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Analysis of Investments
Difficulty: Advanced
Investment Accounting Policy
Available-for-sale 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.
Trading Securities
Starbucks also has a trading securities portfolio, which is comprised of marketable equity mutual funds and equity exchange-traded funds. Trading 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 and Cost Method Investments
Equity investments are accounted for using the equity method of accounting if the investment gives Starbucks the ability to exercise significant influence, but not control, over an investee. Equity method investments are included within long-term investments on Starbucks’ consolidated balance sheets. Starbucks’ share of the earnings or losses as reported by equity method investees are classified as income from equity investees on the consolidated statements of earnings.
Equity investments for which Starbucks does not have the ability to exercise significant influence are accounted for using the cost method of accounting and are recorded in long-term investments on the consolidated balance sheets. Under the cost method, investments are carried at cost and are adjusted only for other-than-temporary declines in fair value, certain distributions and additional investments.
Starbucks evaluates the equity and cost method investments for impairment annually and when facts and circumstances indicate that the carrying value of such investments may not be recoverable. Starbucks reviews several factors to determine whether the 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 investee, and whether Starbucks has the intent to sell or will more likely than not be required to sell before the investment’s anticipated recovery. If a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in net earnings.
Source: 10-K (filing date: 2018-11-16).
Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities
Starbucks Corp., adjustment to Net Earnings Attributable To Starbucks
USD $ in thousands
Based on: 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), 10-K (filing date: 2013-11-18).
Adjusted Ratios: Mark to Market Available-for-sale Securities (Summary)
Starbucks Corp., adjusted ratios
Based on: 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), 10-K (filing date: 2013-11-18).
| 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 deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by shareholders’ equity. | Starbucks Corp.’s adjusted ROE improved from 2016 to 2017 and from 2017 to 2018. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by total assets. | Starbucks Corp.’s adjusted ROA improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018. |
Starbucks Corp., Ratios: Reported vs. Adjusted
Adjusted Net Profit Margin
Based on: 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), 10-K (filing date: 2013-11-18).
2018 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 × ÷ =
| 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 deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
Adjusted Return on Equity (ROE)
Based on: 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), 10-K (filing date: 2013-11-18).
2018 Calculations
1 ROE = 100 × Net earnings attributable to Starbucks ÷ Shareholders’ equity
= 100 × ÷ =
2 Adjusted ROE = 100 × Adjusted net earnings attributable to Starbucks ÷ Shareholders’ equity
= 100 × ÷ =
| 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 2016 to 2017 and from 2017 to 2018. |
Adjusted Return on Assets (ROA)
Based on: 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), 10-K (filing date: 2013-11-18).
2018 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 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by total assets. | Starbucks Corp.’s adjusted ROA improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018. |
