The first case at the end of this chapter and each of the remaining chapters is a series of integrative cases involving Starbucks. The series of cases applies the concepts and analytical tools discussed in each chapter to Starbucks’ financial statements and notes. The preparation of responses to the questions in these cases results in an integrated illustration of the six sequential steps in financial statement analysis discussed in this chapter and throughout the book.
Interpreting Financial Statement Relations
Exhibit 1.29 presents common-size and percentage change balance sheets and Exhibit 1.30 presents common-size and percentage change income statements for Starbucks for 2005–2008. The percentage change statements report the annual percentage change in each account as well as the compound annual growth rate from 2005 through 2008. Respond to the following questions.
a. The dollar amount shown for property and equipment net of accumulated depreciation (see Exhibit 1.26) increased between the end of fiscal 2007 and the end of fiscal 2008, yet the percentage of total assets comprising these assets declined (see Exhibit 1.29). Explain.
b. From 2005 through 2008, the proportion of total liabilities increased while the proportion of shareholders’ equity declined. What are the likely explanations for these changes?
c. How has the revenue mix of Starbucks changed from 2005 to 2008? Relate these changes to Starbucks’ business strategy.
d. Net income as a percentage of total revenues increased from 7.8 percent in fiscal 2005 to 3.0 percent in fiscal 2008. Identify the most important reasons for this change.