Financial Reporting Assignment 1

FINANCIAL REPORTING: FINANCIAL STATEMENTS REGULATORY FRAMEWORK & INTERPRETATION Prepared for: Lecturer, Mr Jun Alejo Bathan Unit 10: Financial Accounting and Reporting Assignment Title: Financial Statements Regulatory Framework & Interpretation Banking Academy, Hanoi BTEC HND in Business (Finance) Prepared by: Maple Group Ngô Thị Huyền Trang - Jess Vương Thị Quỳnh Anh - Lynn Nguyễn Phương Thảo - Key Nguyễn Thị Kiều Anh - Snow Submitted: 4/10/2013 Table of Contents EXECUTIVE SUMMARY INTRODUCTION 1.1 Description the different users (stakeholders) of financial statements and their needs 1.1.1 Internal stakeholders 1.1.2 External stakeholders 1.2 Explanation the legal and regulatory influences on financial statements 1.2.1 Company Legislation – Company Act 2006 1.2.2 Partnership Act 1890 1.2.3 European Directive: 1.3 Assessing the implication for user 10 1.3.1 Liquidity ratios 10 1.3.2 Efficiency ratios 10 1.3.3 Profitability ratio 11 1.3.4 Debt and gearing ratio 11 1.3.5 Investment ratios 12 1.4 Explanation how different laws/regulations are dealt with by accounting and reporting standards 13 1.4.1 International Financial Reporting Standards (IFRSs) 13 1.2.2 UK Accounting Standards 13 4.1 Calculation accounting ratios to assess the performance and position of a business 14 4.2 Preparation a report incorporating and interpreting accounting ratios, including suitable comparisons 19 APPENDIX 21 REFERENCES 27 EXECUTIVE SUMMARY This report provides an analysis and evaluation of the accounting ratios of Starbucks and brings the varied knowledge about the financial accounting and reporting The main purpose of this report is showing the understanding of the regulatory framework for financial reporting Besides, the methods were used in this report are trend analysis and industry analysis as well as ratios such as Current ratio, Quick ratio and profit margin This report is divided into outcomes:  Description of the different users (Stakeholders) of financial statements and their needs  Assessing the implications for users of financial statements  Explaining the legal and regulatory influences on financial statements  Explaining how different laws/regulations are dealt with by accounting and reporting standards  Calculation of accounting ratios to assess the performance and position of Starbucks  Preparing a report incorporating and interpreting accounting ratios, including suitable comparisons The report also have limitation in conducting analysis because there are some information is not available currently and the using of industry analysis method is limited due to the difficult in find out information from foreign company INTRODUCTION In this report, our group is working in a financial consultancy firm as a client service manager providing advice and assistance to clients on financial accounting and general business issues You have been asked by Director of Finance in your company to prepare an analytical review of the financial position and reporting of a well-known company Starbucks Starbucks Corporation is an American global coffee company and coffeehouse chain based in Seattle, Washington Starbucks is the largest coffeehouse company in the world (was founding in 1971),Starbucks locations serve hot and cold beverages, whole-bean coffee, micro ground instant coffee, full-leaf teas, pastries, and snacks with 20,891 stores in 62 countries, including 13,279 in the United States, 1,324 in Canada, 989 in Japan, 851 in the People's Republic of China, 806 in the United Kingdom, 556 in South Korea, 377 in Mexico, 291 in Taiwan, 206 in the Philippines, 179 in Turkey, 171 in Thailand, and 167 in Germany In addition, Starbucks is an active member of the World Cocoa Foundation Starbucks expanded its long-term relationship with Maxim's Group to now operate Starbucks stores in Vietnam, with the first store in Ho Chi Minh City in early February 2013 This report will analyze deeply about the performance and position of Starbucks in the Vietnam market Moreover, provides information about legal and regulatory which influences financial statement from which shows the importance of finance statement to each user of business, company and the ways of using different ratios in assessing Starbucks' performance by explaining the information from the financial statements 1.1 Description the different users (stakeholders) of financial statements and their needs Starbucks is one of the largest coffeehouse company in the world Therefore, all users of Starbucks interested so much in financial statements of company because they base on data and information in these reports to assess development of Starbucks Each users have different requirements about data As a result, Starbucks has to prepare financial statements which provide sufficient information for stakeholders to satisfy their needs and wants There are two types of stakeholders including internal and external users (Catherine, 2008) 1.1.1 Internal stakeholders Internal stakeholders consist of Managers, Employees, and Shareholders  Managers: These are the people appointed by the Starbucks’ owners to supervise the day-to-day activities of the company; responsible for planning and directing the work of a group of individuals and monitoring their work (Starbuck, 2012) The manager of Starbuck is Howard Schultz He and others managers in subsidiaries of Starbucks has direct relationship with the operation of organization  Manager require financial statements to manage the affairs of the company by assessing its financial performance and position and taking important business decisions, adjust company’s strategies timely (Catherine, 2008) In financial statement of Starbucks (2012), total revenue of 2012 is higher than 2011 (increase about $10 billion), meaning that manager of Starbucks implement business strategy well  Employees: are human resources joining directly into the work for Starbuck Employees need to know about information related to financial position of company, because their future careers and the level of their wages depend on it (Catherine, 2008) For Starbucks, employees are people are very important in creating product Employees of Starbucks also interested in financial stability and profitability of the company which also influences to their benefits If data in financial reporting of Starbucks is good, it expressed the company operate well From this information, employees can assess the ability of Starbuck in providing salaries, welfare policies (commodities discounts, medical insurance…) retirement benefits and employment opportunities (training programs, promotion…) for them  Shareholders: are owners who hold shares of stock of Starbucks They interested in information which help them assess how effectively management is performing its function, how profitable the company’s operations are and how much profit they can afford to withdraw from the business for their own use Based on evaluation through the figures from financial statements in annual reports, FMR, LLC - one of the main shareholders of Starbucks can decide whether to continue to hold, sell or buy more shares (Starbuck, 2012) 1.1.2 External stakeholders External stakeholder including trade contacts, providers of finance, and government  Trade contacts include two types of stakeholders: suppliers and customers  Suppliers are individuals or organizations who provide goods to the company on credit (Catherine, 2008) Yunnan Arabica coffee bean is company which supplies raw material (coffee bean) for Starbucks will need to consider the financial statements of the enterprises such as profitability….to ensure about Starbucks’ ability to pay its debts, and identify how much credit can safely be given for making decisions whether should make contract with Starbucks or not  Customers are people who purchases goods and services provided by the company (Catherine, 2008) Starbucks’ customers need the guarantee from the company about the quality of products and services  They are concerned about financial statements which provide useful information about the reliability of the enterprise as confirm the capacity of the entity in terms of non-current assets or financial position to prove the strength of enterprise to meet any customers’ requirement to decide whether to continue buying product of company or not If Starbucks have high profit and high positive in competitive market, meaning that Starbucks provide high quality product, customer will trust in company to choose using their products  Providers of finance include investors and creditors  Investors is people who make investment into the company and expect to gain financial returns (Catherine, 2008) Starbucks’ investors are Capital World Investors, Northern Trust Corporation They are concerned about the risk and the return of their investment Before making investment decisions, they need find out information about Starbucks such as assets, liabilities, historical business growth, share prices and financial strengths Based on this information in Starbucks’ financial statement, they can assess the ability of the business to pay dividends for them  Creditors include present or potential creditors who have lent or may lend money to a business (Catherine, 2008) Bank of New York Mellon is one of Starbucks’ creditors They need information from financial statements in order to identify whether their money can be used effectively and ability to perform Starbucks’ commitment such as ensuring that Starbuck can keep up with interest payments and eventually to repay the money Starbucks has borrowed  Government: The government makes rules in order to ensure that the company runs its business legally and interested in the allocation of resources and therefore in the activities of business entities (Catherine, 2008) The Government Taxation Agency requires Starbucks to publish annual report, and ensure that financial statements must be accurate to calculate tax payments of the enterprise such as business tax, VAT tax… 1.2 Explanation the legal and regulatory influences on financial statements 1.2.1 Company Legislation – Company Act 2006 Company Act is an Act of Parliament which regulates the workings of companies, stating the legal limits within which companies may their business (BusinessDictionary, n.d.) Company Act 2006 was fully completed on October 2009 According Company Act 2006, limited liability companies must prepare the financial statement follow the requirement: prepare accounts annually for distribution for company’s shareholders and the account should show a “true and fair view” (Frost, 2010) In Company Act 2006, the director’s responsibilities are: the members have not required the company to obtain an audit of its accounts for the year in question in accordance with section 476 and the directors acknowledge their responsibilities for complying with the requirements of the Act with respect to accounting records and the preparation of accounts In addition, company must prepare and published account annually  By using Company Act 2006 financial statement of Starbucks to the Law firms will become easier This legal will not affect too much on the reporting Starbucks because it based on the data after business, not on the segmentation of major customers Using it help Starbuck make it easier to set up and run a company; and provide flexibility for the future 1.2.2 Partnership Act 1890 A partnership is established whenever two or more people set up in business together with the intention of sharing profits and losses and not form either a limited Company or a Limited Liability Partnership (LLP) Even if they not intend to form a partnership, if they enter into this type of relationship a partnership is formed Partnerships formed under the Act are often unwieldy and can lead to disputes between partners For instance, under the default provisions of the Act: - A partner is not obligated to participate in the running of the business in any way, which means that they not have to turn up to work - Partners cannot retire If a partner dies or decides to leave the partnership, the partnership must be dissolved, assets distributed equally, and then a new partnership (or other business) created The process is by no means simple, and can be extremely costly - Partners cannot be expelled from a partnership The Partnership Act 1890 (c.39) is an act of the UK Parliament, which governs the rights and duties of business people who business with a common view of profit It has a least membership of two and a maximum of unlimited since the year 2002 The most important influence of Partnership Act 1890 to accounting standard is the income allocation It requires loss or profit of partnership has to distribute to each partner, based on their proportion of capital contribution (Anon, 2009)  By using Partnership Act 1890 Starbucks have the lack of formality that surrounds it An agreement of Starbucks is drawn up to counteract the restrictions of the Partnership Act1890 1.2.3 European Directive: The European Commission has released its proposals for a fourth money laundering directive (4th Directive) All countries in the European Union area must comply with the regulations, the rules of the alliance including UK The scope of activities undertaken by legal professionals that are within the 4th Directive and the protection of legal professional privilege has not changed The key components of client due diligence and the money laundering offences also stay the same such as: The annual accounts are to comprise a balance sheet, a profit and loss account and the notes to the accounts, these documents constitute a composite whole The Directives lay down the principles which govern the drawing up of these documents The Directives list the information which must be provided in the notes to the accounts The annual report must include a fair review of the development of the company's business and of its position  The Directives provide for a system of auditing under which Starbuck must have their annual accounts audited by one or more persons authorized by national law to audit accounts Besides that, it’s still have some key changes about: Risk assessments, enhanced due diligence, simplified due diligence, record keeping requirements, minimum sanctions, the vexing issue of beneficial ownership 1.2.3 Generally Accepted Accounting Practice (GAAP) Generally Accepted Accounting Practice (GAAP) is the common set of accounting principles, standards and procedures that companies use to compile their financial statements GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information (Investopedia, n.d.) In the UK, GAAP does not have any statutory or regulatory authority or definition unlike others countries such as US The term is mentioned rarely in legistation and only in fairly limited terms GAAP include four basic principles that influence on financial statement Four principles are:  Historical cost principle: requires companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities (Luxottica, n.d.)  Revenue recognition principle: requires companies to record when revenue is realized or realizable and earned, not when cash is received This way of accounting is called accrual basis accounting (Luxottica, n.d.)  Matching principle: expenses have to be matched with revenues as long as it is reasonable to so Expenses are recognized not when the work is performed, or when a product is produced, but when the work or the product actually makes its contribution to revenue Depreciation and Cost of Goods Sold are good examples of application of this principle (Luxottica, n.d.)  Full Disclosure principle: amount and kinds of information disclosed should be decided based on trade-off analysis as a larger amount of information costs more to prepare and use Information is presented in the main body of financial statements, in the notes or as supplementary information (Luxottica, n.d.)  With Starbucks Corporation, to meet the requirment of GAAP, company should use acquisition cost instead of using market value of good or product to prepare financial statement In addition, in income statement, the revenue of Starbucks have to include revenue in cash and revennue in account receivable Moreover, expense of company have to record when it happens instead of when finish work It means that, the expense of depreciation of equipment and machine in Starbucks Corporation have to include in income statement of company All above activities help Starbucks can meet the requirment of Generally Accepted Accouting Practice (GAAP) 1.3 Assessing the implication for user Financial ratios are useful indicators of a firm's performance and financial situation Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms In some cases, ratio analysis can predict future bankruptcy Financial ratios can be classified according to the information they provide (NetMBA, n.d.) 1.3.1 Liquidity ratios Liquidity ratio is a class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts (Anon, 2012)  Current ratio is “a measure of the solvency or liquidity of your business” The higher the current ratio, the better the capacity to meet short term financial commitments  Quick ratio “measures the level of all assets that can be quickly convertible into cash and used to meet short term liabilities” The higher the ratio, the higher the level of liquidity for business (Anon, 2006) Users: Investors, suppliers, creditors, shareholders - Using to measure the capacity of Starbucks to meet the short term financial commitments Based on this data, investors and suppliers can consider whether continue invest in Starbucks or not - Show how liquid is the current assets of Starbucks converted to cash comparing with the present current liability 1.3.2 Efficiency ratios Efficiency ratios are ratios that are typically used to analyze how well a company uses its assets and liabilities internally (Anon, 2007)  Receivables payment period measures the average number of days customers take to pay their bills, indicating the effectiveness of credit and collection policies of the business  Inventory turnover illustrates “how well a company manages its inventory levels” If inventory turnover is too high, it suggests that a company may be overbuilding its inventory or that it may be having issues selling products to customers (Anon, 2007) Users: Stakeholders, investors 10 governance; the integrity, competence and transparency of the accountancy profession; and its own effectiveness as a unified independent regulator In April 2006 it added the Board for Actuarial Standards to its stable (Glossary, n.d.) As a result, FRC is responsible for funding and ensures the smooth running of the standard setting process and has an important role in indicating accounts that not meet the requirements of accounting standard and the company act  The Accounting Standard Board (ASB): UK organization (similar to the US Financial Accounting Standards Board) responsible for drafting and establishing accounting standards ASB is a subsidiary of Financial Reporting Council; one of its committees publishes the International Accounting Standards (Andrea, 2007) ASB has responsible in helping FRC in setting accounting standard for companies in UK  The Financial Reporting Review Panel (FRRP): The Panel sought to ensure that the annual accounts of public companies and large private companies comply with the requirements of the Companies Act 2006 and applicable accounting standards (FRC, n.d.) This panel has legal backing It means that if company is not follow the accounting standard, the panel may go to the courts  The Urgent Issues Task Force (UITF): The UITF was disbanded on July 2012 as a result of the FRC Reform (FRC, n.d.) Its role is to assist the ASB in areas where an accounting standard or company Act provision already exists, but where unsatisfactory or conflicting interpretations have developed This system is able to act quickly when an authoritative ruling is urgently needed (Phillip, 2007)  Starbuck will choose using UK accounting standard system, IFRSs or Company Act to prepare their accountant Normally, Starbuck choose UK accounting standard and Company Act instead of IFRSs because those regulations are more simply and easier to understand than IFRSs It helps accountant of Starbuck working easily in preparing financial statement for their company 4.1 Calculation accounting ratios to assess the performance and position of a business 14 Ratios Formula Result (2012) Indicators Comment Liquidity and efficiency Good Above the acceptance level Current ratio is 1.9 times, meaning that current assets of Current ratio = 1.9 times 1.5 Starbucks are more 1.9 times than its current debts, and the company can easy to convert current assets to cash to pay off debts Good Above the acceptance level Quick ratio of Starbucks 1.3 Quick ratio = 1.3 times 0.8 times, therefore, it are sufficiently able to meet their short-term liabilities based on the common rule of thumb Receivable days (Receivable = 13.34 days Increase over years Poorly managed credit control 10.3 days (2010) Starbucks will receive credit sales 12.1 days (2011) after 13.34 days 13.4 days (2012) payment periods) 15 Not good In 2012, inventory can Average Increase over years inventory = 77.95 days 44.9 days (2010) (Inventory 71.7 days (2011) turnover period) 77.9 days (2012) Profitability be storage 78 days before sale Starbucks may be overbuilding its inventory due to slowdown trading PBIT = Profit before taxation + Interest of long-term debt = 2,059.1 + 32.7 = 2,091.8 High profitability ROE of Starbucks is 27.10%, meaning that ROE = 27.10% for $1000 investors invest in Starbucks, they can receive $271 of returns Good In 2012, Starbucks gain from ROCE Net profit (Capital employed = Shareholder equity + Non- = 40.90% its 40.90% assets approximately It is higher than the current liabilities = Total assets – current average of beverage industry at the liabilities) same time Gross profit - expense = 7,486.2 - 5,699.5 = 1,786.7 Well managed control Asset turnover is 2.21 times, Asset turnover = 2.21 times meaning that the asset generate more than times their value in 16 annual turnover Gross profit Revenues - Cost of sales = 13,299.5 - 5,813.3 = 7,486.2 Good Debt and gearing Good Starbucks’s equity ratio is smaller than 1, the majority of assets are financed through equity Starbucks should maintain this result in the future and avoid Debt ratio = 10.76% 50% increasing because high debt ratio show that company may not have been able to secure long-term, lower interest financing, instead of having to secure short-term, higher interest short-term financing Good In 2012, with every $100 of long term funds, long term debts Gearing ratio = 9.71% 50% acquired considered $9.71 Starbucks as low-gearing company, low level of borrowings 17 It indicates that Starbucks is growing through reinvestment of profits, minimizing risk Good The higher, the better  Cash flow ratio = 79.20% higher company’s solvency Investment ratios Price earning of 2012 show that after nearly 28 years, shareholders P/E ratio = 26.31 times can gains The more higher the more willing market to pay for company’s earning With each $2.54 earnings per share, shareholders receive $1 in Dividend yield = 2.54 times dividend EPS is more 2.54 than DPS, meaning that Starbucks have ability to pay out dividend Table 1: Ratios of Starbucks in 2012 (Value: $million) 18 4.2 Preparation a report incorporating and interpreting accounting ratios, including suitable comparisons REPORT To: Director of Finance From: Financial consultant Date: 20 October 2013 Performance and position of Starbucks Corporation As requested, I have analyzed the performance and position of Starbucks Corporation with special reference to selected accounting ratio The calculation of the ratio is shown in the previous part (4.1) in this report The purpose of the analysis is to determine whether we should use Starbucks Corporation as a good company to invest General comment Both sales revenue and profit have increased over the two years Starbucks Corporation (SBUX) continued with its streak of announcing strong yearly earnings, rounding off what has been an excellent fiscal year for the company Outstanding global sales growth combined with record earnings and operating margin demonstrates the fundamental health of our business model and our continued ability to successfully execute on new initiatives while maintaining financial discipline The performance of Starbucks will be analyzed based on four types of ratios: Liquidity and efficiency, profitability, debt and gearing ratio, investment ratios Liquidity and efficiency Current ratio: The current ratio shows the liquidity of business The current ratio of Starbucks Corporation in 2012 is healthy It is 1.9 times so it means that current assets of Starbucks are more 1.9 times than its current debts, and the company can easy to convert current assets to cash to pay off debts This is an encouraging signs Quick ratio: The quick ratio show how many assets, excluding inventory, are available to meet the current liabilities, inventory is excluded because it is not always readily convertible into cash Quick ratio of Starbucks Corporation is accepted (around 1) in 2012 This is good signs and Starbucks has not fallen into this trap Profitability Return on capital employed (ROCE): ROCE has decreased from 42.03% in 2011 to 40.09% in 2012 Although value of return on capital employed in 2012 is lower than 2011 (1.94%), this rate is still high level There are 19 encouraging signs As indicated above, Starbucks Corporation has not invested significantly in non-current assets to finance its expansion – the assets/ capital employed is simply working harder Asset turnover: Asset turnover of Starbucks Corporation is 2.21 times in 2012, meaning that the asset generate more than times their value in annual turnover This is higher than so it is accepted ratio with a company such as Starbucks Corporation Gross profit: Gross profit of Starbucks Corporation had increased from 6,784.9 (in millions) in 2011 to 7,486.2 (in millions) in 2012 Gross profit increase year to year and it is a good sign with company Debt and gearing Debt ratio: The debt ratio of Starbucks Corporation in 2012 is good (10.76% less than 100%) It means that Starbucks’s equity ratio is smaller than 1, the majority of assets are financed through equity This is an encouraging signs of Starbucks Corporation Gearing ratio: The gearing ratio is also favorable This can be calculated in two ways: debt/capital employed and debt/equity Gearing ratio had decreased from 11.14% in 2011 to 9.71% in 2012 Both gearing ratio in 2011 and 2012 is good Starbucks considered as low-gearing company, low level of borrowings It indicates that Starbucks is growing through reinvestment of profits, minimizing risk Investment ratios Dividend yield: The dividend yield of Starbucks Corporation in 2012 is 2.54 higher than so it is accepted This a encouraging signs This dividend yield means that with each $2.54 earnings per share, shareholders receive $1 in dividend EPS is more 2.54 than DPS, meaning that Starbucks have ability to pay out dividend This is a good dividend yield with a company Conclusion On the basic of the above analysis, I see every reason to decide Starbucks Corporation is a good company to invest In 2012, the company’s liquidity ratio are good, the profitability is improve when compare with 20111 In addition, the gearing and debt ratio is accepted and lower than 2011 In addition, the investment ratio is also good when compare with other companies 20 APPENDIX Balance Sheets STARBUCKS CORPORATION CONSOLIDATED BALANCE SHEETS (in millions, except per share data) Sep 30, 2012 ASSETS Current assets: Cash and cash equivalents Short-term investments Accounts receivable, net Inventories Prepaid expenses and other current assets Deferred income taxes, net $ Total current assets Long-term investments — available-for-sale securities Equity and cost investments Property, plant and equipment, net Other assets Goodwill TOTAL ASSETS LIABILITIES AND EQUITY Current liabilities: Accounts payable Accrued liabilities Insurance reserves Deferred revenue Total current liabilities Long-term debt Other long-term liabilities Total liabilities Shareholders’ equity: Common stock ($0.001 par value) —authorized, 1,200.0 shares; issued and outstanding, 749.3 and 744.8 shares, respectively (includes 3.4 common stock units in both periods) Additional paid-in capital Retained earnings Accumulated other comprehensive income Total shareholders’ equity Non controlling interests Total equity TOTAL LIABILITIES AND EQUITY Income Statement 21 $ $ $ 1,188.6 848.4 485.9 1,241.5 196.5 238.7 4,199.6 116.0 459.9 2,658.9 385.7 399.1 8,219.2 398.1 1,133.8 167.7 510.2 2,209.8 549.6 345.3 3,104.7 0.7 39.4 5,046.2 22.7 5,109.0 5.5 5,114.5 8,219.2 Oct 2, 2011 $ $ $ $ 1,148.1 902.6 386.5 965.8 161.5 230.4 3,794.9 107.0 372.3 2,355.0 409.6 321.6 7,360.4 540.0 940.9 145.6 449.3 2,075.8 549.5 347.8 2,973.1 0.7 40.5 4,297.4 46.3 4,384.9 2.4 4,387.3 7,360.4 STARBUCKS CORPORATION INCOME STATEMENT (in millions) Sep 30, 2012 13,299.5 5,813.3 7,486.2 Oct 2, 2011 11,700.4 4,915.5 6,784.9 5,149.2 550.3 - 4,737 523.3 - Operating Income and Loss Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest and Taxes Interest Expense Income Before Tax Income After Tax Income Tax Expense Minority Interest Net Income From Continuing Ops 94.4 2,091.8 32.7 2,059.1 1,384.70 674.4 (9) 1, 594.5 146.1 1,844.4 33.3 1,811.1 1,248.0 563.1 (2.3) 1,419.4 Non-recurring Events Discontinued Operations Extraordinary Items Effect of Accounting Changes Other Items Net Income Preferred Stock And Other Adjustments Net Income Applicable To Common Shares 1,383.8 1,383.8 1,245.7 1,245.7 Period Ending Total Revenue Cost of Revenue Gross Profit Operating Expenses Research Development Selling General and Administrative Non Recurring Others Total Operating Expenses 22 Statement of cash flow STARBUCKS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOW (in millions) Sep 30, Fiscal Year Ended 2012 OPERATING ACTIVITIES: Net earnings including noncontrolling interests $ 1,384.7 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 580.6 Gain on sale of properties Deferred income taxes, net 61.1 Income earned from equity method investees, net of distributions (49.3) Gain resulting from acquisition of joint ventures Stock-based compensation 153.6 Other 23.6 Cash provided/(used) by changes in operating assets and liabilities: Accounts receivable (90.3) Inventories (273.3) Accounts payable (105.2) Accrual liabilities and insurance reserves 23.7 Deferred revenue 60.8 Prepaid expenses, other current assets and other assets (19.7) Net cash provided by operating activities 1,750.3 INVESTING ACTIVITIES: Purchase of investments (1,748.6) Maturities and calls of investments 1,796.4 Acquisitions, net of cash acquired (129.1) Additions to property, plant and equipment (856.2) Cash proceeds from sale of property, plant, and equipment 5.3 Other (41.8) Net cash used by investing activities FINANCING ACTIVITIES: (Payments)/proceeds from short-term borrowings Purchase of noncontrolling interest Proceeds from insurance of common stock Excess tax benefits from exercise of stock options Cash dividends paid Repurchase of common stock Minimum tax withholdings on share-based awards Other Net cash used by financing activities 23 Oct 3, 2012 $ 1,248.0 550.0 (30.2) 106.2 (32.9) (55.2) 145.2 33.3 (88.7) (422.3) 227.5 (81.8) 35.8 (22.5) 1,612.4 (966.0) 430.0 (55.8) (531.9) 117.4 (13.2) (974.0) (1,019.5) (30.8) 236.6 169.8 (513.0) (549.1) (58.5) (0.5) (745.5) 30.8 (27.5) 250.4 103.9 (389.5) (555.9) (15.0) (5.2) (608.0) Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents CASH AND CASH EQUIVALENTS: Beginning of period End of period SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest, net of capitalized interest Income taxes 24 9.7 40.5 (0.8) (15.9) $ 1,148.1 1,188.6 1,164.0 1,148.1 $ $ 34.4 416.9 $ 34.4 350.1 Statement of earnings STARBUCKS CORPORATION CONSOLIDATED STATEMENT OF EARNINGS (in millions, except per share data) Fiscal Year Ended Net revenue Company-operated stores Licensed stores CPG, foodservice and other Total net revenues Cost of sales including occupancy costs Store operating expenses Other operating expenses Depreciation and amortization expenses General and administrative expenses Restructuring charges Total operating expenses Gain on sale of properties Income from equity investees Operating income Interest income and other, net Interest expense Earnings before income taxes Income taxes Net earnings including noncontrolling interests Net earnings (loss) attributable to noncontrolling interests Net earnings attributable to Starbucks Earnings per share - basic Earnings per share - diluted Weighted average shares outstanding: Basic Diluted Cash dividends declared per share Sep 30, 2012 $ $ $ $ 25 Oct 3, 2012 10,534.5 1,210.3 1,554.7 13,299.5 5,813.3 3,918.1 429.9 550.3 801.2 11,512.8 210.7 1,997.4 94.4 (32.7) 2,059.1 674.4 1,384.7 0.9 1,383.8 1.83 1,79 754.4 773.0 0.72 $ $ $ $ 9,632.4 1,007.5 1,060.5 11,700.4 4,915.5 3,594.9 392.8 523.3 749.3 10,175.8 30.2 173.7 1,728.5 115.9 (33.3) 1,811.1 563.1 1,248.0 2.3 1.248.0 1.66 1.62 748.3 769.7 0.56 CONCLUSION In this research, we can see the financial statement plays an important role in all companies in general and in Starbuck in particular We can assess Starbuck’s performance from the variety of ratios from financial statements as well as comparing it with others competitors base on legal and regulatory, accounting and reporting standards such as IFRS, IAS, GAAP and ASB etc are also listed and explained in this report from which, the investors will use it to make investing decision, creditor bases on ratio analysis to evaluate the financial strength and the performance of Starbuck Moreover, financial statements can help managers realize the strengths and weaknesses to improve it better in the future, it help Starbuck looked consider deeply to ratio analysis to have the plan in the future to improve the performance and Starbuck's position in Vietnam and world market 26 REFERENCES Andrea, 2007 ASB Definition [Online] Available at: http://www.businessdictionary.com/definition/accounting-standards-boardASB.html [Accessed 10 2013] Anon, 2002 Asset turnover [Online] Available at: http://www.investopedia.com/terms/a/assetturnover.asp#axzz2Hfd4puXo 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[Online] Available at: http://www.businessdictionary.com/definition/companies-act.html [Accessed 10 2013] FRC, n.d Financial Reporting Review Panel [Online] Available at: http://www.frc.org.uk/About-the-FRC/FRC-structure/Former-FRCstructure/Financial-Reporting-Review-Panel.aspx [Accessed 10 2013] FRC, n.d The Urgent Issues Task Force [Online] Available at: http://www.frc.org.uk/About-the-FRC/FRC-structure/AccountingCouncil/Committees-and-work-streams/Urgent-Issues-Task-Force.aspx [Accessed 10 2013] Frost, M., 2010 Company Act 2006 Key Points [Online] Available at: http://www.slideshare.net/MartinFrost/companies-act-2006-key-points [Accessed 10 2013] Glossary, n.d Financial Reporting Council Define [Online] Available at: http://www.finance-glossary.com/define/Financial-Reporting-Council/12764/0/f [Accessed 10 2013] Investopedia, n.d Generally Accepted Accouting Practice Definition [Online] Available at: http://www.investopedia.com/terms/g/gaap.asp [Accessed 10 2013] Investopedia, n.d International Financial Reporting Standard Definition [Online] Available at: http://www.investopedia.com/terms/i/ifrs.asp [Accessed 10 2013] Kennon, n.d Return on Equity (ROE) [Online] Available at: http://ycharts.com/companies/SBUX/return_on_equity [Accessed 10 October 2013] Luxottica, n.d US GAAP Accounting Policies [Online] Available at: http://www.luxottica.com/en/governance/us-listing [Accessed 15 10 2013] NetMBA, n.d Financial Ratio [Online] Available at: http://www.netmba.com/finance/financial/ratios/ [Accessed 10 October 2013] Richard, 2012 Investment Valuation Ratios [Online] Available at: http://www.investopedia.com/university/ratios/investmentvaluation/#axzz2HKCpXjdh [Accessed 10 October 2013] 28 [...]... declared per share Sep 30, 2 012 $ $ $ $ 25 Oct 3, 2 012 10 ,534.5 1, 210 .3 1, 554.7 13 ,299.5 5, 813 .3 3, 918 .1 429.9 550.3 8 01. 2 11 , 512 .8 210 .7 1, 997.4 94.4 (32.7) 2,059 .1 674.4 1, 384.7 0.9 1, 383.8 1. 83 1, 79 754.4 773.0 0.72 $ $ $ $ 9,632.4 1, 007.5 1, 060.5 11 ,700.4 4, 915 .5 3,594.9 392.8 523.3 749.3 10 ,17 5.8 30.2 17 3.7 1, 728.5 11 5.9 (33.3) 1, 811 .1 563 .1 1,248.0 2.3 1. 248.0 1. 66 1. 62 748.3 769.7 0.56 CONCLUSION... $ $ $ 1, 188.6 848.4 485.9 1, 2 41. 5 19 6.5 238.7 4 ,19 9.6 11 6.0 459.9 2,658.9 385.7 399 .1 8, 219 .2 398 .1 1 ,13 3.8 16 7.7 510 .2 2,209.8 549.6 345.3 3 ,10 4.7 0.7 39.4 5,046.2 22.7 5 ,10 9.0 5.5 5 ,11 4.5 8, 219 .2 Oct 2, 2 011 $ $ $ $ 1, 148 .1 902.6 386.5 965.8 16 1.5 230.4 3,794.9 10 7.0 372.3 2,355.0 409.6 3 21. 6 7,360.4 540.0 940.9 14 5.6 449.3 2,075.8 549.5 347.8 2,973 .1 0.7 40.5 4,297.4 46.3 4,384.9 2.4 4,387.3 7,360.4... share-based awards Other Net cash used by financing activities 23 Oct 3, 2 012 $ 1, 248.0 550.0 (30.2) 10 6.2 (32.9) (55.2) 14 5.2 33.3 (88.7) (422.3) 227.5 ( 81. 8) 35.8 (22.5) 1, 612 .4 (966.0) 430.0 (55.8) (5 31. 9) 11 7.4 (13 .2) (974.0) (1, 019 .5) (30.8) 236.6 16 9.8 ( 513 .0) (549 .1) (58.5) (0.5) (745.5) 30.8 (27.5) 250.4 10 3.9 (389.5) (555.9) (15 .0) (5.2) (608.0) Effect of exchange rate changes on cash and cash equivalents... 2 012 13 ,299.5 5, 813 .3 7,486.2 Oct 2, 2 011 11 ,700.4 4, 915 .5 6,784.9 5 ,14 9.2 550.3 - 4,737 523.3 - Operating Income and Loss Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest and Taxes Interest Expense Income Before Tax Income After Tax Income Tax Expense Minority Interest Net Income From Continuing Ops 94.4 2,0 91. 8 32.7 2,059 .1 1,384.70 674.4 (9) 1, 594.5 14 6 .1. .. of Starbucks 1. 3 2 Quick ratio = 1. 3 times 0.8 times, therefore, it are sufficiently able to meet their short-term liabilities based on the common rule of thumb Receivable days 3 (Receivable = 13 .34 days Increase over years Poorly managed credit control 10 .3 days (2 010 ) Starbucks will receive credit sales 12 .1 days (2 011 ) after 13 .34 days 13 .4 days (2 012 ) payment periods) 15 Not good In 2 012 , inventory... End of period SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest, net of capitalized interest Income taxes 24 9.7 40.5 (0.8) (15 .9) $ 1, 148 .1 1 ,18 8.6 1, 164.0 1, 148 .1 $ $ 34.4 416 .9 $ 34.4 350 .1 4 Statement of earnings STARBUCKS CORPORATION CONSOLIDATED STATEMENT OF EARNINGS (in millions, except per share data) Fiscal Year Ended Net revenue Company-operated stores... Continuing Ops 94.4 2,0 91. 8 32.7 2,059 .1 1,384.70 674.4 (9) 1, 594.5 14 6 .1 1,844.4 33.3 1, 811 .1 1,248.0 563 .1 (2.3) 1, 419 .4 Non-recurring Events Discontinued Operations Extraordinary Items Effect of Accounting Changes Other Items Net Income Preferred Stock And Other Adjustments Net Income Applicable To Common Shares 1, 383.8 1, 383.8 1, 245.7 1, 245.7 Period Ending Total Revenue Cost of Revenue Gross Profit Operating... http://www.frc.org.uk/About-the-FRC/FRC-structure/AccountingCouncil/Committees-and-work-streams/Urgent-Issues-Task-Force.aspx [Accessed 2 10 2 013 ] Frost, M., 2 010 Company Act 2006 Key Points [Online] Available at: http://www.slideshare.net/MartinFrost/companies-act-2006-key-points [Accessed 1 10 2 013 ] Glossary, n.d Financial Reporting Council Define [Online] Available at: http://www.finance-glossary.com/define /Financial- Reporting- Council /12 764/0/f [Accessed 2 10 2 013 ] Investopedia, n.d Generally Accepted... http://www.mondaq.com/x/84 916 /Directors+Officers/The+Partnership+Act +18 90+General+ Partnerships [Accessed 21 October 2 013 ] Anon, 2 011 Price to earning ratio (P/E ratio) [Online] Available at: https://ycharts.com/companies/SBUX/pe_ratio [Accessed 11 October 2 013 ] Anon, 2 012 Liquidity ratios definition [Online] Available at: http://www.investopedia.com/terms/l/liquidityratios.asp#axzz2HKCpXjdh [Accessed 10 October 2 013 ] Anon,... inventory = 77.95 days 44.9 days (2 010 ) (Inventory 71. 7 days (2 011 ) turnover period) 77.9 days (2 012 ) Profitability be storage 78 days before sale Starbucks may be overbuilding its inventory due to slowdown trading PBIT = Profit before taxation + Interest of long-term debt = 2,059 .1 + 32.7 = 2,0 91. 8 High profitability ROE of Starbucks is 27 .10 %, meaning that 1 ROE = 27 .10 % for $10 00 investors invest in Starbucks,