Starbucks horizontal vertical analysis 2 PDF

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Running Head: HORIZONTAL AND VERTICAL ANALYSIS OF STARBUCKS COMPANY

FINANCIAL REPORTING: HORIZONTAL AND VERTICAL ANALYSIS OF STARBUCK DEIDREA ROGERS Professor Bruce Frey SOUTHERN NEW HAMPSHIRE UNIVERSITY – MBA 503 Financial Reporting April 4, 2016

FINANCIAL REPORTING: HORIZONTAL AND VERTICAL ANALYSIS OF STARBUCK 2

Starbucks’ Horizontal Analysis The horizontal analysis computes the changes from the previous year to the current year in both dollar amounts and percentages (Elliott & Elliott, 2008). The table shown below gives the horizontal analysis of the Starbuck Corporation.

(Dollar

STARBUCKS' HORIZONTAL ANALYSIS Increase(Decrease) 2014 2013 Amount Percentage

amounts in millions) Account

$631.00

$531.40

$99.60

18.74%

Fixed assets

$3,519.00

$3,200.5

$318.50

9.95%

Intangible

$1,129.70

0 $1,137.7

($8.00)

-0.70%

assets Depreciation

$748

0 $621.40

$126.60

20.37%

$3,038.70

$5,377.3

($2,338.60) -43.49%

$2,048.30

0 $1,299.4

$748.90

Receivables Asset Acquisition, Depreciation and Amortization

and amortization Debt financing Short-term debt

Long-term debt

57.63%

FINANCIAL REPORTING: HORIZONTAL AND VERTICAL ANALYSIS OF STARBUCK 3 0

Based upon the above table, the following observations for the Starbuck Corporation between 2013 and 2014: 1.

Accounts receivables increased by 18.74%.

2.

Fixed assets increased by 9.5%.

3.

Intangible assets decreased by 0.70%.

4.

Depreciation and amortization expense increased by 20.37%.

5.

Short term debt decreased by 43.49%.

6.

Long term debt increased by 57.63%

Starbucks’ Vertical Analysis The vertical analysis shows the different components of a financial statement and how they can relate or be compared to the total figure on the statement (Elliott & Elliott, 2008). On a balance sheet, the total assets or total liabilities are set and stockholders’ equity is set equal to 100%. On the income statement, the total revenue is set equal to 100%.

The table below shows the vertical analysis of Starbuck Corporation.

FINANCIAL REPORTING: HORIZONTAL AND VERTICAL ANALYSIS OF STARBUCK 4 STARBUCKS' VERTICAL ANALYSIS (Dollar amounts in

2014

Percentage

2013

Percentage

millions) Total Assets Account Receivables Asset Acquisition, Depreciation

$10,752.90 100% $631.00 5.87%

$11,516.70 100% $531.40 4.61%

and Amortization Fixed assets Intangible assets Depreciation and

$3,519.00 $1,129.70 $748

32.73% 10.51% 6.96%

$3,200.50 $1,137.70 $621.40

27.79% 9.88% 5.40%

amortization Debt financing Total liabilities and

$10,752.90

100%

$11,516.70

100%

stockholders’ equity Short-term debt Long-term debt

$3,038.70 $2,048.30

28.26% 19.05%

$5,377.30 $1,299.40

46.69% 11.28%

From the above table the following observations can be determined, 1. In 2013, the account receivables were 4.61% of the total assets and in it increased to 5.87% in 2014. 2. Fixed assets as a percentage of total assets increased from 27.79% in 2013 to 32.73% in 2014. 3. Intangible assets as a percentage of total assets increased form 9.88% in 2013 to 10.51% in 2014. 4. Depreciation and amortization increased from 5.40% in 2013 to 6.96% in 2014.

FINANCIAL REPORTING: HORIZONTAL AND VERTICAL ANALYSIS OF STARBUCK 5 5. Short-term debt as a percentage of total liabilities plus stockholders’ equity decreased from 46.69% in 2013 to 28.26% in 2014. Long-term debt as a percentage of total liabilities plus stockholders’ equity increased from 11.28% in 2013 to 19.05% in 2014. Analysis The Starbuck Corporation accounts receivables comprise receivables for product and equipment sales to and royalties from their licensees along with receivables from foodservice business customers. Starbuck uses a method called Days Sales Outstanding to measure the accounts receivables. The Days Sales Outstanding determines the average number of days a company takes to collect revenue after a sale has been made (Starbucks Coffee Company, 2015). The use of Days Sales Outstanding is also used to measure the account receivables increases and the effectiveness of the reporting of accounts receivables in the balance sheet. The fixed assets which include plant, property and equipment are carried at cost less accumulated depreciation and the fixed assets are considered when circumstances indicate that the carrying values of assets may not be recoverable (Starbucks Coffee Company, 2015). Under the intangible assets, the goodwill for impairment is evaluated annually during the third fiscal quarter or if an event occurs or circumstances change. The other intangible assets which mainly comprise finite-lived intangible assets such as acquired and reacquired rights, licensing agreements, contract-based patents, copyrights and trade secrets are amortized over their estimated useful lives (Starbucks Coffee Company, 2015). The indefinite-lived assets including trade names and trademarks are also tested for impairment annually during the third fiscal quarter or if an event occurs or circumstances change (Starbucks Coffee

FINANCIAL REPORTING: HORIZONTAL AND VERTICAL ANALYSIS OF STARBUCK 6 Company, 2015). The methods used by Starbucks to report fixed assets and the intangible assets on the financial statements ensure that these components are accurately indicated in the balance sheet. The Starbuck Company solely relies on debt for financing the company. T one point Starbucks raised almost $750 million in 10-year debt securities (Starbucks Coffee Company, 2015). This amounts raised will not affect the company’s strong credit profile because it would be spend on share repurchases. The company continues to borrow each year but these borrowings but these borrowings does not pose risks since they go into further development of the company.

FINANCIAL REPORTING: HORIZONTAL AND VERTICAL ANALYSIS OF STARBUCK 7 References Elliott, B., & Elliott, J. (2008). Financial accounting and reporting. Harlow: Financial Times Prentice Hall. Starbucks Coffee Company,. (2015). Investor Relations. Retrieved 7 December 2015, from http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-reportsannual...