases in cost or supply chain disruptions occurred for arabica beans? Explain why.

5. Compare your readings of management’s assertions and your findings of your vertical, horizontal, ratio and chart analysis. Discrepancies may exist between what the ratios are indicating and what management is telling you. Is management telling the public one thing, but the financial information indicates another? Explain to the best of your ability.

Answer 1

Answer:

1.

The risk which is described as under may affect Balance sheet vigorously :

The unauthorized access, use, burglary or destruction of client or worker individual, fiscal or other information or of Starbucks exclusive or classified data that is stored in our information systems or by outsiders for our benefit could affect our reputation and brand and open us to potential liability and loss of incomes.

Starbucks information system have number of details, for example, individual, fiscal or other data that is endowed to Starbucks by their clients and representatives. Such data can likewise be exclusive and other confidential information identified with Starbucks matter of fact, for example, marketable strategies, item development activities and structures.

Apart from business loss because of spillage of above secrete data, such security ruptures or breaches likewise could result in a violation of applicable U.S. what's more, worldwide protection and different laws. for example GDPR (General Data Protection Regulation) executed in Europe have provision of penalty demand equivalent to 4% yearly overall income or worldwide revenue.

The expense of corrective activity would call for significant responsibility from organization as far as resources and capital investment also. In perspective on over this risk is equipped for expediting significant fiscal commitment or obligation organization .

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2) and 3)

The risk referenced underneath can most adversely affect income statement and Cash flow too :

We are exceptionally subject to the financial presentation of our Americas operating section

68% of consolidated income is received from Americas Operating Segment in FY 2018. In the event that the Americas working section revenue inclines moderate or decrease, different fragments might be not able to make up any significant deficit and henceforth business and fiscal outcomes could be adversely affected.

Americas fragment or segment is generally mature and produces the vast lion's share of our working cash flows, such a slowdown or decrease could bring about diminished cash flows for financing the development of our worldwide business and different activities and for returning money to investors.

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4)

Arabica coffee beans would be one of the most significant crude material for Coffee. Henceforth increase in cost of crude material or raw material would have adversely effect on increase in Cost of goods sold to sales proportion, Gross Profit Ratio, Net benefit proportion and all other profitability related proportion since by huge the working expenses are fixed cost and any adjustment in variable factor expenses would have substantial effect on profitability.

The supply chain disturbances can result into increase in cost of coffee beans and it will have comparative effect as described previously. On other hand supply chain interruption may likewise result into non-availability of crude material and it can have direct effect on volume of revenue itself and any effect on income may have material affect all profitability proportions.

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5)

There shows up no disparities or discrepancies between fiscal report and what is secured under "Administration's Discussion and Analysis of Financial Condition and Results of Operations"

The income or revenue is ascending by 10% in financial 2018 and working margin is decreased to 15,7% in Fiscal year 2018 when contrasted with 18.5% in fiscal year 2017.