Horizontal and Vertical Analysis of Starbucks Essay

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Starbucks

As Starbucks' business has grown, so too have its accounts receivable. The accounts receivable grew 15.54% in 2013, then grew 12.4% in 2014 and 13.95% in 2015. This indicates strong growth year over year for the A/R at Starbucks.

In terms of vertical growth, the accounts receivable has been fairly steady as a percent of the company's total balance sheet, at around 5.8-5.9%. The one exception was in 2013, when it declined to 4.87%, but it went back up to normal levels the following year.

The company outlines its method of reporting its accounts receivable on page 54 of its 2015 Annual Report. The company notes that its receivables are mainly for product and equipment sales, and for royalties from licensees. The allowance for doubtful accounts is "calculated based on historical experience, customer credit risk and application of the specific identification method." Starbucks estimates that its allowance for doubtful accounts is $10.8 million as of the end of FY2015. How these figures are communicated is not related to how they are calculated. They are communicated in the notes to the financial statements, as per standard practice for 10K forms. If they used a different calculation method, they would explain the method used and have a different number in the notes.

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2. As Starbucks grows, its fixed assets grow. Fixed assets grew by 20 .37% in 2013, then by 9.95% in 2014 and finally by 16.18% last year. As with the receivables, the fixed assets as a share of total assets has been fairly steady over the past four years, with the exception of 2013. Normally, fixed assets range between 32.35% and 32.85% of total assets. Only at the end of 2013 was this different, with fixed assets at 27.79%.

Intangible assets have had a more irregular growth pattern. They increased by 109.6% in 2013, then fell by 0.7% in 2014, only to spike back up 85.5% in 2015. This is because the largest category of intangible assets is goodwill. Goodwill is simply the premium paid to acquire another company. Thus, goodwill spikes whenever an acquisition is made. The Starbucks balance sheet seems to indicate two somewhat major purchases, one in 2013 and one in 2015. In 2014, there was no such purchase and the effect of amortization on the intangible assets became more apparent. Because of these spikes, the vertical analysis of the intangible assets is a bit different. They were 6.6% of the balance sheet in 2012, 9.88% in 2013, 10.51% in 2014 and finally 16.84%.....

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