Fin/370 Starbucks Ethics & Compliance
Ethic and Compliance FIN/370 Ethics and Compliance Starbucks celebrates 40 years with 17,000 stores in more than 50 countries (Goals & Progress, 2010). Starbucks thrive on their values as a company to improve the lives of people who grow their coffee, neighborhoods where the company does business, and they care for the environment (Goals & Progress, 2010). Starbucks strives to incorporate good business practices and ethics across the globe not only for the enhancement of the company but also for the enhancement of the stakeholders and the communities the company impacts.
Starbuck’s mission statement is “to inspire and nurture the human spirit. As said by Howard Schultz, Chairman, President and Chief Executive Officer, in the 2010 Starbucks Global Responsibility Report; “one person, one cup and one neighborhood at a time. ” Ethical Behavior Ethical standards play an intricate role in safe guarding companies’ assets. To ensure that all employees understand what the company expects of them, Starbucks establishes procedures for the employees to follow. One of Starbucks’ procedures is to use “ethical trading and responsible growing practices” (Ethical Sourcing, 2011, para. ). This procedure ensures that Starbucks’ product is the best on the market. Starbucks has also established Coffee and Farmed Equity (CAFE) Practices. The CAFE Practices are a set of measurable standards focused in four areas: Product Quality, Economic Accountability, Social Responsibility, and Environmental Leadership (Starbucks Corporation, 2011). The CAFE Practices are in place to ensure that all parties involved are conducting business ethically. Product Quality is essential to ensure repeat business. Economic Accountability is set in place to ensure that the company purchases products ethically.
Starbucks has a third-party to evaluate Social Responsibility and Environmental Leadership (Starbucks Corporation, 2011). These two areas evaluated by a third-party, guarantees Starbucks is treating their employees and the environment ethically. Starbucks’ ethics have contributed to their many years of success. SEC Regulations The Securities and Exchange Commission (SEC) is a federal agency, which is responsible for enforcing federal security laws and regulations, the nation’s stock exchanges, and other electronic security markets (Keown, Martin, Petty, & Scott, 2005).
Starbucks as well as other corporations must conform to the rules and regulations of the SEC. Starbucks make every effort to comply with the SEC regulations by providing the company’s financial state on the company’s website. Starbucks’ website provides annual reports, proxy filings, quarterly reports, 10-K’s, 10-Q’s, and Section 16 filings regarding insider trading (Starbucks Corporation, 2011). Starbucks must report all financial standings. If Starbucks fails to report the required information, the SEC has the authority to take legal action. Financial Performance
The Financial performance of a company is the measuring (in monetary teams) of the firm’s polices and operations. These measurements consist of Current Ratio, Debt to Equity Ratio, Return on Assets, and Net Profit Margin. Measuring a company’s financial performance help the company know where they profits are and in what areas of any that the company may need to improve. These measurements can determine the success or failure of a company. In the December 2009, National Federation of Independent Business report shows that two thirds of businesses make no profit.
This is not the case with Starbucks. Current Ratio The current ratio of a company examines the credit from a liquidity standpoint. To see how much short-term liabilities the business can pay off with short-term assets. The higher the number of this ratio represents how wisely the company manages their cash and pays their debts. If the number is lower it translates as poor cash flow and would mean that in the instance the company needed to pay debts off they would have to liquidate fixed assets such as inventory or equipment. The formula for figuring the current ratio is: [pic]
Starbucks reported their current assets as $2,756. 4M and the current liabilities as $1,779. 1M in 2010. Using these numbers show a ratio of 1. 549; this is a fairly low number for a company considering anything under “1” is reason for concern. Starbucks reported their current assets as $2,035. 8M and $1,581. 0M in 2009. Using these numbers show a ratio of 1. 287; this number is also considerably low but does show improvement from 2009 to 2010. Starbucks acknowledges the need for liquidity but comply with federally limits and believes the credit risk to be very minimal (Starbucks Corporation, 2010).
Debt to Equity Ratio The debt to equity ratio examines the credit from a financing standpoint to see how much equity and debt is the company using to finance its assets. The debt to equity ratio determines how much of their growth the company is experiencing by increasing debt and shows if the company had to pay off debt and how much money would remain for the shareholders profits. The formula for figuring the debt to equity is: [pic] Starbucks reported their total liabilities as $2,703. 6M and the shareholder equity as $3. 674. 7M in 2010. Using these numbers one can show a ratio of . 36; this number should be low and under “1” so this number is an attractive ratio. Starbucks reported their total liabilities as $2,519. 9M and shareholder equity as $3,045. 7 in 2009. Using these numbers the company can show a ratio of . 828 meaning that the debt to equity ratio improved from 2009 to 2010. Return on Assets The profit produced by invested capital is the return on assets. The operating return on assets (OROA) ratio takes into account an organization’s success in controlling expenses and the efficient use of assets to generate the organization’s sales (Titman, Keown, & Martin, 2011).
One can measure the return on assets ratio by the net operating income divided by the total assets. [pic] Starbucks reported an operating income of $390M and $5. 576M in total assets for 2009. Starbucks ended the fiscal year with an operating income of $390M compared to $315M in operating income in 2008 (Starbucks Corporation, 2010). This shows an increase in operating income from 4. 9% to 5. 7% from 2008 to 2009. However, Starbucks reported a decrease in total assets in 2009 of $5. 576M compared to 2008 when the reported total assets were $5. 72M (Starbucks Corporation, 2010). Starbucks decrease in total assets occurred because of related The United and international store closures, charges incurred for unoccupied office space resulting from reduction in corporate positions and organizational structural changes, and under-performing company-oriented retail operations. Although Starbucks reported a decrease in total assets, the organization’s operating return on assets was 7% for the 2009 fiscal year. Net Profit Margin Firms use net profit margin to measure the amount of net income per $1 of sales.
Reviewing net income as a percentage of total sales can allow investors and regulators to compare Starbucks Corporations ability to manage its income statement year over year. [pic] Net income in 2009 for Starbucks Corporation was $390. 8M with total sales of $9,774. 6M (Starbucks Corporation, 2009). A focus on supply chain improvements, back-end IT systems, and a better go-to-market engine helped remove $580M of costs from the business in fiscal 2009 (Starbucks Corporation, 2009). The net profit margin in 2009 was 3. 9% that includes $17M of store operating expenses that offset with an income tax credit that result in 30. 1% effective tax rate (Starbucks Corporation, 2009). Starbucks Corporation Net Profit Margin 2009 [pic] In 2010 net income increased to $945. 6M and total sales for Starbucks Corporation rose to a record $10,707. 4M (Starbucks Corporation, 2009). Income taxes in 2010 did not include a tax credit, resulting in a 34. 0% effective tax rate and 2011 tax rates expect to range from 34% to 35% (Starbucks Corporation, 2009). The net profit margin in 2010 rose to 8. 83%. Starbucks Corporation Net Profit Margin 2010 pic] The increase in Starbucks net profit margin show a stronger company emerged in fiscal 2010 after consumer trends and a weakened global economy in 2009. Investors should be aware of the 2009 income tax credit, which inflates the year-over-year not profit margin when determining future financial decisions. Conclusion Starbucks continues to set fourth standards in operating practices, ethics, and helping the community. The company also continues to thrive in the business world as they strive for the highest quality of customer service and providing a high quality of products.
Starbucks shows commitment to shareholders by complying with the SEC to protect the company’s financial state. Starbucks provides financial reports on their website, and manages their cash and depts. Managing a company with these standards helps a company continue its success. Starbucks success shows in its current ratio, debt to equity ratio, return on assets, and net profit margin reports. These reports along with Starbucks firm operating practices shows Starbucks is a stable and trusting company. References Goals & Progress. (2010).
Starbucks Global Responsibility Report: Message from Howard Schutltz (para. 1). Retrieved from http://www. starbucks. com/responsibility on July 23, 2011. Goals & Progress (2010) Starbucks Global Responsibility Report: Year Review: Fiscal 2010. Retrieved from http://www. starbucks. com/responsibility on July 23, 2011. Keown, A. , Martin, J. , Petty, J. , & Scott, D. (2005). Financial Management: Principles and Applications (10th ed. ). Upper Saddle River, NJ: Prentice Hall, Inc. National Federation of Independent Business. (2009). Financial Performance.
Retrieved from http://www. financialperformancecenter. com/The_Financial_Performance_Center/Why_Switch. html on July 24, 2011. Starbucks Corporation. (2009). Starbucks Investor Relations. Retrieved from http://investor. starbucks. com/phoenix. zhtml? c=99518&p=irol-reportsAnnual. Starbucks Corporation. (2011). Ethical Sourcing. Retrieved from http://www. starbucks. com/responsibility/sourcing Titman, S. , Keown, A. J. , Martin, J. D. (2011) Financial Management: Principles and Applications (11th ed. ). Upper Saddle River, NJ: Prentice Hall, Inc.