Accounts receivable
The net value of accounts receivable rose from $631 million in 2014 to $719 million in 2015 (Starbucks Corporation, 2016). The increase is equivalent to 13.95% (see Appendices for detailed information).
The proportion of accounts receivable to total assets declined from 5.87% in 2014 to 5.78% in 2015. This can be attributed to the fact that the total assets increased by a higher margin (16%) than the growth in net accounts receivables.
The accounts receivable are made up of receivables from sale of products and equipment, royalties from licenses and receivables from food business. Further, the calculation of allowance for doubtful debts is based on past experiences and the credit risk of the customers. The company also makes use of the specific identification method when coming up with the allowance for doubtful debts. The disclosure of accounts receivable is not adequate. The company should provide more details on the items that make up the balance of accounts receivable that is reported in the balance sheet.
Asset acquisition, depreciation and amortization
The value of property, plant and equipment rose by 16.18% between 2014 and 2015. The balance of intangible asset rose by 90.27%, while goodwill grew by 84%. Thus, there was a significant growth in these categories of assets. Depreciation and amortization expense grew by 25.97% due to growth in fixed and intangible assets.
The proportion of net property, plant and equipment to total assets rose from 32.73% in 2014 to 32.85% in 2015. Besides, it accounts for the highest percentage of total assets. Further, the proportion of other intangible assets rose from 2.54% in 2014 to 4.18% in 2015. Also, the proportion of goodwill rose from 7.96% in 2014 to 12.66% in 2015. Depreciation and amortization expenses as a percentage of net revenue rose from 4.31% in 2014 to 4.66% in 2015. Further, depreciation and amortization expense takes a small proportion of the net revenue. The growth in fixed and intangible assets is due to the change of ownership in Starbucks Japan (Collier, 2010).
Property, plant and equipment, and intangible assets are reported at cost less accumulated depreciation. The depreciation expense is calculated using the straight line method over the useful lives of the assets. Goodwill and other intangible assets are tested for impairment on a yearly basis during the third fiscal quarter. A qualitative assessment is carried out to determine if a unit is impaired. Further, the carrying amount and fair value of the assets are compared to determine the impairment loss. The fair value is calculated using the discounted cash flow model. The disclosure of the method of accounting for the assets and other important relating to both fixed and intangible assets is important because it helps in understanding the information in the four financial statements. However, the disclosure provided is inadequate because it lacks information on the asset movement schedule, that is, acquisitions, disposals, write-offs for each category of asset (Harrison, Horngren and Thomas, 2014).
Debt Financing
The value of long-term debt rose from $2,048.3m in 2014 to $2,347.5m in 2015. There was no short-term debt in the year ended September 2014 and 2015 (Starbucks Corporation, 2016). The increase is equivalent to 14.61%.
The proportion of long term debt to total assets dropped from 19.05% in 2014 to 18.86% in 2015 despite the increase in long term debt.
The company uses various sources of debt to finance both recurring and capital expenditures. First, the company has a $750 million revolving credit facility with a number of banks. $150 million of the revolving credit facility is used for working capital, capital expenditure, and other corporate functions. Secondly, the company has a commercial paper program that has an aggregate maximum limit of $1 billion. Finally, the company also issues senior notes to raise money. The senior notes have different maturity periods and interest rates (Brigham & Michael, 2009).
References
Brigham, E., & Michael, J. (2009). Financial management theory and practice. USA: South-Western Cengage Learning.
Collier, P. (2010). Accounting for managers. USA: John Wiley & Sons.
Harrison, W., Horngren, C., & Thomas, C. (2014). Financial accounting. USA: Pearson Education.
Starbucks Corporation. (2016). Investor relations – SEC filings. Web.