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Starbucks Ethics and Compliance 2009 Paper FIN 370 Finance for Business Introduction Starbucks is one of the places to find the world’s best coffees. The first Starbucks was located in Pioneer Square in downtown Seattle, Washington. Back in 1971, Americans coffee lovers traveled all the way to Seattle at the historic Pike Place Market to taste one of the best coffees in the world. The management of Starbucks has managed to improve their managerial process through location of their business, and quality and prices of their products. The price of their product is based on the quality they supply.
This paper will discuss the procedures put in place to ensure ethical behavior, identify the processes use to comply with Security Exchange Commission (SEC) regulations, and evaluate the financial performance over the past two years using financial ratios. In addition, the trend for each ratio and the financial health will also be discussed using the 2008 and 2009 financial reports of Starbucks. Based on the history, Starbucks has enormously progress its business, not only in the United States, but overseas as well. Role of Ethics and Compliance
Starbucks’ Standards of Business Conduct in the employee handbook is designed to support their Global Business Ethics Policy. The idea is that every person in the employ of Starbucks is to act ethically and report any unethical or questionable behavior by any person under the employ of Starbucks. Starbucks also has committed to anyone who is reporting or questioning such behavior will not be retaliated against. Starbucks Chairman, President and Chief Executive Officer Howard Schultz stated “Each of us is personally responsible for supporting our core values, which require compliance with the law as well as ethical conduct.
We have issued the Standards of Business Conduct to restate our long standing commitment to uphold that responsibility and to provide guidance to our partners. ” The company firmly believes that continued support of their beliefs, of always acting ethically, the organization will continue to be successful. Employee procedure that is in place when any unethical behavior is suspected, have questions, or concerns the employee should contact their manager, any manager, Partner Resource Representative, or the Business Ethics and Compliance Department via phone or e-mail.
Another tool put into place by the organization is a 24 hour Business Conduct helpline toll free number and a Business Conduct Webline which is also 24 hours 7 days a week. Finally, Starbucks has also outlined some suggestions for employees to ask themselves when making ethical decisions in the employee handbook. Role of SEC Maintaining a high standard of ethics is part of Starbucks mission and part of this is complying with Securities Exchange Commission (SEC) regulations. Starbucks created a Business Ethics and Compliance Program to ensure that all regulations are met and followed.
Along with this program Starbucks has a Chief Compliance Officer and an Audit and Compliance Committee of The Board of Directors in place. The Audit and Compliance Committee’s purpose is “to oversee the accounting and financial reporting processes of Starbucks and the internal and external audit processes” (Starbucks, 2009, p. 1). An open line of communication for reporting errors or wrongdoing is maintained by Starbucks to help ensure all data is reported correctly and accurately.
On Starbuck’s website there is an easy to use tool for Starbucks employees to report any noncompliance with laws or regulations. As an active member of both the Ethics and Compliance Officer Association and the Ethics Resource Center, Starbucks is striving to keep up with any changes in regulations to help maintain their ethical standards. As part of their process for reporting to SEC Starbucks makes public all documentation that is submitted to the SEC so the shareholders, and anyone else, can see what is going on with the company.
As described in the Starbucks annual report from 2008, the management of Starbucks is required to provide: Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our 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 ffect on our financial statements would be prevented or detected on a timely basis (Annual Report 2008). Starbucks has in place many procedures, people, and committees to properly facilitate the proper filling of SEC required information and forms. The company takes a proactive approach to maintaining a high level of integrity when dealing with the SEC. Also mentioned in their reporting was following GAAP and using independent firms to audit Starbucks’ reports. Starbuck’s Financial Performance Current and Debt Ratio:
By analyzing the 2009 annual report for Starbucks the figures for 2008 could be compared to 2009 to see the state of the company. The current ratio was calculated, for both Fiscal Years 2008 and 2009. The current ration for 2009 was 1. 29 and for 2008 the current ratio was 0. 80. The current ratios have different meaning to who is interpreting them. Short term creditors prefer higher current ratios because it reduces the risks to the creditors. However, shareholders prefer a lower current ratio so that more of the organization’s assets are working to grow the company.
The calculation shows that for 2009 Starbucks has $1. 29 of current assets to meet $1. 00 of its liabilities, which mean they are much better off than in 2008. The next ratio to be analyzed is the debt ratio, the debt ratio for Fiscal Year 2009 was 0. 10 and for Fiscal Year 2008 the debt ratio was 0. 22. Debt ratios can depend on classification of certain items such as long term leases and long term debt and /or equity. If the debt ratio is greater than one than that means there is more debt than assets, but both years were well under one.
After analyzing the calculations for the debt ration it becomes clear the Starbucks has lowered their debt considerably from 2008 to 2009 showing a lower debt ratio for 2009 than in 2008. 2009 Calculations Current Ratio=2035. 8/1581. 0 equals 1. 29 Debt Ratio=549. 5/5576. 8 equals 0. 10 2008 Calculations Current Ratio=1748. 0/2189. 7 equals 0. 80 Debt Ratio=1263. 3/5672. 6 equals 0. 22 Return on Equity: The return on equity in 2008 was 12% and the return on equity in 2009 was 10%, there was a decrease of 2%.
This can be bad because this means that the company used more debt instead of the firm’s assets to generate revenue. The decrease, although small, can have a huge impact on the company in terms of financial risk and financial risk for the shareholder’s. The more the return on equity goes up the less debt the company uses to generate revenue which will lower the financial risk for the company and the shareholder’s. The overall health of the company right now is low due to the fact that the return on equity is low and for the shareholder’s this means more of a financial risk for everyone involved.
The trend thus far for the 2008 and 2009 fiscal years is a decreasing trend, as stated before this is bad because this means that the company is using more debt to generate revenue rather than the assets of the firm. Another trend is that the operating cost’s has increased from 2008 to 2009 fiscal year with total net revenues decreasing as well. The shareholder’s equity has increased which is a sign that the financial stability is getting better but the company still has to lower the debt in order to generate more revenue from the assets that the company already has.
The long term debt has a small decrease while the short term debt has a very significant decrease which will help in the long term stability of the company. 2008 return on equity 315. 5/2490. 9 = 12% 2009 return on equity 309. 8/3045. 7 = 10% Days receivable: In order to determine how long on average it takes for a company to collect on its sales to customers that are on credit, we must determine their overall management of their Accounts Receivables by calculating the Receivables Turnover and Day’s Receivables to complete an assessment.
To calculate the Day’s Receivables, we must first know what the Receivables Turnover ratio is by dividing the Sales by Accounts Receivables. 2009:9774. 6/271. 0 = 36. 07 2008: 10383/329. 5 =31. 51 The next step is to continue our calculations to find the Day’s Receivables Ratio by dividing the number of days in a year (365) by the Receivables Turnover Ratio we calculated in the first step. 2009:365/36. 07% = 10. 12 2008:365/31. 51% = 11. 58
Based on the performed calculations, the Receivables Turnover ratio tells us that in 2008 Starbucks collected its receivables quicker than they did in 2009 increasing the amount of cash on hand. The Day’s Receivables Ratio indicates that the average payment terms for Starbucks in 2008 was 11. 58 days whereas in 2009 they were 10. 12 days. Conclusion Starbucks coffee company grew from a small, regional business into the undisputed leader in the specialty coffee industry by buying only the best quality coffee and providing an unmatched store experience.
Some important factors have encouraged Starbucks to be more effective in running their operation. One factor is the written Standards of Business Conduct, which supports the core values of the organization. Another one is the compliance with SEC regulations, which not only help the investors, but as well as the company on getting accurate financial reports. Additionally, there were four different ratios introduced to this paper, which tells investors about the financial health of the company. What is the determination process on these ratios?
These ratios have different meaning to different investors, depending on how much risk the investors are willing to take. The financial report is the key when deciding where to invest the hard earned money. In conclusion, Starbucks managerial business process has guided the business in adopting the lean business model. The goal of lean business model is to eliminate waste while satisfying the customer and providing a positive return to the company (Larson, Wild, Chiappeta, 2005). Reference Larson, K. D. , Wild, J. J. , & Chiappetta, B (2005). Fundamental ccounting principle. Starbucks Corporation Audit and Compliance Charter. June 2009. p. 1-5. www. starbucks. com/ aboutus/corporate_governance. asp?. Retrieved February 11, 2010. Starbucks Corporation Fiscal 2008 Annual Report. 2008. http://phx. corporate-ir. net/ External. File? item=UGFyZW50SUQ9MTExNzN8Q2hpbGRJRD0tMXxUeXBlPTM==1. Retrieved February 11, 2010. Starbucks Corporation Fiscal 2009 Annual Report. 2009. http://phx. corporate-ir. net/External. File? item=UGFyZW50SUQ9MjczNTB8Q2hpbGRJRD0tMXxUeXBlPTM==1. Retrieved February 8, 2010.