Analyzing Starbucks Corporation
Analyzing Starbucks Corporation
Main Sections of the Annual Report
The first main section of Starbucks’ annual report is a financial summary. This section reports on the total and per share amounts of several financial items for the current and previous year. The financial items reported in this section are income from ongoing operations, the net income for each share, sales, dividends per share, cash provided by operating activities, capital expenditure and net income. The next section is the letter to stockholders of the company, which provides information about the corporation’s accomplishments on the previous years, reports on other pertinent business events such as new products, changes within the board of directors, plans, and mergers and acquisitions.
The other section is the management discussion and analysis of the corporation’s financial standings. This section reports on the abilities of the corporation to maintain its financial stability, which include meeting the long-term debt as well as the short run liabilities, and the ability to fund its operations and expansion plans. The section goes ahead to identify market trends affecting the corporation as well as risks involved. It also addresses problems within the corporations such as employee problems.
This is followed by financial statement accompanied by notes. The section provides a three-year comparative statement that includes an income declaration, balance sheet and stockholders equity. These statements are backed up by accompanying notes to the financial statement. The financial statement provides the actual figures of the corporation’s financial standing
There is an auditor’s report that verifies the accuracy of the numbers provided in the financial statements. It provides information about fairness in the reports as well to verify the information is not distorted. There is a management’s certification of the financial statement that reports on the integrity of the financial data, and shows the top management’s dedication to the accounting principles and policies such a GAAP. Additionally, the management verifies that the information provided is supported by top executives.
Key Factors Influencing Statbuck’s Financial Performance In 2011
One of the key factors that affected the operating income in 2011 were the increased sales that elevated the operating income from $1.4 billion in 2010 to $1.7 billion in 2011. At store level, the growth in sales was 8% compared to 7% in 2010. However, the operating margin increased from 13.3% in 2010 to 14.8% in 2011. This was influenced by the increased commodity prices that increased the cost of sales. On the other hand, the increase in sales outdid the increasing costs. The increased sales were influenced by opening of new stores that brought the products closer to consumers. The increase in commodity prices was leveraged by the increase in sales per store, which also contributed to higher net profits for the corporation.
The increasing sales also led to the increased earning per share, which was $1.62 compared to $1.24 earnings per share for 2010. This was also influenced by gains that were recorded in the closing quarter of the year. The gain was from selling of real estate owned by the corporation, and from an “acquisition of the remaining ownership interest in a joint venture in Switzerland and Austria” (Starbucks Corporation Fiscal 2011 Annual Report, 2011, p. 22). This increased the earnings per share by an approximate $0.10.
The increase in the overall performance of the corporation was due to many factors such as those aforementioned. This was influenced by the efforts of the company in its operations such as creating a strong brand through the dedication of the employees. Other benefits came from loyalty programs introduced by the company such as Starbucks Petites and other innovative products. However, the main influence of the performance was increased stores.
Primary Assets Help by Starbucks
Primary assets are defined as items or assets that a company has to have or acquire before other assets are acquired. These assets are the base of the company, since the other assets have to rely on their availability. For instance, in order to sell coffee to the public, Starbucks needed to have the space or land upon which to build their plant. Among the primary assets for Starbucks are the property plant and equipment, which are valued at $7,360.4 million. Within this are the stores that are among the most profit generating assets within the organization since the corporation relies on selling coffee to its customers (Needles, Powers & Crosson 2010). Without the stores, the corporation cannot make its profits. Thus, continuing with expansion of stores, the company guarantees its profits in the long-term. Equipments are directly involved in production of the products and are part of the primary assets as well.
Current assets are another part of the primary assets in the organization. They include cash and inventory. These are quite useful for meeting current liabilities especially cash, which is the most liquid. The inventory is composed of coffee products that are sold within the stores to generate profits that amount to $965.8 million.
Internal Control Environment of the Company
The management understands that there is a need to have absolute control of the internal environment if the business is to continue thriving. Thus, the management views the internal environment as the key to improving the future of the corporation. To have smooth operations, there is a need to have proper controls within the organizations, such as rules and policies that help in avoiding failure of following the set rules according to the law. This is done by the establishment of rules and principles that are followed by employees, in order to remain in accordance with the law and policies influencing the company. This further helps in avoiding unnecessary expenses such as fines associated with breeching of the set rules and regulation. Thus, the management characterizes the internal control environment as a tool for identifying any problems within the company, defects within the quality of products, innovations, and brands. It is viewed as a tool through which management controls the entire business without going wrong and avoiding unnecessary problems that could hinder performance of the company.
Engel, G.T. (2010). Understanding the Primary Components of the Annual Financial Report of the U. S. Government. New York, N.Y: DIANE Publishing.
Needles, B.E., Powers, M., & Crosson, S.V. (2010). Financial and Managerial Accounting. New York, N.Y: Cengage Learning