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Starbucks Financial Analysis

Q1. Take the Starbucks balance sheet (2018) and calculate the % of each account to the total of that
section of the balance sheet (cash as a % of total assets, ST investments as a % of total
assets......., then A/P as a % total of total liabilities, etc) Do this for all categories under assets,
liability and equity.

Total Assets (2018) = $24,156,400,000

Cash and Cash equivalent: 36.25%

Short-term investments: 0.75%

Accounts receivable, net: 2.87%

Inventories: 5.80%

Prepaid expenses and other current assets:

Long-term investments: 1.11%

Equity and cost investments: 1.39%

Property, plant and equipment, net: 24.54%

Deferred income taxes, net: 0.56%

Other long-term assets: 1.71%

Other intangible assets: 4.319%

Goodwill: 14.66%

Total Liabilities (2018) = $22,980,600,000

Accounts payable: 5.13%

Accrued liabilities: 10%

Insurance reserves: 0.93%

Stored value card liability and current portion of deferred revenue: 7.15%

Current portion of long-term debt: 1.52%

Long-term debt: 39.56%

Deferred revenue: 29.48%

Other long-term liabilities: 6.22%


Total Equity (2018) = $1,175,800,000

Common stock ($0.001 par value) — authorized, 2,400.0 shares; issued and outstanding, 1,309.1 and
1,431.6 shares, respectively: 0.11%

Additional paid-in capital: 3.5%

Retained earnings: 123.95%

Accumulated other comprehensive loss: (99.46)%

Noncontrolling interests: 0.54%

Q2. What is the accounting equation for Starbucks as of 2017 and 2018?

Assets = Liabilities + Equity

2018:

$24,156,400,000 = $22,980,600,000 + $1,175,800,000

2017:

$14,365,600,000 = $8,908,600,000 + $5,457,000,000

Q3. What is the value (market cap) of Starbucks at Sep. 30, 2018?

Outstanding Shares: 1431,600,000

Share price on Sep 30th, 2018: $55.58

Market capital: Outstanding Shares x Share price

1431,600,000 x $55.58 = $79,568,328,000

Market capital = $79,568,328,000

Q4. What are inventories?

Inventories for Starbucks would include the value of all items that they sell. Inventories in a
manufacturing company are separated into three parts. Raw Materials inventory, Work-in-
process inventory, and Finished goods inventory. Raw materials inventory for Starbucks can
include Coffee, Sugar, Milk, Water (Ice). Work-in-process inventory would include cookie dough,
muffin batter, etc. Finished goods inventory will include all the items ready to be sold. Once sold
the products from finished goods inventory move to cost of goods sold. Thus, through
inventories companies can keep track of how many units of each product they sell or don’t.
Tracking inventories also help make managerial decisions.
Q4a. What is the difference between Long-term and short-term investments?

Starbucks has Available-for-sale, Trading Securities, Equity and Cost Investments under the Investment
category. Available-for-sale securities with remaining maturities of less than one year and those
identified by management at the time of purchase to be used to fund operations within one
year are classified as short-term. All other available-for-sale securities are classified as long-
term. Short term Available-for-sale- securities include Commercial paper, Corporate debt
securities, and Mortgage and other asset-backed securities. These investments have less than
one year to mature or will be used to fund operations within the year. The investments that will
not be maturing in less than a year and those that won’t be used to fund operations are long-
term investments.

Q4b.What is the difference between accounts payable and accrued liabilities?

Accounts payable includes the money owed to vendors who have sent billing invoices. Accrued liabilities
include everything else the company owes to people within the year but haven’t been billed for.
Accounts payable account for Starbucks can be money owed to raw material suppliers, for
example, Sugar suppliers, Milk suppliers, and Flour suppliers. These suppliers send their invoices
and need to be paid. Accrued Liabilities are also expenses incurred but not yet paid, only these
liabilities have not been billed because for example, accrued liabilities can be Utilities Payable,
Salaries Payable.

4c. What are deferred revenues? Why is it a liability?

Deferred revenue refers to the revenue that is received but not yet earned. Like mentioned in the
financial statements of Starbucks for example “We entered into an agreement on May 6, 2018,
to establish the Global Coffee Alliance with Nestlé. On August 26, 2018, Nestlé licensed the
rights to market, sell and distribute Starbucks consumer packaged goods and foodservice
products in authorized channels. We received an upfront payment of approximately $7 billion
primarily of prepaid royalties which were recorded as a liability to current and long-term
deferred revenue and will be recognized as other revenue on a straight-line basis over the
estimated economic life of the arrangement”. It is considered a liability because Starbucks owes
Nestlé the packaged products and foodservice products for them to sell.

Q4d. What is the difference between common and preferred stock

Preferred stocks are a specific type of stock that provide a few merits over the common stock. Preferred
stockholders receive dividends before any other shareholders like the common stockholders.
Most preferred stockholders do not get the right to vote in the managerial decisions of the
company. They might even be guaranteed dividends even when the company doesn’t make
enough profits due to fixed dividend rates given to them specifically. Common stockholders
have the right to vote in the managerial decisions of the company. Since there is no fixed
dividend obligation to the stockholders they may or may not receive dividends depending on the
company’s profits.
4e. What is additional paid-in-capital?

Paid in capital is the amount raised by the company by selling equity and not by earning profits.
Additional paid-in capital is the amount arising from the premium value paid by the buyers of
the stock when the stock price is higher than the par value of the stock. For example, Starbucks’
common par value is $100 and Paid in capital is 1,300,000 and their Additional paid-in capital is
$41,100,000. This is due to the rise in the price of the Starbucks stocks.

4f. What is retained earnings?

Retained earnings is the share of profit earned by the company that is retained in the business to fund
its operations. This is the net profit from the income statement that gets transferred to the
Retained earnings account at the end of the year in the balance sheet. Any dividends are given
out of retained earnings to shareholders. Retained earnings in 2018 is $1,457,400,000 and in
2017 it was $5,563,200,000. This means that Starbucks gave dividends or spent almost 1/4th of
the retained earnings on its production or operations.