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Starbucks Corp. (SBUX)
Analysis of Investments
Advanced level
Accounting Policy on Investments
Available-for-sale Debt Securities
Starbucks’ short-term and long-term investments consist primarily of investment-grade debt securities, all of which are classified as available-for-sale. Available-for-sale debt securities are recorded at fair value, and unrealized holding gains and losses are recorded, net of tax, as a component of accumulated other comprehensive income. Available-for-sale securities with remaining maturities of less than one year and those identified by management at the time of purchase to be used to fund operations within one year are classified as short-term. All other available-for-sale securities are classified as long-term. Starbucks evaluates the available-for-sale securities for other-than-temporary impairment on a quarterly basis. Unrealized losses are charged against net earnings when a decline in fair value is determined to be other than temporary. Starbucks reviews several factors to determine whether a loss is other than temporary, such as the length and extent of the fair value decline, the financial condition and near-term prospects of the issuer and whether Starbucks has the intent to sell or will more likely than not be required to sell before the securities’ anticipated recovery, which may be at maturity. Realized gains and losses are accounted for using the specific identification method. Purchases and sales are recorded on a trade date basis.
Marketable Equity Securities
Starbucks also has a marketable equity securities portfolio, which is comprised of marketable equity mutual funds and equity exchange-traded funds. Marketable equity securities are recorded at fair value and approximates a portion of Starbucks’ liability under the Management Deferred Compensation Plan (“MDCP”). Gains or losses from the portfolio and the change in Starbucks’ MDCP liability are recorded in the consolidated statements of earnings.
Equity Investments
Equity investments are accounted under the equity method if Starbucks is able to exercise significant influence, but not control, over an investee. Starbucks’ share of the earnings or losses as reported by the investees are classified as income from equity investees on the consolidated statements of earnings. The investments are evaluated for impairment annually and when facts and circumstances indicate that the carrying value may not be recoverable. If a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in interest income and other, net on Starbucks’ consolidated statements of earnings.
Starbucks accounts for equity investments for which Starbucks does not have significant influence and without readily determinable fair values at cost with adjustments for observable changes in price or impairments as permitted by the measurement alternative. Investments for which the measurement alternative has been elected are assessed for impairment quarterly, or if a triggering event indicates impairment may be present. Any adjustments as a result of price changes or impairments are recorded in interest income and other, net on Starbucks’ consolidated statements of earnings.
Source: 10-K (filing date: 2019-11-15).
Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities
Starbucks Corp., adjustment to net earnings attributable to Starbucks
US$ in thousands
Based on: 10-K (filing date: 2019-11-15), 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14).
Adjusted Profitability Ratios: Mark to Market Available-for-sale Securities (Summary)
Starbucks Corp., adjusted profitability ratios
Based on: 10-K (filing date: 2019-11-15), 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14).
| Profitability ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by revenue. | Starbucks Corp.’s adjusted net profit margin ratio improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019 not reaching 2017 level. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by shareholders’ equity. | Starbucks Corp.’s adjusted ROE improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by total assets. | Starbucks Corp.’s adjusted ROA deteriorated from 2017 to 2018 but then slightly improved from 2018 to 2019. |
Starbucks Corp., Profitability Ratios: Reported vs. Adjusted
Adjusted Net Profit Margin
Based on: 10-K (filing date: 2019-11-15), 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14).
2019 Calculations
1 Net profit margin = 100 × Net earnings attributable to Starbucks ÷ Net revenues
= 100 × ÷ =
2 Adjusted net profit margin = 100 × Adjusted net earnings attributable to Starbucks ÷ Net revenues
= 100 × ÷ =
| Profitability ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by revenue. | Starbucks Corp.’s adjusted net profit margin ratio improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019 not reaching 2017 level. |
Adjusted Return on Equity (ROE)
Based on: 10-K (filing date: 2019-11-15), 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14).
2019 Calculations
1 ROE = 100 × Net earnings attributable to Starbucks ÷ Shareholders’ equity (deficit)
= 100 × ÷ =
2 Adjusted ROE = 100 × Adjusted net earnings attributable to Starbucks ÷ Shareholders’ equity (deficit)
= 100 × ÷ =
| Profitability ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by shareholders’ equity. | Starbucks Corp.’s adjusted ROE improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2019-11-15), 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14).
2019 Calculations
1 ROA = 100 × Net earnings attributable to Starbucks ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Adjusted net earnings attributable to Starbucks ÷ Total assets
= 100 × ÷ =
| Profitability ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by total assets. | Starbucks Corp.’s adjusted ROA deteriorated from 2017 to 2018 but then slightly improved from 2018 to 2019. |