Question

Accounting

Of the risks Starbucks Corporation discloses, you must identify at least one risk at Starbucks store level and connect it to a financial statement, explaining its adverse financial statement outcomes if it were to materialize. Demonstrate your understanding by showing an effect one on at least one of the ratios.

At the store level, identifying risk is more challenging than at the company level. Apply your understanding financial reporting concepts you learned but take it a step further to incorporate your understanding of various assets and liabilities. You must analyze risks talking like an accountant, not a marketer or strategic manager. In this deliverable, it is expected that you integrate many different accounting concepts and demonstrate your understanding of what you have read in the textbook applies to what you see in a store.

Risks

1. Economic conditions in the U.S. and international markets could adversely affect our business and financial results.
2. Our success depends substantially on the value of our brands and failure to preserve their value, either through our actions or those of our business partners, could have a negative impact on our financial results.
3. Incidents involving food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling, whether or not accurate, as well as adverse public or medical opinions about the health effects of consuming our products, could harm our business.
4. The unauthorized access, use, theft or destruction of customer or employee personal, financial or other data or of Starbucks proprietary or confidential information that is stored in our information systems or by third parties on our behalf could impact our reputation and brand and expose us to potential liability and loss of revenues.
5. We rely heavily on information technology in our operations and growth initiatives, and any material failure, inadequacy, interruption or security failure of that technology could harm our ability to effectively operate and grow our business and could adversely affect our financial results.
6. We may not be successful in implementing important strategic initiatives or effectively managing growth, which may have an adverse impact on our business and financial results.
7. We face intense competition in each of our channels and markets, which could lead to reduced profitability.
8. We are highly dependent on the financial performance of our Americas operating segment.
9. We are increasingly dependent on the success of certain international markets in order to achieve our growth targets.
10. Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high quality arabica coffee beans or other commodities could have an adverse impact on our business and financial results.
11. Our financial condition and results of operations are sensitive to, and may be adversely affected by, a number of factors, many of which are largely outside our control.
12. Interruption of our supply chain could affect our ability to produce or deliver our products and could negatively impact our business and profitability.
13. Failure to meet market expectations for our financial performance and fluctuations in the stock market as a whole will likely adversely affect the market price and volatility of our stock.
14. The loss of key personnel or difficulties recruiting and retaining qualified personnel could adversely impact our business and financial results.
15. Failure to comply with applicable laws and changing legal and regulatory requirements could harm our business and financial results.

Answer 1

Analysis of risks from accountants perspective

Economic conditions in the U.S. and international markets

Bad market Conditions in US and other international markets shall have a adverse impact on the business and financial results resulting in the decrease in sales and reduction in Sundry Debtors. On the other hand this shall also impact in reduction on cash flows and increase in inventory and corresponding increase in sundry creditors due to non availability of cash from operations to pay off the creditors. This will impact the Gross profit to Sales ratio, Net profit to Sales ratio, Current assets to Current Liabilities ratio.   

Success depends Substantially on the value of our brands

The company should maintain high brand value through hiegher advertising,maintening quality of our brand & proper scrutiny before selecting our business partners otherwise that shall have an impact of lower Sales volumes and and reduction in sundry debtors. Similarily this will have an adverse impact in piling up inventory , lower payout of creditors due to less cash from operations. This will impact the Gross profit to Sales ratio, Net profit to Sales ratio, Current assets to Current Liabilities ratio.

Food or beverage-borne illnesses, tampering, adulteration, contamination or mislabeling, whether or not accurate, as well as adverse public or medical opinions

Above situations shall have a permanent damaging impact on our brand and our loyal customers shall find our some alternative brands from where to procure the goods. Sales volume shall reduce along with cash from operations. Our business partners shall also question on our integrity and shall put up befroe us the problems they would be facing in convincing the customers. The federal quality control agencies shall also be sceptical on such situations and may require the company to re-establish the quality standards. The creditors too may not rely on the integrity and question any delay in payments. This shall impact in having low GP to sales & NP to sales ratio & current ratio along with other liquidity ratios.

Unauthorized access, use, theft or destruction of customer or employee personal, financial or other data

The above situations shall result in serious internal control issues and the federal agencies shall be more sceptical in security of the customer & employee personal data. The federal agencies may impose strict restrictions on dealing with the employee and customer personal data .The statutory auditors of the company shall place less reliance on the internal controls and shall reassess and grade down their reliability on internal controls. They shall undertake extensive procedures for dertermining the reliability of the transactions as recorded in the financial statements.

Material failure, inadequacy, interruption or security failure of infromation technology

Information technology is an important ingredient for recording proper data. In absence improper or inaccurate , inadequate data capturing shall result in stock loss and pilferage of raw materials used for manufacturing the goods as well as finished goods. This may also result in wrong capturing of data for materials transfers to production. This shall also result in wrong inventory figures and yeild ratios from raw materials to finished goods.

Not successful in implementing important strategic initiatives

Lack of data or inaccuracy of data shall result in unseccessful implementation of important strategic anlysis like ABC system of imventory in stores. This shall have an adverse effect on the stroage space , lead time of the materials , price of the materials . This may have an effect of increasing the sundry creditors level due to improper ordering and have an dampening impact on our current ratios.

intense competition

Intense competition can have an impact of less outflow of finished goods (sales) which in turn have an impact on the increasing warehousing costs, reordering levels of the other raw materials.

highly dependent on the financial performance of our Americas & increasingly dependent on the success of certain international markets

Higher sales augments higher and quick inventory turnover ratios. In case the market is spead across various countries then such quiker realisation from inventory to sales is possible even with average domestic matket volumes. On the other hand if the sales are highly dependent on domestic markets then the risk of low demands in local markets can have major impact on the stock level resulting in hiegher stock level and lower conversion to sales. Lower cash imflows from operations.

Arabica Cofee beans -High Cost and decrease in availability of quality

High Cots increases prices reluting in high sundry creditors whereas low quality shall have abering on the sales resulting in low sundry sundry debtors. It impact the current ratio adversely

Interruption of Supply Chain

Interruption in suply chain results in stopages in delivery of finished goods resulting in delayed sales realisations so it adversely inpacts the stocks , sundry debtors and sundry creditors level

Failure to meet market expectations

Impacts mainly in lower sundry debtors due to less sales , low cash flows from operations , inability to pay creditors as a result adverse current ratio.

The loss of key personnel or difficulties

Maintaing low sundry creditors and augmenting high sales are mainly attributed due to loss in key personnel. Affects sundry debtord ans sundry credtitors. current ratio adverse