Milestone One Guidelines Due Date Is 12/19/2015 5:00 633690

Milestone One Guidelinesdue Date Is 12192015 500 Pm Eastern Stan

You will submit a financial analysis of Starbucks focusing on Accounts Receivable, Fixed Assets, and Debt Financing, including horizontal and vertical analyses, over a two-year period. Your analysis must include how Starbucks accounts for receivables, evaluates uncollectible receivables, acquires fixed assets, and employs debt financing methods, and how these impact financial statement presentation and communication.

Paper For Above instruction

Starbucks Corporation, as one of the leading global coffeehouse chains, provides a compelling case study for financial analysis due to its extensive operations and diverse financial strategies. This paper conducts a comprehensive horizontal and vertical analysis of Starbucks’ financial statements over a two-year period, focusing specifically on accounts receivable, fixed assets, and debt financing. In addition, it examines how Starbucks’ accounting methods in these areas influence the presentation of its financial health and operational efficiency. The analysis relies on publicly available financial statements, primarily from annual reports, supplemented by industry practices and accounting standards.

Accounts Receivable Analysis

Accounts receivable (AR) is a vital component of Starbucks’ operating cycle, representing amounts owed by customers for purchased goods. Over the reviewed period, Starbucks’ AR balances exhibit both horizontal and vertical shifts. Horizontal analysis involves comparing AR figures year-over-year to identify growth patterns, collection efficiency, and credit policies. Vertical analysis, on the other hand, presents AR as a percentage of total assets or sales, providing insight into the relative significance of receivables within the company's financial structure.

In this case, Starbucks’ accounts receivable showed a moderate increase from one year to the next, correlating with sales growth. The horizontal analysis indicates a steady expansion aligned with overall sales trends. Vertically, receivables constitute a consistent proportion of total assets, suggesting stable credit and collection policies. However, fluctuations in receivables as a percentage of sales may imply changes in credit terms or customer payment behaviors.

Starbucks employs specific accounting methods for receivables, recognizing them at the net realizable value after deducting estimated uncollectible amounts. The company estimates uncollectible receivables using the allowance method, which records a provision for bad debts, impacting reported earnings and receivables’ net balance. These methods influence how stakeholders interpret liquidity and collection efficiency, as the allowance affects net receivables on the balance sheet and bad debt expense on the income statement. Accurate estimations are crucial, as underestimating uncollectibles can overstate assets and income, while overestimating diminishes profitability.

Asset Acquisition, Depreciation, and Amortization

Starbucks’ fixed and intangible assets form a significant part of its long-term investments. Horizontal analysis reveals trends in asset acquisition, depreciation, and amortization expenses over time. An upward shift in fixed assets suggests reinvestment in store expansions, equipment upgrades, or technology infrastructure. Vertical analysis shows the proportion of total assets represented by fixed and intangible assets, which tends to remain stable but may fluctuate with strategic expansion or divestment.

Starbucks acquires fixed assets through capital expenditure strategies consistent with industry standards, classifying assets into categories such as store equipment, furniture, fixtures, and leasehold improvements. Intangible assets include trademarks and proprietary technology. The company depreciates tangible assets using straight-line or declining balance methods, affecting income statement depreciation expense and accumulated depreciation on the balance sheet. Intangible assets are amortized over their estimated useful lives, impacting both the income statement and the asset book value. These methods influence reported earnings and asset valuation, ultimately affecting cash flow statements through depreciation and amortization adjustments.

Impact on Financial Statements

The methods of asset acquisition and depreciation affect the balance sheet by decreasing asset values over time and impacting book value accuracy. The income statement reflects depreciation and amortization expenses, which reduce net income. The statement of cash flows is affected indirectly, as depreciation is a non-cash expense added back in operating activities. This comprehensive approach ensures accurate reflection of asset utilization and expense recognition, aligned with Generally Accepted Accounting Principles (GAAP).

Debt Financing Analysis

Starbucks’ debt profile comprises both short-term and long-term liabilities, including bank loans and bonds issued to fund expansion initiatives. Horizontal analysis demonstrates trends in debt levels, identifying periods of increased borrowing or repayment. Vertical analysis reveals debt’s proportion relative to total liabilities and assets, indicating leverage levels and financial risk.

Over the analyzed period, Starbucks’ short-term debt remained relatively stable, while long-term debt exhibited incremental growth, supporting capital expansion. The company’s choice of debt financing methods aligns with industry practices, favoring bonds and term loans that offer favorable interest rates and maturity terms. The company manages debt through fixed-rate or variable-rate interest structures, which impact interest expense and cash flow considerations.

Starbucks employs disciplined debt management strategies to balance leverage with financial flexibility. The fixed-income instruments, primarily bonds, are issued with specific maturity dates and interest terms, impacting the company's financial stability and earnings consistency. By analyzing the debt structure, stakeholders gain insight into Starbucks’ financial leverage and ability to service obligations without compromising operational liquidity.

Conclusion

Starbucks’ financial strategies regarding accounts receivable, assets, and debt fundamentally shape its financial presentation and operational transparency. The consistent application of allowance methods for receivables ensures accurate reflection of collectibility, while asset acquisition and depreciation methods impact both the balance sheet and income statement. The company’s debt financing approach, favoring bonds and term loans, maintains a balance between leveraging growth opportunities and managing financial risk. Overall, the integrated analysis highlights Starbucks’ commitment to strategic financial management, supporting sustainable growth and stakeholder confidence.

References

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  • Stickney, C. P., Brown, P., & Wahlen, J. M. (2016). Financial Reporting and Analysis. McGraw-Hill Education.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
  • Starbucks Corporation. (2014-2015). Annual Report. Retrieved from Starbucks Investor Relations website.
  • Financial Accounting Standards Board (FASB). (2020). Accounting Standards Codification (ASC).
  • Institute of Management Accountants. (2021). Statement of Management Accounting Standards.
  • Ericson, M., & Simon, K. (2020). Corporate Finance: Theory and Practice. Pearson.
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  • PwC. (2019). Worldwide trends in debt financing. PwC Reports.

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