Question

1. 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. Perform the calculations on 2018 only.

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

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

For ALL of the following DO NOT GIVE ME JUST DEFINITIONS. It must be explained in the context of and using specifically the Starbucks financial results/statements, .

4. What are inventories? (minimum 100 words)

4a. What is the difference between Long-term and short-term investments? (minimum 100 words)

4b.What is the difference between accounts payable and accrued liabilities? (minumum 100 words)

4c. What is deferred revenues? Why is it a liability? (minimum 100 words)

4d. What is the difference between common and preferred stock (this is not on the Starbucks balance sheet thus reference to the book) - minimum 100 words.

4e. What is additional paid-in-capital? (minimum 100 words).

4f. What is retained earnings. (minimum 100 words)

Answer 1

1. Common Size balance sheet of Starbucks:

Balanced Sheet of Starbucks for the year 2018
Assets	Amount (in millions)	% of total assets
Cash	8760	36.27%
Marketable Securities	181.5	0.75%
Receivables	693.1	2.87%
Inventory	1400	5.80%
Other Current Assets	1460	6.04%
Total Current Assets	12494.6	51.73%
Net Property Plant & Equipment	5930	24.55%
Investment & Advances	602.4	2.49%
Deferred Charges	134.7	0.56%
Intangibles	4580	18.96%
Deposits & Other Assets	412.2	1.71%
Total Assets	24153.9	100%
Liabilities	Amount (in millions)	% of total liabilities
Accounts Payable	1180	5.13%
Current Portion Long-Term Debt	349.9	1.52%
Accrued Expenses	2300	10.00%
Other Current Liabilities	1860	8.09%
Total Current Liabilities	5689.9	24.75%
Deferred Taxes/Income	6780	29.49%
Long-Term Debt	9090	39.54%
Other Long-Term Liabilities	1430	6.22%
Total Liabilities	22989.9	100.00%
Equity	Amount (in millions)	% of total equity
Common Stock Net	1.3	0.11%
Capital Surplus	41.1	3.48%
Retained Earnings	1460	123.73%
Treasury Stock	0	0.00%
Other Liabilities	-324	-27.46%
Shareholders Equity	1180	100.00%

2. Accounting Equation is given by

Assets=Liabilities+Shareholder's Equity

Accounting Equation for Starbucks for the year 2018 is given by (amount in millions):

24,153.9=22,989.9+1,180

Accounting Equation for Starbucks for the year 2017 is given by (amount in millions):

14,370=8,910+5,460

3. Market Capitalization of Starbucks as on 30th September, 2018 is reported as $89.1 billion which is the value of shares of the company in the market as on this date.

4. Inventories is the value of stock in hand as on the reporting date. The value of closing inventories in reported in the balance sheet of the company under the head "Current Asset". The inventories reported by Starbucks includes value of raw material in hand, equivalent value of work in progress and stock of finished goods. The inventories are valued as per US GAAP. Inventories are major cash generating assets of a company, the stock is circulated throughout the operating cycle to generate cash flows for the company.

4a. Short-term investments are the investment made by a company with the intention to held for less than an year. Long-term investments are the investments intended to be held for more than an year. Under US GAAP, the classification of investment as long term or short term depends on the intention of the management. The short term investment are valued as cost of net realizable value, whichever is lower whereas, the long-term investments are carried down at cost less any permanent decline in the value. The short term investments are reported under the head "Current assets" whereas long-term investments are reported under the head "Non-current assets" in the balance sheet. The short term investments of Starbucks includes marketable securities. The long term investments of Starbucks includes investments & advances and long-term deposits.

4b. Account payable are the liabilities of the company for which invoices have been generated and it is not in the hands of the company to avoid the obligation. Account payable includes bills generated by creditors for goods or services. Accrued liabilities are expenses which are accrued on a timely basis. These are the expenses which have been accrued but not yet due but will be due within 12 months. Both account payable and accrued expenses are classified under the head "current liabilities". For the year 2018, Starbucks reported an account payable of $1180 million and an accrued expenses of $2300 million. The account payable of the company included payments due for inventories and other operating expenses which are outstanding as on the date. The accrued expenses includes interest which is accrued on a monthly basis will be due in the coming year as per the payment cycle.

4c. Deferred revenues are revenues which are yet to be earned by the company. These includes payment received in advance of goods or services which are yet to be delivered or rendered by the company. These prepayments are classified as deferred revenues under liabilities because as per GAAP, these cannot be recognized as revenue under the income statement. Until the product is delivered to the customers or the services are rendered, the revenues are not due to the company. The amount is kept with the company on behalf of customer and hence is a liability for the company. When the services are rendered or goods are delivered to the customer, the amount is transferred to income statement as revenues. Starbucks has a deferred income of $6.78 billion including deferred taxes.

4d. Common Stock represent the ownership holding by the shareholders. The common stock provides voting rights to the shareholder as well as participation in the corporate policies of the company. Preferred stock are fixed dividend stocks issued by the company with a fixed redemption period. The preferred stocks have a fixed rate of dividend and the holders do not possess any voting rights or ownership in the company. When a company declares dividend on the common stock, a preference is given to the preferred stockholders before common stock. Hence, dividend cannot be paid to the common stockholders without paying the preferred stockholders first. The rate of dividend is not predetermined for common stocks and they may or may not receive dividend depending on the income and managerial decisions. Starbucks has a paid up common stock of $1.3 million in 2018 with no preferred stock.

4e. Additional paid-in capital is the amount received by the company over and above the par value of the stock. When a company issues shares at premium or sells stock at a price higher than the cost of the shares, the amount in excess of the par value/cost of share is known as additional paid-in capital. The additional paid-in capital is shown as capital surplus under equity. During the year 2018, Starbucks has reported a capital surplus of $41.1 million. Additional paid-in capital can arise from issue of common stock as well as preferred stock. Since, Starbucks does not have preferred stock, the capital surplus is contributed towards common stock by the investors.

4f. Retained earnings represents the funds left with the company after distribution of stock dividends. The retained earnings is the profit or loss accumulated with the business over the years and is shown under equity as it is attributable to the equity shareholders of the company. The retained earnings reported by a company is given by

Retained earnings=Opening retained earning+/-profit during the year/loss during the year-dividend paid

The retained earnings of Starbucks for the year 2018 is reported as $1.46 billion which implies that the company is profitable. The retained earnings represent that the company can invest these funds in the business for future growth or can be distributed as cash dividends to the shareholders.