Which revenue and/or expense items are most significant to the company, based on
ID: 2471147 • Letter: W
Question
Which revenue and/or expense items are most significant to the company, based on your review of the common size income statement? [ignore subtotal amounts, such as operating income]
Identify the accounts that represent a reasonably large [material] portion of net revenue. Which of these revenue and/or expense items that you also identified in question 1 above would you want additional information based on magnitude of change between years that you see in the horizontal analysis? Explain why.
What accounting methods were used to recognize revenue from company-operated stores, licensed stores, and CPG/Foodservices? What accounting methods are used to record store preopening expenses and operating leases? See Notes to Consolidated Financial Statements.
Trend analysis Common size $ change % change 2015 2014 2013 2012 2015 2014 2013 2012 2014-15 2013-14 2012-13 2014-15 2013-14 2012-13 Net revenues: Company-operated stores $ 15,197.30 $ 12,977.90 $ 11,793.20 $ 10,534.50 79.31% 78.90% 79.33% 79.35% $ 2,219.40 $ 1,184.70 $ 1,258.70 17.1% 10.0% 11.9% Licensed stores 1,861.90 1,588.60 1,360.50 1,210.30 9.72% 9.66% 9.15% 9.12% $ 273.30 $ 228.10 $ 150.20 17.2% 16.8% 12.4% CPG, foodservice and other 2,103.50 1,881.30 1,713.10 1,532.00 10.98% 11.44% 11.52% 11.54% $ 222.20 $ 168.20 $ 181.10 11.8% 9.8% 11.8% Total net revenues 19,162.70 16,447.80 14,866.80 13,276.80 100% 100% 100% 100% $ 2,714.90 $ 1,581.00 $ 1,590.00 16.5% 10.6% 12.0% Cost of sales including occupancy costs 7,787.50 6,858.80 6,382.30 5,813.30 49.25% 50.30% 41.33% 50.59% $ 928.70 $ 476.50 $ 569.00 13.5% 7.5% 9.8% Store operating expenses 5,411.10 4,638.20 4,286.10 3,918.10 34.22% 34.02% 27.75% 34.10% $ 772.90 $ 352.10 $ 368.00 16.7% 8.2% 9.4% Other operating expenses 522.40 457.30 431.80 407.20 3.30% 3.35% 2.80% 3.54% $ 65.10 $ 25.50 $ 24.60 14.2% 5.9% 6.0% Depreciation and amortization expenses 893.90 709.60 621.40 550.30 5.65% 5.20% 4.02% 4.79% $ 184.30 $ 88.20 $ 71.10 26.0% 14.2% 12.9% General and administrative expenses 1,196.70 991.30 937.90 801.20 7.57% 7.27% 6.07% 6.97% $ 205.40 $ 53.40 $ 136.70 20.7% 5.7% 17.1% Litigation charge/(credit) - (20.20) 2,784.10 - 0.00% -0.15% 18.03% 0.00% $ 20.20 $ (2,804.30) $ 2,784.10 -100.0% -100.7% - Total operating expenses 15,811.60 13,635.00 15,443.60 11,490.10 100% 100% 100% 100% $ 2,176.60 $ (1,808.60) $ 3,953.50 16.0% -11.7% 34.4% Income from equity investees 249.90 268.30 251.40 210.70 6.94% 8.71% -77.26% 10.55% $ (18.40) $ 16.90 $ 40.70 -6.9% 6.7% 19.3% Operating income/(loss) 3,601.00 3,081.10 (325.40) 1,997.40 100% 100% 100% 100% $ 519.90 $ 3,406.50 $ (2,322.80) 16.9% -1046.9% -116.3% Gain resulting from acquisition of joint venture 390.60 - - - 14.17% 0.00% 0.00% 0.00% $ 390.60 $ - $ - - - - Loss on extinguishment of debt (61.10) - - - -2.22% 0.00% 0.00% 0.00% $ (61.10) $ - $ - - - - Interest income and other, net 43.00 142.70 123.60 94.40 1.56% 6.90% 1489.16% 6.82% $ (99.70) $ 19.10 $ 29.20 -69.9% 15.5% 30.9% Interest expense (70.50) (64.10) (28.10) (32.70) -2.56% -3.10% -338.55% -2.36% $ (6.40) $ (36.00) $ 4.60 10.0% 128.1% -14.1% Earnings/(loss) before income taxes 3,903.00 3,159.70 (229.90) 2,059.10 141.55% 152.78% -2769.88% 148.80% $ 743.30 $ 3,389.60 $ (2,289.00) 23.5% -1474.4% -111.2% Income tax expense/(benefit) 1,143.70 1,092.00 (238.70) 674.40 41.48% 52.80% -2875.90% 48.74% $ 51.70 $ 1,330.70 $ (913.10) 4.7% -557.5% -135.4% Net earnings including noncontrolling interests 2,759.30 2,067.70 8.80 1,384.70 100% 100% 106% 100% $ 691.60 $ 2,058.90 $ (1,375.90) 33.4% 23396.6% -99.4% Net earnings/(loss) attributable to noncontrolling interests 1.90 (0.40) 0.50 0.90 0.07% -0.02% 6.02% 0.07% $ 2.30 $ (0.90) $ (0.40) -575.0% -180.0% -44.4% Net earnings attributable to Starbucks $ 2,757.40 $ 2,068.10 $ 8.30 $ 1,383.80 100% 100% 100% 100% $ 689.30 $ 2,059.80 $ (1,375.50) 33.3% 24816.9% -99.4%Which revenue and/or expense items are most significant to the company, based on your review of the common size income statement? [ignore subtotal amounts, such as operating income]
Identify the accounts that represent a reasonably large [material] portion of net revenue. Which of these revenue and/or expense items that you also identified in question 1 above would you want additional information based on magnitude of change between years that you see in the horizontal analysis? Explain why.
What accounting methods were used to recognize revenue from company-operated stores, licensed stores, and CPG/Foodservices? What accounting methods are used to record store preopening expenses and operating leases? See Notes to Consolidated Financial Statements.
Explanation / Answer
1. After going through common size statement,we can observe that Income from equity investments and interest income are significant as they constitute major part of the operating income. And if we come to sub divisions of comapany stores, revenue from company operated stores are significant as it constitutes nearly 79% of total revenue generated by the company.
As regards with expenses, cost of sales including occupancy costs and store operating expenses are more significant as they constitute neary 50% and 34% respectively. If these expenses are reduced, the operating income could be increased. The management should concentrate on these expenses as these expenses are controllable
2. Other revenue and expense items which are having considerable significance based on their size are earnings before income taxes, income on acquisiiton of joint venure and regarding expense are General & Administration expenses and Depreciaton charges are also having material, but we do not control deprecation expese. Income tax expenses are also having sizable amount, but this expense depends on revenue.
3. Accrual system of accounting should be used in recognising income and expense in company operated stores, licensed stores and cash basis of accounting is the best for CPG/Foodservices. Store preopening expenses are separately should be treated, if first time a store is opened, preopening expesnes may be capitalized for tax purpose, these capitalized expenses may be amortized duirng 15 years,but as per GAAP all preopening expenses should be expensed even though it is a new one in the same tax entity.
Expenses of operating lease are treated as operating expenses, so these may be recorded as expense and are tax deductable, because of this deduciton,out taxable is reduced and tax payment is also reduced .
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