Starting in Seattle with one store, Starbucks has grown across the country and has become a household name delivering one of the best tasting coffees in existence. The first Starbucks opened in 1971, serving fresh roasted coffees. “Today, more than 15,000 stores in 50 countries, Starbucks are the premier roaster and retailer of specialty coffee in the world” (Starbucks, para. 7, 2010). The organization has been successful because of excellent managerial skills and implementing sound business decisions. Starbucks mission statement reads as follows: “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time” (Starbucks, 2010, p. 1). The company values its relationships with communities, its stores, business partners, shareholders, and employees. Responsible ethical character and compliance helps the Starbucks brand protect its reputation. This paper will explain the role of ethics, procedures, Securities and Exchange Commission (SEC) compliance, and evaluate the financial performance of the Starbucks organization.
Ethics and Compliance Policies
A successful organization builds its reputation on honesty and trust displayed to customers and business partners. Starbucks conducts business in an ethical manner that protects reputation and supports its culture by unceasingly striving to do what is right. Starbucks has a commitment to company values that successfully employs a Business Conduct Helpline and a Business Conduct Web-line for questions and guidance. Starbucks has incorporated an Anti-Retaliation Policy and does not tolerate retaliation against anyone reporting misconduct. The organization is an equal opportunity employer and use best practices in the hiring process.
Business practices include and are not limited to accurate and truthful business transactions and comply with laws and regulations in any country the company operates in, and encourage partners to understand and adhere to the rules. Starbucks has an outside agent who facilitates and ensures an honest and ethical relationship with government officials throughout the international arena. Partners associated with the Starbucks brand must practice ethical conduct in sales, services, and promote fair competition. Matters dealing with conflicts of interest, gifts and entertainment, and securities are also addressed and implemented by the company. The company closely monitors proprietary information such as new ideas, company records including financial and audit details.
Starbucks explains the Ethical Decision-Making Framework to identify ethical issues, give any possible solutions, pursue ideas from others, and take the best approach to resolve unethical matters and follow-up on results. The aforementioned framework empowers each Starbucks associate and affiliate to take responsibility to help maintain Starbucks ethical and honest reputation. “Ethical behavior is doing the right thing, and ethical dilemmas are everywhere in finance” (Keown, Martin, Petty & Scott, para. 1, 2005).
Securities and Exchange Commission’s Regulations
According to Ethisphere.com, (2010), Starbucks is one of the most ethical companies in the world for 2010. One of the key points to being an ethical business is to file reports for investors, government bodies, and the public to view. Starbucks complies in one way with the ethics policies set in place by the directors and organization by providing accurate data. The financial records of Starbucks are available to the investors, public and government in a timely manner via the website. The requirement set by the Securities Exchange Committee for a public business is to provide accurate reports in a timely manner.
Starbucks publishes an annual report to the Starbucks website for anyone to find via the Internet. The annual report contains cash flow statements of income and expenses. The reports show that Starbucks is performing well even during a tough economic time. The annual report also contains a statement of Starbucks critical accounting policies. Starbucks believes that critical accounting practices are important. Starbucks considers its policies an asset impairment, stock-based compensation, operating leases, self insurance reserves and income taxes to be the most critical in understanding the judgments which are involved in preparing the consolidated financial statements, as stated in the annual report on Starbucks website, (2010).
Financial Ratios for the Past Two Years
Starbuck’s financial records allow investors, the government, and the public to have a firsthand look into the financial stability of the company. The financial records are available for several years; this allows the long-term financial success of the company to be easily accessible and available anyone wanting to know about the company. As an investor with interest in expanding into Starbucks there are several things the investor should look for.
The current ratio allows investors the ability to measure how well a company can pay back short-term debt (Keown, Martin, Petty, & Scott, 2005). Starbucks ability to pay back debt in 2009, increased over 2008. In 2008 Starbucks closed several unprofitable locations (Starbucks Investor Relations- Financial Release, 2009) resulting in the decrease of overhead costs for those locations; allowing for additional funds and increasing the ability for Starbucks to pay back short-term debt.
This increases the stability of Starbucks. The availability of extra funds allows Starbucks the opportunity to invest those funds in profitable time value investments. The funds could be invested in the company for improvements or costs for innovate new products. The extra funds could also pay necessary expenses outright. This allows the company to have lower amounts of outstanding credit or loans. The lower the amount of outstanding loans and credit allows for lower credit fees and lower costs.
*Current Ratio 2009 2008
Current AssetsCurrent Liabilities 599.81581.0 269.82189.7
Investors can also look at the Debt Ratio of Starbucks. The debt ratio shows the amount of debt a company carries in relation to their assets (Keown, Martin, Petty, & Scott, 2005). Companies must carry some debt to do business effectively. However, the company does not want to carry too much debt. Starbucks has expenses that must be paid for; some of these can be paid using credit. However, the company should ensure they are not charging unnecessarily. Starbucks must also show they are paying off their debt. Starbucks debt ratio decreased from 56.08% in 2008 to 45.38% in 2009 (Starbucks Investor Relations- Financial Release, 2009).
Tends in the Ratios
This shows a positive financial trend. The company had larger debt in 2008 and was able to repay a good portion of the debt without increasing debt somewhere else in the company, ultimately lower the overall debt of the company. This positive trend will increase the credit status of Starbucks. This will allow the company to have credit available if needed in the future.
*Debt Ratio 2009 2008
Total DebtTotal Assets 2531.15576.8 3181.75672.6
Investors can also look at the Return on Equity Ratio. The Return on Equity Ratio measure the amount of net income returned as a percentage of shareholder equity (Keown, Martin, Petty, & Scott, 2005). The main reason investors invest into companies is to make money!! If the investor does not make a sizable return on their investment, they may take their money and decide to invest elsewhere!! The investor wants to have confidence the company is going to make solid decisions that will increase the profitability of the shareholders. Starbucks has seen a decrease in Return on Equity. In 2008 Starbucks Return on equity was 21.10% and in 2009 it fell to 19.64% (Starbucks Investor Relations- Financial Release, 2009).
This is a negative trend for Starbucks. Investors do not want to lose money! The decrease was minimal, yet it was a decrease. Overall the company has solid financials. This one negative issue can become a major problem if Starbucks continues to make decisions that allow shareholders equity to decrease.
*Return on Equity 2009 2008
Net Income Common Equity 598.23045.7 525.82490.9
*All numbers are in millions
In conclusion, Starbucks has proven itself to be a good investment for any investor. The organization has been in the business for 30 years and has showed substantial growth throughout. The organization started out with one location and has grown to over 15,000, which are located throughout the globe. The organization as a whole strives to uphold ethical behavior, not only set by the SEC but as well as for them. Not only does the organization uphold a high ethical behavior for them but as well only does business with those who have the same mentality.
This was proven by being ranked one of the most ethical places to work and this was according to Ethisphere.com. Even though there was a small decrease in the return on equity from 2008 to 2009, which consequently could be because of the recession that most businesses have been affected by, Starbucks has still proven strong that the organization is still a good investment. The organization has shown an increase in profit and a decrease in debt. All and all, Starbucks is a good investment for anyone who is interested in getting into the business, which the organization has shown through good business decisions and ethical behaviors.
Keown, A. J., Martin, J. D., Petty, W. J., & Scott, D. F. (2005). Financial Management: Principles and Applications. Pearson Prentice Hall. Retrieved online on November 22, 2010 located at https://portal.phoenix.edu/classroom/coursematerials/fin_370/20101109/.
Starbucks Investor Relations- Financial Release. (2009, 11 4). Retrieved November 20, 2010, from Starbucks: http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-newsArticle&ID=1492291&highlight=
SEC. Gov, (2010). The Investor’s Advocate: How the SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital Formation. Retrieved on November 22, 2010 online located at http://www.sec.gov/about/laws/sea34.pdf
Starbucks. (2010). About Us. Retrieved online on November 22, 2010 from http://www.Starbucks.com
Starbucks website, (2010). Investor relations. Retrieved on November 22, 2010 from Starbucks website http://www.starbucks.com
Starbucks website, (2010). Annual Report. Retrieved from Starbucks website on November 20, 2010: http://www.starbucks.com
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