Mba 503 - Starbucks Analysis

Milestone One

Southern New Hampshire University

Charles Hopkins

STARBUCKS ANALYSIS

        Reviewing the horizontal and vertical analysis of the Income Statement shows several points, regarding Starbucks.  While the company’s net revenues were not growing as quickly in FY2016 as in FY2015, they offset the growth in revenue by doing a much better job at controlling expenses.  Among the cost-savings, Starbucks reduced the level of their cost of goods while maintaining relatively even store operating costs.  Additionally, their year over year depreciation has dropped, even though the amount of depreciation to net revenue remains even, primarily due to the shift in the composition of the store portfolio in the region to more licensed stores (approximately 40 basis points).  The company also pulled back large portions of their financing year over year, which cuts down on the liabilities side.  A more in-depth analysis can be done by looking at the balance sheet:

        The largest portion of asset increased between FY15 and FY16 came from Sales, showing through Cash and Accounts Receivable.  Starbucks did not occur any changes in Land costs in FY16.  However, their Building costs increased by 11.4% and their Lease Improvements increased by 8.93%.  This would indicate that while the company did not build any extra locations, they did improve or expand on existing locations.  With an increase of 13.13% on Store Equipment, 11.62% on Roasting Equipment, and 6.65% on Furniture, it would appear the plan for Starbucks in FY16 was to grow itself internally by improving the experience of existing customers rather than trying to get into new markets.

        The company’s accrued liabilities increased 13.89% as well.  This was mostly due to Accrued Taxes increasing 42.24%, Accrued Dividends payable increasing 22.93%, and Accrued Capital increasing 14.36%.  The company’s Accrued Compensation actually decreased by 2.2% which is less likely to be from a decrease in staff and more likely modifications to compensation plans regarding health plans or bonuses, which includes the Management Deferred Compensation Plan.  However, an increase of over 19% in stored card value would indicate a lot of future sales from gift card purchases.  The vertical analysis does not show a lot of changes; however, long term investments tripled and retained earnings dropped by over 8%.  These would seem to indicate the company is opting to withhold money from investors to earn more through investments at this point in time.