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Microsoft Excel LibreOffice Calc

Starbucks Corp. (SBUX)


Analysis of Operating Leases

Advanced level


Accounting Policy on Operating Leases

Starbucks leases retail stores, roasting, distribution and warehouse facilities and office space for corporate administrative purposes under operating leases. Most lease agreements contain tenant improvement allowances, rent holidays, lease premiums, rent escalation clauses and/or contingent rent provisions. Starbucks recognizes amortization of lease incentives, premiums and minimum rent expenses on a straight-line basis beginning on the date of initial possession, which is generally when Starbucks enters the space and begins to make improvements in preparation for intended use.

For tenant improvement allowances and rent holidays, Starbucks records a deferred rent liability within accrued liabilities, or other long-term liabilities, on the consolidated balance sheets and amortizes the deferred rent over the terms of the leases as reductions to rent expense in store operating expenses on the consolidated statements of earnings.

For premiums paid up-front to enter a lease agreement, Starbucks records a prepaid rent asset in prepaid expenses and other current assets and other long-term assets on the consolidated balance sheets and amortizes the premium over the terms of the leases as additional rent expense in store operating expenses on the consolidated statements of earnings.

For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial possession, Starbucks records minimum rent expense on a straight-line basis over the terms of the leases in store operating expenses on the consolidated statements of earnings, with the adjustments to cash rent accrued as deferred rent in the consolidated balance sheets.

Certain leases provide for contingent rent, which is determined as a percentage of gross sales in excess of specified levels. Starbucks records a contingent rent liability in accrued occupancy costs within accrued liabilities on the consolidated balance sheets and the corresponding rent expense when Starbucks determines that achieving the specified levels during the fiscal year is probable.

When ceasing operations of company-operated stores under operating leases, in cases where the lease contract specifies a termination fee due to the landlord, Starbucks records such expense at the time written notice is given to the landlord. In cases where terms, including termination fees, are yet to be negotiated with the landlord, Starbucks will record the expense upon signing of an agreement with the landlord. In cases where the landlord does not allow Starbucks to prematurely exit the lease, Starbucks recognizes a lease abandonment accrual equal to the present value of the remaining lease payments to the landlord and other rent related payments such as common area maintenance, taxes and insurance, less any projected sublease income at the cease-use date.

Source: 10-K (filing date: 2019-11-15).


Present Value of Future Operating Lease Payments (before Adoption of FASB Topic 842)

Starbucks Corp., future operating lease payments (before adoption of FASB Topic 842)

US$ in thousands

Microsoft Excel LibreOffice Calc
Sep 29, 2019 Sep 30, 2018 Oct 1, 2017 Oct 2, 2016 Sep 27, 2015 Sep 28, 2014
Total undiscounted future operating lease payments
Discount rate1
 
Total present value of future operating lease payments

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).

1 Weighted-average interest rate for Starbucks Corp.’s debt

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at
2020 2020
2021 2021
2022 2022
2023 2023
2024 2024
2025 and thereafter 2025
2026
2027
2028
2029
Total:

Based on: 10-K (filing date: 2019-11-15).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at
2019 2019
2020 2020
2021 2021
2022 2022
2023 2023
2024 and thereafter 2024
2025
2026
2027
Total:

Based on: 10-K (filing date: 2018-11-16).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at
2018 2018
2019 2019
2020 2020
2021 2021
2022 2022
2023 and thereafter 2023
2024
2025
2026
Total:

Based on: 10-K (filing date: 2017-11-17).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at
2017 2017
2018 2018
2019 2019
2020 2020
2021 2021
2022 and thereafter 2022
2023
2024
2025
Total:

Based on: 10-K (filing date: 2016-11-18).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at
2016 2016
2017 2017
2018 2018
2019 2019
2020 2020
2021 and thereafter 2021
2022
2023
2024
Total:

Based on: 10-K (filing date: 2015-11-12).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at
2015 2015
2016 2016
2017 2017
2018 2018
2019 2019
2020 and thereafter 2020
2021
2022
2023
Total:

Based on: 10-K (filing date: 2014-11-14).


Adjustments to Financial Statements for Operating Leases

Starbucks Corp., adjustments to financial statements

US$ in thousands

Microsoft Excel LibreOffice Calc
Sep 29, 2019 Sep 30, 2018 Oct 1, 2017 Oct 2, 2016 Sep 27, 2015 Sep 28, 2014
Adjustment to Total Assets
Total assets (as reported)
Add: Operating lease right-of-use asset (before adoption of FASB Topic 842)1
Total assets (adjusted)
Adjustment to Total Debt
Total debt (as reported)
Add: Operating lease liability (before adoption of FASB Topic 842)2
Total debt (adjusted)

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).

1, 2 Equal to total present value of future operating lease payments.


Starbucks Corp., Financial Data: Reported vs. Adjusted


Adjusted Financial Ratios for Operating Leases (Summary)

Starbucks Corp., adjusted financial ratios

Microsoft Excel LibreOffice Calc
Sep 29, 2019 Sep 30, 2018 Oct 1, 2017 Oct 2, 2016 Sep 27, 2015 Sep 28, 2014
Total Asset Turnover1
Reported total asset turnover
Adjusted total asset turnover
Debt to Equity2
Reported debt to equity
Adjusted debt to equity
Return on Assets3 (ROA)
Reported ROA
Adjusted 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).

Financial ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Starbucks Corp.’s adjusted total asset turnover ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 not reaching 2017 level.
Adjusted debt to equity A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity. Starbucks Corp.’s adjusted debt to equity ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Starbucks Corp.’s adjusted ROA improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Starbucks Corp., Financial Ratios: Reported vs. Adjusted


Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Sep 29, 2019 Sep 30, 2018 Oct 1, 2017 Oct 2, 2016 Sep 27, 2015 Sep 28, 2014
As Reported
Selected Financial Data (US$ in thousands)
Net revenues
Total assets
Activity Ratio
Total asset turnover1
Adjusted for Operating Leases
Selected Financial Data (US$ in thousands)
Net revenues
Adjusted total assets
Activity Ratio
Adjusted total asset turnover2

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 Total asset turnover = Net revenues ÷ Total assets
= ÷ =

2 Adjusted total asset turnover = Net revenues ÷ Adjusted total assets
= ÷ =

Activity ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Starbucks Corp.’s adjusted total asset turnover ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 not reaching 2017 level.

Adjusted Debt to Equity

Microsoft Excel LibreOffice Calc
Sep 29, 2019 Sep 30, 2018 Oct 1, 2017 Oct 2, 2016 Sep 27, 2015 Sep 28, 2014
As Reported
Selected Financial Data (US$ in thousands)
Total debt
Shareholders’ equity (deficit)
Solvency Ratio
Debt to equity1
Adjusted for Operating Leases
Selected Financial Data (US$ in thousands)
Adjusted total debt
Shareholders’ equity (deficit)
Solvency Ratio
Adjusted debt to equity2

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 Debt to equity = Total debt ÷ Shareholders’ equity (deficit)
= ÷ =

2 Adjusted debt to equity = Adjusted total debt ÷ Shareholders’ equity (deficit)
= ÷ =

Solvency ratio Description The company
Adjusted debt-to-equity A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity. Starbucks Corp.’s adjusted debt-to-equity ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Sep 29, 2019 Sep 30, 2018 Oct 1, 2017 Oct 2, 2016 Sep 27, 2015 Sep 28, 2014
As Reported
Selected Financial Data (US$ in thousands)
Net earnings attributable to Starbucks
Total assets
Profitability Ratio
ROA1
Adjusted for Operating Leases
Selected Financial Data (US$ in thousands)
Net earnings attributable to Starbucks
Adjusted total assets
Profitability Ratio
Adjusted ROA2

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 × Net earnings attributable to Starbucks ÷ Adjusted total assets
= 100 × ÷ =

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Starbucks Corp.’s adjusted ROA improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.