FIN/370 Week 2 Team Essay
FIN/370 Week 2 Team
Starbucks’ Ethics and Compliance Paper
Ethical behavior within a company is very important to its future and success. This type of behavior is not just important for the employees to follow, but for the entire company. In 2001, a failing company called Enron was involved in numerous unethical behaviors. For example, Enron’s Chief Financial Officer temporarily suspended their “code of ethics” not once, but twice in order to partake in personal financial gain. Enron’s actions eventually resulted in bankruptcy and assisted with the creation of a new set of guidelines for companies to follow.
The so-called guidelines were called the Sarbanes-Oxley Act (Titman, S., Keown, A.J., & Martin, J.D. 2011). The SOX helped institute a set of rules for companies to follow, one being the creation and compliance of a code of ethics within every company. One company that seems to do a very good job with complying with the guidelines of SOX is Starbucks Corp. They have a strong program set in place to support their mission of making ethical decisions at work. The use of their program “Business Ethics and Compliance” might just be the very reason why their SEC filings show a relatively successful business. Financial Environment
In regards to the finance environment, Starbucks plays an active role in ethics and compliance. Not only are their employees offered ways to voice concerns of unethical issues in the work place, but also Starbucks’ partners as well. Starbucks holds a meeting every year for their shareholders in order to review the yearly performance, vote on issues, and voice their concerns about the company. Starbucks’ ethics program is setup in a way that helps integrate and network ethical business practices on all levels of the company. For six years now, Starbucks has been named among the world’s most ethical companies and to this day is still going strong (Business Ethics and Compliance. 2012). Ethical Behavior Procedures
* Starbucks vision and values business mission is to conduct themselves and strive to do what is ethically right for the business. The organization has a mission to protect its culture and help strive to keep a good reputation by providing resource programs to help its partners with making good ethical decisions. Starbucks organization has numerous procedures in place to ensure ethical behavior in the work place. According to Starbucks (2011), “Our mission is to inspire and nurture the human spirit~one person, one cup and one neighborhood at a time.” (para. 1). * When looking at Starbucks’ global responsibility report for 2011 on its goals and the process for the organization, it shows to be on track in several places. The report shows that to ensure ethical behaviors the company has implemented front-of-store recycling and developed an inclusive recycling solution on all paper products carried in their stores.
Starbucks organization is also ensuring that their coffee is ethically sourced under the C.A.F.E at 100% by 2015 and reducing consumption of energy and water by 25% by 2015. Starbucks also ensures ethical behavior by purchasing renewable energy. Starbuck’s became a member of the Global Social Compliance Program in 2011. The program is Starbuck’s business motivation strength to promote on environmental improvement and help its working conditions of its global supply chains. The organizations goals and processes show behaviors for the company to be on track to be both ethically and environmental friendly. United States Financial Markets
When operating a small business, running a large corporation, or when it comes to personal finance it is imperative to understand financial markets and how they operate within the United States. The term financial market is explained as a mechanism that allows people to easily buy and sell financial claims (Titman, Keown, & Martin, 2011) and there are many different ways to conduct these transactions within these markets. There are three principal sets of stakeholders within financial markets with the first being borrowers. Borrowers are individuals or companies that need money to better position themselves for example an individual getting a student loan or a small business getting a small business loan. Savers are the second of these three key stakeholders. Just like borrowers, savers can be either an individual or a company with the main point being that they have money to invest.
Individuals who save typically save for a specific reason such as purchasing a new vehicle, a down payment on a house, or even to prepare for a difficult economy. When firms run a surplus and have extra cash they also save money and invest in things such as stocks and even other companies in a conglomerate merger. Financial institutions are the third key player regarding financial markets. Financial institutions help bring borrowers and savers together in order to facilitate desired transactions. The most common financial institutions are banks and credit unions because while they accept deposits and credit an account for that deposit, they also provide services such as loans and that money has to come from somewhere (investors).
The financial marketplace consists of commercial banks, finance companies, insurance companies, investment banks, and investment companies (Titman, Keown, & Martin, 2011). Within these entities another step is taken and can be broken down to be classified by the maturities of the securities traded in them. There are two main classifications with the first being the money market. Money markets are designed for short term debt instruments with the threshold period being one year or less. The second of these two classifications is the capitol market which is the exact opposite of the money market. Capitol markets are designed for long term debt instruments with a threshold period extending beyond one year. Complying With SEC Regulations
The U.S. Securities and Exchange Commission (SEC) is a federal agency and was formed in 1934 to enforce federal securities laws and to regulate the securities industry. In order to effectively oversee and regulate the securities industry the SEC is broken down into five main divisions which are corporation finance, trading and markets, investment management, enforcement, and lastly risk, strategy, and financial innovation. The Starbucks Corporation falls into several of these categories and must implement and enforce their own set of controls and procedures within the company in order to be in compliance with the SEC. Starbucks Corporation has put in place disclosure procedures and controls in an effort to ensure that all reports that are filed and submitted are within SEC regulations. These controls and procedures were designed to “ensure that material information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms (Starbucks, 2012).
As with anything new an evaluation must occur and during the fourth quarter of the 2012 fiscal year Starbucks did exactly that with the participation and supervision of senior management and concluded that these controls were effective and worthy of SEC regulations. Another control implemented by Starbucks is financial reporting internal controls. Financial internal controls are a very crucial element within any company due to the severity of repercussions of inaccurate reporting. Starbucks put these controls in place to “provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America (Starbucks, 2012).
Some of the duties that go along with these controls include maintaining records that in reasonable detail accurately and fairly reflect transactions, providing reasonable assurance that transactions are recorded as necessary for preparation of financial statements, providing reasonable assurance that receipts and expenditures are made in accordance with management authorization, and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on financial statements would be prevented or detected on a timely basis. Overall the Starbucks Corporation has many different controls and procedures that allow the company to comply with SEC regulations and the two examples in this paper are just a snap shot of what Starbucks must do and maintain in order to stay clear of punishment handed down by the SEC. Starbucks financial performance
The financial performance for Starbucks for the 2010, 2011 and 2012 fiscal years have increased. In the 2011 year, they had the reportable operating segments which are the United States, International and Global Consumer (United States Securities and Exchange Commission, Sept). In percentage, Starbucks total net revenue for the fiscal year were United States 69%, International 22%, Global Consumer 7% and other was 2%. The total net revenue for the 2011 year was at 11.7 billion while the 2012 year was increased by 14% to 13.3 billion. By The total revenues increased by 14% driven by global comparable store sales growth of 7% and a 50% increase in channel development revenue. The total equity for 2010 was 3,682.3 and 2011 was 4,387.3. At the end of the 2011 year, the return of equity was 29.26% and the end of the 2010 year was 28.87%. (United States Securities and Exchange Commission, Sept) Starbucks financial performance is increasing from year to year. The following are ratios for 2010 and 2011 that shows Starbucks financial performance in 2010 and 2011. Current ratio: Current Assets/Current Liabilities
2011 3794.9million/2075.8 million = 1.83 times
2010 2756.4 million/1779.1 million = 1.55 times
Debt ratio: Total Liabilities/Total Assets
2011 2973.1 million/7360.4 million = 40.4%
2010 2703.6 million/6385.9 million = 42.3%
Return on equity: Net Income/Common Equity
2011 1245.7 million/4387.3 million = 29.26%
2010 945.6 million/3682.3 million = 28.87%
Day’s receivable: Accounts Receivable/Annual Credit Sales/365 2011 386.5/ (11700.4/365) = 12.1 days
2010 302.7/ (10707.4/365) = 10.3 days
According to the trends of each financial ratio the Starbucks organization is in good health. Starting with the current ratio although it is a bit lower in 2011 the company is still doing well when it comes to current assets and liabilities. The debt ratio indicates how much assets were financed using current liabilities. (United States Securities and Exchange Commission, Sept) From 2010 to 2011 the debt ratio decreased by 1.9% which means the company financed fewer assets with the current plus long-term liabilities. The Return on Equity increased 2.7% from 2010 to 2011 which means the company received a higher return on their equity which is good for the company. The last ratio which is the Average Collection Period ratio measures how many days it takes a firm to collect its receivables. In 2011 the number of days increased slightly but with increased sales from 2010 to 2011 leads to future investments. (United States Securities and Exchange Commission, Sept) According to these trends, it appears that Starbucks is growing strong and the organizations financial health is good. References
Business Ethics and Compliance. (2012). Retrieved from http://www.starbucks.com/about-us/company-information/business-ethics-and-compliance Starbucks. (2012). Goals & Progress: Ethical Sourcing. Retrieved