Analysis of Starbucks Corporation's Disclosures

Analysis of Starbucks Corporation’s Disclosures

Upon reviewing the financial reports and disclosure notes contained in the 2004 Annual Report for Starbuck’s Corporation, it appears that the company uses basic accounting principles when preparing their reports. Their methods for recording and reporting cash and cash equivalents, inventories and receivables follow GAAP and are fairly standard.

Starbucks Corporation reports cash and cash equivalents as one item on their balance sheet. There are several disclosure notes in the “Notes to Consolidated Financial Statements” that give more detail about what items go into this category, and how these items are managed. For example, in Note 1, “Summary of Significant Accounting Practices”, the company gives a basic description of what they consider to be cash equivalents. Their definition, “all highly liquid instruments with a maturity of three months or less at the time of purchase (Starbucks Corporation Annual Report 30),” is a very standard explanation of cash equivalents.

They go on, in Note 1, to give a short description of their balance maintenance and cash management system. They explain the type of institution with which they maintain their balance and the risk involved in these balances. In the cash management section, they explain the management of “all major bank disbursement accounts (Starbucks Corporation Annual Report 30),” which are reimbursed on a daily basis, and the classification of “checks issued but not presented for payment to the bank (Starbucks Corporation Annual Report 30).”

In Note 3 of the “Notes to Consolidated Financial Statements”, Starbucks Corporation gives a break-down of items included in cash and cash equivalents. According to this note, cash and cash equivalents consist of the following:

- Operating funds and interest bearing deposits

- Money market funds

Starbucks Corporation also lists inventories as one item in the balance sheet. They follow up in the disclosure notes with a brief description of how they value inventory and the items included in this category, as well as methods implemented that are specific to Starbucks Corporation. In Note 1, the company explains the value at which they state inventories, which is lower of cost or market.