Financial Disclosure of Starbucks
Accounting is the language of business. It is used basically to communicate or to provide information about the profit or loss and the financial position of the business about which there are many interested parties like owners, employees, creditors, government, investors, and research scholars. To provide such valuable information an accountant prepares financial statements comprising of Trading and Profit and Loss Account and the Balance Sheet.
But these statements cannot meet the needs of a wide variety of users unless they are prepared in a prescribed form and discloses all the material facts of the business.
To comply with this accounting principle namely ‘full disclosure principle’ has been developed which postulates that the financial statements should disclose all the important material facts about the business. In addition to this, it also states that the objective of such statements must not only be to provide true and fair view of the state of affairs of the business but also it must be able to give the prescribed forms under which such financial statements are prepared. This disclosure of accounting principle helps the organization to reveal their financial statements and mail stone of the development of the business.
A qualified financial statement helps to the organization to take the decision accurately. This paper discusses the disclosure principles followed by Starbucks Inc. with regard to certain items. The essay covers only important items of current assets such as cash and cash equivalents, receivables and inventory. The essay also discusses the various components of cash and cash equivalents of the company. Disclosure Policy with regard to cash and cash equivalents, Receivables and Inventory Starbucks is recognized as the world’s number 1 specialty coffee retailer company.
It has more than 16,000 coffee shops situated at different countries which are about more than 35 countries. Their outlets offer not only coffee drinks and food items, but also roasted beans, coffee accessories, and teas. Starbucks owns more than 9,000 of its shops, which are located in about 10 countries, but most of its outlets are situated in US, while licensees and franchisees operate more than 7,400 units worldwide and they are mainly focused on shopping centers and airports. The company also owns the Seattle’s Best Coffee and Torrefazione Italia coffee brands.
In addition to this, Starbucks markets its coffee through grocery stores and licenses its brand for other food and beverage products. Starbucks as a firm has some accounting flexibility in measuring their key success factors and risks. This flexibility makes them to manage its reported numbers in such a way that it makes their accounting data to be informative and reliable as regards to how their company is doing and to evaluate and analyze their performance more significantly. Starbucks, like most other companies in the United States, must adhere to standard accounting policies and conventions.
With all of the new SEC regulations, companies have less room to move around numbers in their financial statements in a way to benefit the company and it discloses the financial information more clearly and up to date. In order to assess the firm’s business strategy and explaining key accounting policies financial disclosure is necessary. It describes lot about the items involved in the financial statement such as cash and cash equivalents, cash receivable, inventory, allowance for doubtful accounts, property, plant and equipment, etc.
The Management Discussion and Analysis of Financial Conditions and Results of Operations section of the 10-K sufficiently explains Starbucks’ current performance and Also their report describes the increase in earnings. Revenues are growing due to the increase of new stores opening in the United States and in other countries. This depicts comparing the Starbucks’Consolidated Statements of Earnings and Liquidity and Capital Resources. This also shows breaks down each item and describes why each increased between the years.
Operating segments are the business segments that are focused on in the 10-K. The 10-K does not reflect any bad news or hardly any poor performance that has occurred. Starbucks is a growing company and their revenues do increase each year, but it mainly shows all the increases of the statements and gives some explanation on why certain items decreased. Cash from Sales consists of Sales +/- the decrease/increase of Accounts Receivable. Each year, Cash provided/ (used) by changes in operating assets specifically Accounts Receivable were at a decrease.
Because of this reason why the ratio is below one because Cash from Sales is greater than Sales. ThNetSales/Net Accounts Receivable ratio fluctuated throughout the years. Sales increased substantially each year as Accounts Receivable only increased slightly. The Net Sales/Unearned Revenue ratio consistently decreased through the years. The disclose procedure of inventory valuation with respect to Starbucks can implement moving average cost method, last-in-first-out method, or the first-in-first-out method.
All of these methods produce variant outcomes that can either benefit or maintain the financial statements of the firm. Also, every firm has a choice on how they want to amortize Goodwill over the period. They can write-off the Goodwill over forty years or take a more conservative approach and write it off over a shorter time period. It is also important to realize how Starbucks records their inventory on their consolidated financial statements. Since they sell products, not services, they have a large inventory, which they record at the lower of cost or market.
It is also crucial how a firm records and depreciates its inventory, and can give investors wrong information if not done correctly. Components of Cash and Cash equivalents The components of cash and cash equivalents are stated by Starbucks as being highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. The cash and cash equivalent components of star bucks Cash and cash equivalents are the most liquid assets found within the asset portion of a company’s balance sheet.
Cash equivalents are assets that are readily convertible into cash, such as money market holdings, short-term government bonds or Treasury bills, marketable securities and commercial paper. Cash equivalents are distinguished from other investments through their short-term existence; they mature within 3 months whereas short-term investments are 12 months or less, and long-term investments are any investments that mature in excess of 12 months.
Another important condition a cash equivalent needs to satisfy is that the investment should have insignificant risk of change in value, when used in the context of payments and payments transactions refer to currency, coins, money orders, paper checks, and stored value products such as gift certificates and gift cards. If in adjustment of cash flow is written that investment is short term which should not consider that investment as a part of cash and cash equivalent.