Starbucks Corporation is an American company incorporated in 1985. The company operates in the specialty coffee industry. It roasts, markets, and retails coffee around the world. Coffee is the main raw material used by the company to produce its products. The company buys and roasts the coffee that it sells alongside other beverages and snacks. The company sources its coffee from the major coffee producing locations around the world. Due to its large scale operations and large market, Starbucks requires large amounts of raw coffee to produce its products. Starbucks Corporation is a large company, operating 29324 stores around the world. The company’s annual sales revenue was $24.7195 billion for 2018. This was a significant increase from the sales revenue of $22.3868 the previous year. The company’s annual sales revenue indicates that it is a large company with large scale business operations. The company’s total assets are valued at $24.1564 billion. The company has a large number of employees totaling 291,000, spread across the globe.
Starbucks Corporation is located in Utah, Seattle, Washington. The company’s headquarters are still situated in the place it was founded. There are several organizations that are closely associated with Starbucks Corporation. The organizations include Nestle, PepsiCo, and Arla Foods. The organizations sell some of the products produced by Starbucks. Starbucks strategically utilizes them to expand its market reach around the world. For instance, Nestle sells and markets Starbucks’ consumer packaged goods (CPG), along with other food service products. Generally, the annual report seeks to paint an image of an organizations undergoing significant growth. The report details some of the company’s strategic partnerships aimed at increasing market reach. There are several segments operated by the company. The segments include the Americas, China/Asia Pacific, Europe, Middle East and Africa, and Channel Development. The functional components of the report include the balance sheet, reports on assets, liabilities, and owners’ equity.
Delegate your assignment to our experts and they will do the rest.
10K Report
Starbucks uses its 10-K report as an annual report. The company may have used its 10-K report as an annual report in order to provide detailed information regarding its performance. The company is among the largest in the industry, with operations around the world. Essentially, a company’s annual report is the most important way for the investors to understand the financial performance of a company ( Cao et al., 2016). The 10-K report serves this purpose by offering a detailed analysis of the company’s financial position. Currently, more and more investors are interested in the 10-K report, as it helps significantly in making an investment decision ( Cazier & Pfeiffer, 2015) . Dunkin Donuts, one of Starbucks direct competitors uses a 10-K report as an annual report too. It appears that the two competitors recognize the importance of providing detailed information to stakeholders in a single document.
Industry Analysis
There are several key economic factors that affect the specialty coffee industry. The factors include wages, inflation, interest rates, consumer confidence, and foreign exchange rates. The companies in the industry provide services and it requires a lot of personnel to serve its customers. In order to maintain top talent, the companies in the industry have to offer competitive wages to their employees. Inflation also affects the prices of raw materials, as well as the products. This may affect the purchasing power of the customers, significantly affecting sales volumes. Interest rates also influence access to capital and affect the supply of money in the economy. High interest rates impact the sales in the industry. Consumer confidence is also critical in the industry. Lack of customer confidence in a given company results in loss of market share to competitors. Foreign exchange rates also influence the financial performance of the players in the industry. Organizations with operations around the world are affected significantly by fluctuation in exchange rates.
Starbucks has experienced significant growth over the years. The company is currently at the maturity stage of its life cycle. This means that the company has to continue innovating in order to remain competitive in the industry. There several success factors in Starbucks’ business; product quality, customer services, shop design, social responsibility, customer loyalty reward programs. Product quality is a vital success factor in the business. The high level of competition in the industry has significantly fuelled customer expectations relating to quality. As such, the company needs to attain and maintain a high level of quality of products. Customer services are essential for success in the business too. The company has to offer excellent services in order to get a competitive edge in the market. Empowering employees is one of the most effective ways of enhancing quality service delivery ( Cohen, 2017) . Shop design is also an important success factor at Starbucks. The shops should be developed with interior music and design. Social responsibility has increasingly played a significant role in shaping a company’s image in the industry. CSR is an essential public relations tool that increases chances for success ( Le e & Rammohan, 2017) . Customer loyalty reward programs are also important success factors in the business. Such programs encourage repeat sales, increasing revenue. The company has been effective in capitalizing on the success factors. For instance, Starbucks shops and customer service are excellent.
The nature of Starbucks’ business calls for some accounting considerations. The company invests a lot in inventory purchases and storage. This is because the major raw material is coffee. Therefore, it is important to determine the most appropriate cost accounting method to value inventory. This is because inventory valuation is an important function in retailing. The companies in the industry are required to report their financial information to the Security Exchange Commission. Additionally, there are wages and product safety regulations which should be considered. There are also several social factors influencing business in the industry. The growing coffee culture presents an opportunity for the companies in the industry. The increasing health consciousness also requires the companies in the industry to develop healthy products to meet the emerging need.
Financial Strength
The company has a significant financial strength. Starbucks has registered growth in revenue over the past two years. The company recorded total revenue of $24.7195 billion for 2018, a significant increase from the sales revenue of $22.3868 in 2017. The company is set to continue performing well financially going into the next year based on its current standing. The sources of capital for the company include profits from sales, purchases of shares, and credit. The company has a solid financial base that allows it to expand its business around the world. Its position as a leader in the industry and broad financial base allows it to acquire other business, bolstering its competitive position by increasing market reach.
The company’s current total capital is $24.1564 billion. The company repurchased most of its common stock, reducing total shareholders’ equity from $5.4501 billion to $1.1695 billion. Starbucks is the leading company in the specialty coffee industry in terms of revenue, standing at $24.7195 billion. It is followed by Costa Coffee with revenue of $1.7 billion with over 3,400 stores worldwide. As such, Starbucks is the global industry leader. The company is set to continue growing, both in size and revenue to its commitment to expansion and quality service delivery.
Audit Plan
The material transactions involved in the company’s operations include acquisitions, divestitures, asset disposal, and leases. The company entered into partnership on May 6, 2018 with Nestle to form the Global Coffee Alliance. Starbucks received an upfront payment of $7 billion, which was recorded as a liability to current and long term deferred revenue. The company also sold its company operated retail store assets and operations in Brazil to SouthRock for a total $48.2 million, resulting in a significant pretax loss. The company realized a sublease income of $12.3 million. The company also recorded lease exit costs totaling $119.3 million. There are several transaction cycles reported by the company. They include the purchasing cycle, sales cycle, and payroll cycle. The company sources its coffee around the world throughout the year. The products produced are then sold to customers. The high risk areas include revenue recognition and accounting estimates. Most companies tend to deliberately fail to recognize certain revenues in a bid to reduce the tax liability. Additionally, internal staff may be biased in settling for accounting estimates. One of the low risk areas is the going concern as the company has a favorable financial position. There are various opportunities that the company may utilize to engage in fraudulent reporting, particularly when it faces a lot of pressure regarding its financial performance. The company may improperly account for rent holidays and leasehold improvements that are funded by landlord incentives. This may be done in a bid to reduce the tax liability. Basically, all the reports need to meet the GAAP standards, failure to which the affected organizations may face tougher consequences from the SEC. The standards laid down provide enough guidelines to ensure proper reporting. The audit effort will generally be concentrated on the company’s headquarters, where all the global operations are coordinated. In order to remain objective, there should be no reliance on internal auditors. This is because the audit process should be carried out independently to avoid compromising the outcome. The expected form of report is the unqualified opinion. This is because the financial records are free of any misrepresentation. This means that the financial records are maintained in accordance with the GAAP standards.
References
Cao, J., Chen, F., & Higgs, J. L. (2016). Late for a very important date: financial reporting and audit implications of late 10-K filings. Review of Accounting Studies , 21 (2), 633-671.
Cohen, E. (2017). Employee training and development. In CSR for HR (pp. 153-162). Routledge.
Lee, H. L., & Rammohan, S. V. (2017). Improving social and environmental performance in global supply chains. In Sustainable Supply Chains (pp. 439-464). Springer, Cham.
Cazier, R. A., & Pfeiffer, R. J. (2015). Why are 10-K filings so long?. Accounting Horizons , 30 (1), 1-21.
Starbucks Annual Report 2018, https://investor.starbucks.com/financial-data/annual-reports/default.aspx
