Analysis of Starbucks' Financial Performance

This assignment requires students to analyze Starbucks' financial performance using various tools such as key performance indicators (KPIs), variance analysis, and management accounting. The student needs to provide a comprehensive report on the company's financial situation, highlighting its strengths and weaknesses, and making recommendations for improvement.

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ASSIGNMENT 1 FRONT SHEET
Qualification BTEC Level 4 HND Diploma in Business
Unit number and title Unit 5: Management Accounting (489)
Submission date 18/06/2020 Date received (1 st submission) 18/06/20
Re-submission date Date received (2 nd submission)
Student name Cao Phuong Linh Student ID GBH190
Class GBH0809 Assessor name Pham Du
Student declaration
I certify that the assignment submission is entirely my own work and I fully understand the consequenc
understand that making a false declaration is a form of malpractice.
Student’s signature:
Grading grid
P1 P2 P5 M1 M4 D1 D3

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 Summative Feedbacks:  Resubmission Feedbacks:
Grade: Assessor Signature: Date:
Internal Verifier’s Comments:
Signature & Date:

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Management Accounting
STARBUCKS CORPORATION
Cao Phuong Linh| Management Accounting | 18/06/2020

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Table of Contents
I. INTRODUCTION ......................................................................................................................................... 5
II. The importance of Management Accounting ........................................................................................... 6
III. The organization’s financial governance policy ................................................................................... 10
IV. HRM section ........................................................................................................................................ 13
V. CONCLUSION ........................................................................................................................................... 14
REFERENCES ................................................................................................................................................... 14

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I. INTRODUCTION
This assignment analyzes the importance of management accounting and the financial policy of the Starbucks
corporation as well as its HRM section.
Starbucks is a world-renowned coffee company. In addition, the coffee firm Starbucks has 30. 000 outlets in
80 countries and works in Seattle, Washington, USA. Starbucks was founded in Olympia, Washington on 4
November 1985 in compliance with the rules of the State of Washington. Under the SBUX exchange mark,
Starbucks company has its common stock on NASDAQ.
The bellowed figures are belonged to Balance Sheet in both Assets and Liabilities & Equity.
US$ in thousands
Mar 29, 2020 Dec 29, 2019 Sep 29, 2019 Jun 30, 2019
Cash and cash equivalents 2,572,300 3,040,500 2,686,600 4,763,300
Short-term investments 52,900 68,400 70,500 72,100
Accounts receivable, net 941,000 908,100 879,200 790,600
Inventories 1,492,200 1,408,700 1,529,400 1,517,200
Prepaid expenses and other current assets 691,500 474,000 488,200 591,600
Deferred income taxes, net — — — —
Current assets 5,749,900 5,899,700 5,653,900 7,734,800
Long-term investments 198,800 199,800 220,000 222,600
Equity investments 420,900 411,300 396,000 340,300
Property, plant and equipment, net 6,387,000 6,390,900 6,431,700 6,187,800
Operating lease, right-of-use asset 8,260,800 8,358,500 — —
Deferred income taxes, net 1,709,700 1,731,400 1,765,800 1,533,000
Other long-term assets 580,100 484,700 479,600 458,000
Other intangible assets 678,700 739,100 781,800 853,200
Goodwill 3,493,000 3,515,900 3,490,800 3,564,700
Long-term assets 21,729,000 21,831,600 13,565,700 13,159,600
Total assets 27,478,900 27,731,300 19,219,600 20,894,400
Figure 1: Starbucks’s total assets (Dybek, 2020)
In term of the assets of balance sheet, Starbucks’s total assets was reported in the first quarter of 2020 to be
lower than the final quarter in 2019 to over $250.000 thousands USD.

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Figure 2: Starbucks’s Liabilities and Equity in Mar 29,2020 and Sep 29,2019 (Starbucks Quarter Report, 2020)
In the part of liabilities and equity in Starbucks, total liabilities and shareholder’s equity in 29 th Mar 2020 was
recognized to be higher nearly 1.5 time to compare with this data in the previous 6 months.
II. The importance of Management Accounting
a. Definition
The management accounting definition is, according to the Chartered Institute of Management Accountants
(CIMA), the mechanism to define, calculate, compile, evaluate, schedule, plan, classify and convey
management knowledge used for the purpose of preparing, assessing, tracking and maintaining an effective
usage and accounting of its resources in internal company or organizations. (Chartered Institute of
Management Accountants, 2003)
b. Functions of management accounting
Management accounting has three main functions, including the allocation of costs between selling goods and
inventories for internal and external returns; the providing of relevant information to assist managers in their

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decision-making; and the provision of information on planning, supervision, performance measurement and
continuous improvement. (Drury, 2018)
According to Drury, in the sense of allocating cost, it is important to track in depth the expenses of a business
that sells a broad variety of goods in order to determine internal revenues. It is remembered that many
programs do not include inventories and thus the cost of goods is not necessary to valuate inventories by this
organization. Next, information on the rentability of different segments of the business needs to be improved
and/or analyzed for the provision of relevant information. In addition, the extraction of information from the
costing system also plays a crucial role in the price settlement. Lastly, planning involves turning goals and
priorities into specific tasks and money used to accomplish them in order to budget. Instead, in the program,
monitoring and continuous changes. Additionally, monitor knowledge for economic reviews to better control
expenditures and enhance operating performance and quality.
c. Characteristics of accounting information
The reporting of economic decision-making accounting knowledge may contain such characteristics or ethical
criteria. In the bellowed table, the information characteristics that FASB (USA) has accepted in the concept no.
2 'Qualitative characteristics of accounting information'. (Kaur, 2015)
Figure 3: Qualitative characteristics of accounting information (Kaur, 2015)

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There are over 10 characteristics in terms of quality of accounting information. However, 4 main characteristics
are mentioned below for accounting information. First of all, reliability (relevance and reliability) is described
as one of the two primary qualities that make accounting data useful for decision making. To make decisions
on the profitability and financial position of a company, reliable information is required. Reliance varies
between items. The following characteristic is understandability, which is information quality that allows users
to perceive its importance. By making information more understandable to a broader circle of users, the
advantages can be enhanced. Thirdly, timeliness is a supplementary issue of relevance if information is either
not available, or is made available long since reported events and it does not have any value in the future, lacks
relevance and is of little or no use, Timeliness alone does not provide information, before it becomes available
to decision-makers, before it loses its capacity to influence decisions. The quality of verification is the fourth
characteristic which is helpful as it is meant to insure the accounting measures are as they claim to be.
Verification does not guarantee the right system, even less the accuracy of the steps that are taken. The
checking mechanism does not imply that accounting measures are the proper method. The measuring
definition used, if it was, is deliberately calculated without particular biases by the measurer. This gives certain
certainty. (Kaur, 2015)
d. Examples
Accountants provide key insights that help the management team of a company make many of its decisions. In
addition, they promote decision-making through a wealth of financial and statistical information within a
company. This is the way that managerial accountants create values from its purpose and scope. (Boyd, 2019)
For example, A KPI Report is a tool for calculating, arranging, evaluating and researching over some periods of
time the major KPIs. That will help managers identify potential strengths, weaknesses, trends and improvement
of organizations. (Durcevic, 2019)

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Figure 4: Mention Volume Timeline For Summer Beverages (Barlow, 2018)
Starbucks financial managers use share-of-voice (KPI report) to rate this new beverage in the US around the
first six months of the year. This is a great measurement of how specific campaigns are carried out. Based on
the number of drinks evaluated after the first 3 months, the effect of this new beverage is not very much
supported (Barlow, 2018). Starbucks Frappuccino debuted with the new campaign in April gaining 5 times the
popularity of other drinks at the same time in early April. Sales of April sales helped Starbucks' budget soar
significantly at America. However, after peaking, the number of users dropped significantly again at the end of
the month.
In short, company management accountancy will give all the key financial and business statistics when it
reviews the current product range to help the manager and leader decide exactly which products are profitable,
which ones are not, and how to remedy them. It can also provide valuable metrics to understand how company
decision making has affected profitability of an individual product. This is one of the values of managerial
accountants.

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III. The organization’s financial governance policy
a. Definition
Financial governance concerns a director's financial obligations and responsibilities. The way a company
collects, manages, monitors and controls financial information means financial management. Financial
management includes the management of financial transactions, the management and monitoring of
performance and data, compliance, transactions and disclosure. (Wolters Kluwer, 2020)
b. Benefits of financial governance
Sound financial governance contributes to improved organizational efficiency which promotes an appreciation
of the amount at increasing stage of the business or entity. The financial governance advantages maintain the
trust of investors. Investors are generally involved in finding indicators of protection of company practices.
Effective financial regulation allows the correct balance to be found between optimizing risk and benefit.
Furthermore, financial governance supports better decision-making. If due to numerization and organization,
the relevant information is easily accessible, solutions can be found easier based on the circumstances.
Financial governance contributes to taxation as an incredible benefit. Taxes were often frowned upon as one
of the financial system 's limitations. For companies and organizations, there are tax loopholes and exceptions,
which can be exploited if the conditions are complied with. For example, a company can claim tax deductions
on its office space quantity. (Muhoro, 2019)
c. Examples of poor financial governance
Failures in financial corporate governance have over the years led to huge problems facing both companies
and the government. An example of financial corporate governance failures is the Enron crisis that has forced
corporations and government authorities to reconsider their stance on corporate governance. In October of
2001, the Enron Scandal led to the bankruptcy of the Houston-based Enron Corporation, a US energy company.
It was at the time America's biggest debt restructuring. (V-comply, 2017)
According to V-comply, an audit failure was the key reason for Enron's collapse. Despite the frameworks and
processes for good corporate governance, Enron faced a crisis. Such laws and regulations have no one flaunted

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and flouted. In clear breach of the law, the board blinded its eyes. Especially where the CFO was allowed to
work in specific purpose entities (SPEs). The auditors were unable to avoid suspect and debatable
accountability. Even SPE transactions have not been examined by the auditors. After the company's stock price
plummeted, Enron shareholders filed a $40 billion lawsuit. In the middle of 2000, the figure reached 90,75 US
dollars per share, falling to less than 1 USD at the end of November 2001. In Chapter 11 of the U.S Bankruptcy
Code, Enron filed for bankruptcy on December 2nd 2001.
The scandal led to new rules and legislation being implemented by the US government to improve the accuracy
of reporting to public corporations. As a result of the Enron fiasco, the Sarbanes-Oxley Act was adopted. The
fines for damaging, altering or creating federal documents or attempting to defraud the shareholders have
increased. The audit companies were also made more accountable to remain unbiased and independent of
their customers.
d. Recommendations for future policies in Starbucks corporation
To reposition Starbucks for future growth Johnson outlined two key strategies the company is employing to
continue growing. The first involves a retail alignment that seeks to ensure the company has the right number
of stores and invested capital in various global markets. The second initiative involves business simplification
and has included the divestment of slower-performing parts of the business like Tazo tea, closing Teavana retail
stores and entering alliances with companies like Nestle S.A., Vevey, Switzerland. (Nunes, 2018)
In order to see how company is doing, Starbucks should carry out reports on budget variances every month.
These reports show projections which are different from their actual performance, allow the management
team to review the information, determine why the projections were not accurate.
For example, in a company which produces gadgets, they used variance analysis to tighten financial governance
and control the process of development. In details, overhead is applied to products on the basis of direct labor
hours. The denominator level of activity is 4,030 hours. The company’s standard cost card is below: Direct
materials: 6 pieces per gadget at $0.50 per piece; Direct labor: 1.3 hours per gadget at $8 per hour; Variable
manufacturing overhead: 1.3 hours per gadget at $4 per hour; Fixed manufacturing overhead: 1.3 hours per
gadget at $6 per hour. During January, the company produced 3,000 gadgets. The fixed overhead expense
budget was $24,180. Actual costs in January were as follows: Direct materials: 25,000 pieces purchased at a

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cost of $0.48 per piece; Direct labor: 4,000 hours were worked at a cost of $36,000; Variable manufacturing
overhead: Actual cost was $17,000; Fixed manufacturing overhead: Actual cost was $25,000. (CFI Education
Inc, 2018)
Adding these two variables together, it could be got an overall variance of $4,000 (unfavorable). This means
that this is a variance that management should look at and seek to improve. Although price variance is
favorable, management may want to consider why the company needs more materials than the standard of
18,000 pieces. This may be due to the company acquiring defective materials or having problems/malfunctions
with machinery. This analysis is the effective way that helps company change and improve its policy in the right
way and growth in long term.
Additionally, the divestment in slower operating parts such as Tazo tea, the closure of Teavana retail stores and
alliances with companies like Nestle S.A., Vevey, and Switzerland are streamlining business. Streamlining the
outward investment budget and focusing on internal strengths is a right direction for Starbucks, but under the
expansion of the business combined with bagged coffee production, Starbucks needs to use a lot of KPI reports
to be able to change the strategy in the first years of operation by finding suitable coffee materials based on
hobbies and favorites which are changed year to year to be sold to global users.
In fact, the alliance between the world's largest food and beverage company - Nestle with one of the world's
leading coffee chains - Starbucks will start selling new products Starbucks Creamers. Starbucks Creamers will
be sold at retail stores like Walmart, Target and Kroger. However, the product will not be available at Starbucks
stores because it is a clause in the two-party agreement, Daniel Jhung, the head of Nestle's beverage division,
said. (Cheng, 2019)
In some researches from US market, in the last four years, according to a report from the finance department,
revenue from the US coffee cream market increased by 2.8% per year, according to Nielsen. In the same period,
sales of packaged coffee increased by only 0.8% per year. Market research firm Mintel estimates that retail
sales of coffee creamers and coffee powder have increased by about 5% over the previous year, to nearly $ 6
billion and it is expected that by 2023, the market will be priced up to US $ 7.8 billion. Meanwhile, the coffee
market in 2018 recorded a 4% growth in the same period, equivalent to 14.4 billion USD and will increase to
18.2 billion USD in 2023, Mintel predicts, according to Cheng.

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In addition, about two-thirds of US consumers increasingly prefer ice cream to coffee, according to the National
Coffee Association. Especially, this rate is up to 71% when considered in the 18-24 age group. In contrast,
roasted coffee, the largest segment of the US coffee market, showed almost no growth during the 2016-2018
period. Even sales of instant coffee are declining. "Looking at the market, we will see that the brands with the
best growth currently belong to the brands of cafes and restaurants, while the brands that produce food and
drink infusions the system is struggling”, Mintel pointed out. (Cheng, 2019)
The cooperation between the big brand and the big distributor will make both companies improve financially,
especially after the Covid-19 season. This policy of developing large-scale product lines will certainly create
efficiency for the future, when the products sold are branded Starbucks. However, in order to reach out to the
society and expand the market, Starbucks should rely on the KPI reports to be able to sell its products globally,
not just based on the United States. In order to move to a larger scale, Starbucks should research more about
its taste and taste in European and Asian cultures.
In short, two mentioned recommendations on future policies of Starbucks is provided. They may help
managerial accountants control and tighten as well as improve financial governance of this big company.
IV. HRM section
Starbucks and its brands give all eligible people equal opportunities. The company seeks to create a diverse
and supportive community with different backgrounds and experiences. They agree that the mission and ideals
of the organization are best represented by customers in all global communities. It is also recommended to
extend to people of color, women, LGBTQIA+, veterans and disabled. Qualified applicants with criminal history
shall, in compliance with all Federal State and local regulations, be considered for employment. Starbucks
Corporation is committed to providing adequate accommodation for disabled workers. (LinkedIn, 2020)
Job description & benefits:
- Develop analytics and solutions for growth with retail companies, consumer products and international
businesses
- Create financial statements, help with close activities at the end of the month and quarter-end, and
develop forecasting, reporting and analysis of finances for four different departments;

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- Take advice from senior financial leaders and discuss the growth strategy
- Create financial department-wide relationships
- When the curriculum is completed, employers can start with the accelerated career development with
a different function
Requirements for the accounting job:
- Preferred minimum cumulative GPA qualifications of 3.5
- Finance, accounting and economics preference majors
- Active and accredited registration in a Bachelor of Science or an Accounting Master Program
- Broader strategic analysis, problem management and analytical capabilities
- Financial skill and ability for knowledge synthesizing
- Strong team-work and inter-functional work ethic
- Strong interpersonal skills and relationships management
- Ability to balance different goals and meet deadlines
- Ability, orally and in writing, to communicate clearly and concisely
V. CONCLUSION
In conclusion, in companies which provide important insights that help a company's management team make
many of its decisions, management accountants are extremely important. They also support company
decision-making by supplying rich financial and statistical information, often supported by powerful accountant
department.
REFERENCES
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11 Jun. 2020].
Boyd, K. (2019). Why management accounting is important for any business. [online] MYOB Pulse. Available
at: https://www.myob.com/nz/blog/management-accounting-important-business/.

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CFI Education Inc (2018). Variance Analysis - Learn How to Calculate and Analyze Variances. [online]
Corporate Finance Institute. Available at:
https://corporatefinanceinstitute.com/resources/knowledge/accounting/variance-analysis/.
Chartered Institute Of Management Accountants (2003). CIMA dictionary of finance and accounting. London:
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lon-nhat-the-gioi-ban-bot-kem-pha-ca-phe [Accessed 17 Jun. 2020].
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Durcevic, S. (2019). Your Ultimate Guide To Modern KPI Reports In The Digital Age – Examples & Templates.
[online] datapine.com. Available at: https://www.datapine.com/blog/what-are-kpi-reports-examples/.
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https://www.stock-analysis-on.net/NASDAQ/Company/Starbucks-Corp/Financial-Statement/Assets.
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at: https://www.yourarticlelibrary.com/accounting/financial-reporting/qualitative-characteristics-of-
accounting-information/57363 [Accessed 8 Jun. 2020].
LinkedIn (2020). 2020 Starbucks Finance & Accounting Rotational Development Program - Seattle, WA.
[online] www.linkedin.com. Available at: https://www.linkedin.com/jobs/view/2020-starbucks-finance-
accounting-rotational-development-program-seattle-wa-at-starbucks-1468999193/ [Accessed 10 Jun. 2020].
Muhoro, N. (2019). Advantages & Disadvantages of Financial Management. [online] Chron.com. Available at:
https://smallbusiness.chron.com/advantages-disadvantages-financial-management-21294.html.
Nunes, K. (2018). Starbucks plans for the future. [online] Meatpoultry.com. Available at:
https://www.meatpoultry.com/articles/19693-starbucks-plans-for-the-future.

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Starbucks Corporation (2020). Starbucks Company Profile. [online] Starbucks Coffee Company. Available at:
https://www.starbucks.com/about-us/company-information/starbucks-company-profile.
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