Chapter 10
Forecasting Financial Statements
10-21
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in whole or in part.
Exhibit 10.E
Walmart Stores—Revised Balance Sheet Forecasts (Problem 10.16)
Actuals Forecasts
2010 2011 2012 Year +1 Year +2 Year +3 Year +4 Year +5
BALANCE SHEET
ASSETS:
Cash and cash equivalents 7,395 6,550 7,781 7,781 7,781 7,781 7,781 7,781
common size 4.1% 3.4% 3.8% 0.0 0.0 0.0 0.0 0.0
rate of change –11.4% 18.8% Assume cash remains constant.
Accounts and notes receivable—net 5,089 5,937 6,768 7,106 7,462 7,835 8,227 8,638
common size 2.8% 3.1% 3.3% 5.0% 5.0% 5.0% 5.0% 5.0%
rate of change 16.7% 14.0% Assume accounts receivable grow at the same rate as sales.
Inventories 36,318 40,714 43,803 44,114 45,879 47,714 49,622 51,607
common size 20.1% 21.1% 21.6% 44.0 44.0 44.0 44.0 44.0
rate of change 12.1% 7.6% Assume ending inventory amounts to 44 days COGS.
Prepaid expenses and other current assets 2,960 1,774 1,588 1,652 1,718 1,786 1,858 1,932
common size 1.6% 0.9% 0.8% 4.0% 4.0% 4.0% 4.0% 4.0%
rate of change –40.1% –10.5% Assume growth with SG&A expenses, which grow with sales.
Current Assets of Discontinued Segments 131 0 0 0 0 0 0 0
common size 0.1% 0.0% 0.0% 0% 0% 0% 0% 0%
rate of change –100.0% Explain assumptions
Current Assets 51,893 54,975 59,940 60,653 62,839 65,116 67,488 69,958
common size 28.7% 28.4% 29.5% 29.1% 29.3% 29.7% 30.1% 30.5%
rate of change 5.9% 9.0% 1.2% 3.6% 3.6% 3.6% 3.7%
Investments in noncontrolled affiliates 0 0 0 0 0 0 0 0
common size 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
rate of change Explain assumptions
Property, plant, and equipment—at cost 154,489 160,938 171,724 184,224 196,724 209,224 221,724 234,224
common size 85.5% 83.2% 84.5%
rate of change 4.2% 6.7% PP&E assumptions—see schedule in forecast development
Accumulated depreciation –46,611 –48,614 –55,043 –64,254 –74,090 –84,552 –95,638 –107,349
common size –25.8% –25.1% –27.1%
rate of change 4.3% 13.2% See depreciation schedule in forecast development worksheet.
Goodwill 16,763 20,651 20,497 21,317 22,170 23,056 23,979 24,938
common size 9.3% 10.7% 10.1% 4.0% 4.0% 4.0% 4.0% 4.0%
rate of change 23.2% –0.7% Assume growth with sales.
Other assets 4,129 5,456 5,987 6,226 6,476 6,735 7,004 7,284
common size 2.3% 2.8% 2.9% 4.0% 4.0% 4.0% 4.0% 4.0%
rate of change 32.1% 9.7% Assume growth with sales.
Total Assets 180,663 193,406 203,105 208,166 214,118 219,579 224,556 229,055
common size 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
rate of change 7.1% 5.0% 2.5% 2.9% 2.6% 2.3% 2.0%
Chapter 10
Forecasting Financial Statements
10-22
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in whole or in part.
Actuals Forecasts
2010 2011 2012 Year +1 Year +2 Year +3 Year +4 Year +5
LIABILITIES:
Accounts payable 33,557 36,608 38,080 38,131 39,806 41,398 43,054 44,777
common size 18.6% 18.9% 18.7% 38.0 38.0 38.0 38.0 38.0
rate of change 9.1% 4.0% Assume a 38 day payment period consistent with prior years.
Current accrued expenses 18,701 18,180 18,808 19,560 20,343 21,156 22,003 22,883
common size 10.4% 9.4% 9.3% 4.0% 4.0% 4.0% 4.0% 4.0%
rate of change –2.8% 3.5% Assume growth with SG&A expenses, which grow with sales.
Notes payable and short-term debt 1,031 4,047 6,805 7,009 7,219 7,436 7,659 7,889
common size 0.6% 2.1% 3.4% 3.0% 3.0% 3.0% 3.0% 3.0%
rate of change 292.5% 68.1% Assume 3% growth, consistent with rate of growth in total assets.
Current maturities of long-term debt 4,991 2,301 5,914 6,091 6,274 6,462 6,656 6,856
common size 2.8% 1.2% 2.9% 3.0% 3.0% 3.0% 3.0% 3.0%
rate of change –53.9% 157.0% Assume 3% growth, consistent with rate of growth in total assets.
Income taxes payable 157 1,164 2,211 2,277 2,346 2,416 2,488 2,563
common size 0.1% 0.6% 1.1% 3.0% 3.0% 3.0% 3.0% 3.0%
rate of change 641.4% 89.9% Assume 3% growth per year.
Current liabilities of discontinued operations 47 0 0 0 0 0 0 0
common size 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
rate of change –100.0% Explain assumptions
Current Liabilities 58,484 62,300 71,818 73,069 75,988 78,869 81,861 84,967
common size 32.4% 32.2% 35.4% 35.1% 35.5% 35.9% 36.5% 37.1%
rate of change 6.5% 15.3% 1.7% 4.0% 3.8% 3.8% 3.8%
Long-term debt obligations 43,842 47,079 41,417 42,660 43,939 45,257 46,615 48,014
common size 24.3% 24.3% 20.4% 3.0% 3.0% 3.0% 3.0% 3.0%
rate of change 7.4% –12.0% Assume 3% growth, consistent with rate of growth in total assets.
Deferred tax liabilities- noncurrent 6,682 7,862 7,613 7,841 8,077 8,319 8,568 8,826
common size 3.7% 4.1% 3.7% 3.0% 3.0% 3.0% 3.0% 3.0%
rate of change 17.7% –3.2% Assume 3% growth per year.
Redeemable noncontrolling interest 408 404 519 0 0 0 0 0
common size 0.2% 0.2% 0.3% 0.0% 0.0% 0.0% 0.0% 0.0%
rate of change –1.0% 28.5% Assume redeemed in Year +1.
Total Liabilities 109,416 117,645 121,367 123,570 128,004 132,446 137,045 141,807
common size 60.6% 60.8% 59.8% 59.4% 59.8% 60.3% 61.0% 61.9%
rate of change 7.5% 3.2% 1.8% 3.6% 3.5% 3.5% 3.5%
Chapter 10
Forecasting Financial Statements
10-23
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
SHAREHOLDERS’ EQUITY
Common stock + Additional paid in capital 3,929 4,034 3,952 4,163 4,282 4,392 4,491 4,581
common size 2.2% 2.1% 1.9% 2.0% 2.0% 2.0% 2.0% 2.0%
rate of change 2.7% –2.0% Assume steady percent of total assets.
Retained earnings 63,967 68,691 72,978 75,625 77,023 77,934 78,213 77,859
common size 35.4% 35.5% 35.9%
rate of change 7.4% 6.2% Add net income and subtract dividends; see dividends forecast box below.
Accum. other comprehensive income (loss) 646 –1,410 –587 –587 –587 –587 –587 –587
common size 0.4% –0.7% –0.3% 0.0 0.0 0.0 0.0 0.0
rate of change –318.3% –58.4% Add accumulated other comprehensive income items from income statement
Total Common Shareholders’ Equity 68,542 71,315 76,343 79,201 80,719 81,738 82,117 81,853
common size 37.9% 36.9% 37.6% 38.0% 37.7% 37.2% 36.6% 35.7%
rate of change 4.0% 7.1% 3.7% 1.9% 1.3% 0.5% –0.3%
Noncontrolling interests 2,705 4,446 5,395 5,395 5,395 5,395 5,395 5,395
common size 1.5% 2.3% 2.7% 0.0 0.0 0.0 0.0 0.0
rate of change 64.4% 21.3% Assume earnings attributable to noncontrolling interests paid in dividends.
Total Equity 71,247 75,761 81,738 84,596 86,114 87,133 87,512 87,248
common size 39.4% 39.2% 40.2% 40.6% 40.2% 39.7% 39.0% 38.1%
rate of change 6.3% 7.9% 3.5% 1.8% 1.2% 0.4% –0.3%
Total Liabilities and Equities 180,663 193,406 203,105 208,166 214,118 219,579 224,556 229,055
common size 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
rate of change 7.1% 5.0% 2.5% 2.9% 2.6% 2.3% 2.0%
Check figures: Balance Sheet A=L+OE? 0 0 0 0 0 0 0 0
Initial adjustment needed to balance the balance sheet:
–2,120 –3,893 –4,926 –6,126 –7,349
Dividends and share repurchases forecasts:
Common dividends: –5,300 –5,525 –5,759 –6,002 –6,255
–30.0% –30.0% –30.0% –30.0% –30.0%
Assume dividend payout of net income.
Share repurchases –7,600 –7,600 –7,600 –7,600 –7,600
(7,600) (7,600) (7,600) (7,600) (7,600)
Assume $7,600 in share repurchases per year.
Total dividends: –12,900 –13,125 –13,359 –13,602 –13,855
Total dividends and share repurchases forecast amounts.
Flexible Financial Account: Additional Dividends
Original Forecast Amounts:
Additional Dividends 0 0 0 0 0
0 0 0 0 0
Initial assumption – zero additional dividends.
Implied adjustments: –2120 –3893 –4926 –6126 –7349
Adjustment needed to balance the balance sheet, from above.
Total: –2120 –3893 –4926 –6126 –7349
Additional dividend payments.
Chapter 10
Forecasting Financial Statements
10-24
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in whole or in part.
Exhibit 10.F
Walmart Stores—Revised Statement of Cash Flows Forecasts (Problem 10.16)
Actuals Forecasts
IMPLIED STATEMENT OF CASH FLOWS 2011 2012 Year +1 Year +2 Year +3 Year +4 Year +5
Net Income 16,387 17,756 18,476 19,225 20,005 20,816 21,660
Add back depreciation expense (net) 2,003 6,429 9,211 9,836 10,461 11,086 11,711
(Increase) Decrease in receivables—net –848 –831 –338 –355 –373 –392 –411
(Increase) Decrease in inventories –4,396 –3,089 –311 –1,765 –1,835 –1,909 –1,985
(Increase) Decrease in prepaid expenses 1,186 186 –64 –66 –69 –71 –74
(Increase) Decrease in other current assets (1) 131000000
Increase (Decrease) in accounts payable—trade 3,051 1,472 51 1,675 1,592 1,656 1,722
Increase (Decrease) in current accrued liabilities –521 628 752 782 814 846 880
Increase (Decrease) in income taxes payable 1,007 1,047 66 68 70 72 75
Increase (Decrease) in other current liabilities (1) –47000000
Net change in deferred tax assets and liabilities 1,180 –249 228 235 242 250 257
Net Cash Flows from Operations 19,133 23,349 28,072 29,636 30,908 32,355 33,835
(Increase) Decrease in property, plant, & equip. at cost –6,449 –10,786 –12,500 –12,500 –12,500 –12,500 –12,500
(Increase) Decrease in goodwill and nonamort. intangibles –3,888 154 –820 –853 –887 –922 –959
(Increase) Decrease in other noncurrent assets (2) –1,327 –531 –239 –249 –259 –269 –280
Net Cash Flows from Investing Activities –11,664 –11,163 –13,559 –13,602 –13,646 –13,692 –13,739
Increase (Decrease) in short-term debt 326 6,371 382 393 405 417 429
Increase (Decrease) in long-term debt 3,237 –5,662 1,243 1,280 1,318 1,358 1,398
Increase (Decrease) in redeemable noncontrolling interests –4 115 –5190000
Increase (Decrease) in common stock + paid in capital 105 –82 211 119 109 100 90
Increase (Decrease) in accum. OCI –2,05682300000
Dividends and share repurchases –10,975 –12,712 –15,020 –17,017 –18,285 –19,728 –21,204
Increase (Decrease) in noncontrolling interests 1,053 192 –809 –809 –809 –809 –809
Net Cash Flows from Financing Activities –8,314 –10,955 –14,513 –16,035 –17,262 –18,663 –20,096
Net Change in Cash –8451,23100000
Check Figure:
Net change in cash—Change in cash balance 0000000
Chapter 10
Forecasting Financial Statements
10-25
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in whole or in part.
d. Exhibit 10.G presents profitability and risk ratios for Walmart based on the
financial statement forecasts originally developed (with the plug to cash) and
the revised forecasts (with the plug to dividends). The projections indicate a
declining ROCE as well as a declining ROA for Walmart with the plug to cash,
the result of a declining total assets turnover. The ROCE in Year +5 is 35.7%
with the revised forecasts, whereas it is only 28.6% under the original forecasts.
Similarly, the ROA in Year +5 is 10.3% under the revised forecasts and only
9.6% under the original forecasts. Clearly, Walmart shareholders will prefer the
higher rates of return under the increased dividend policy.
Chapter 10
Forecasting Financial Statements
10-26
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
Exhibit 10.G
Walmart Stores—Projected Financial Statement Ratios (Problem 10.16)
Originally Developed Forecasts (with Plug to Cash)
Actuals Forecasts
2010 2011 2012 Year +1 Year +2 Year +3 Year +4 Year +5
FORECAST VALIDITY CHECK DATA:
GROWTH
Revenue Growth Rates: 3.4% 6.0% 5.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Net Income Growth Rates: 14.1% –4.2% 8.3% 4.2% 4.3% 4.5% 4.5% 4.6%
Total Asset Growth Rates 6.0% 7.1% 5.0% 3.6% 4.7% 4.8% 4.9% 5.1%
RETURN ON ASSETS (based on reported amounts):
Profit Margin for ROA 4.4% 4.0% 4.1% 4.1% 4.1% 4.1% 4.2% 4.2%
× Asset Turnover 2.4 2.4 2.4 2.4 2.4 2.3 2.3 2.3
= Return on Assets 10.5% 9.6% 9.7% 9.7% 9.7% 9.7% 9.6% 9.6%
RETURN ON ASSETS (excluding the effects of nonrecurring items):
Profit Margin for ROA 4.1% 4.0% 4.1% 4.1% 4.1% 4.1% 4.2% 4.2%
× Asset Turnover 2.4 2.4 2.4 2.4 2.4 2.3 2.3 2.3
= Return on Assets 9.9% 9.6% 9.7% 9.7% 9.7% 9.7% 9.6% 9.6%
RETURN ON COMMON EQUITY (based on reported amounts):
Profit Margin for ROCE 3.9% 3.5% 3.6% 5.3% 5.3% 5.3% 5.2% 5.2%
× Asset Turnover 2.4 2.4 2.4 2.4 2.4 2.3 2.3 2.3
× Capital Structure Leverage 2.5 2.7 2.7 2.6 2.6 2.5 2.5 2.4
= Return on Common Equity 23.6% 22.5% 23.0% 33.1% 32.0% 30.8% 29.7% 28.6%
RETURN ON COMMON EQUITY (excluding the effects of nonrecurring items):
Profit Margin for ROCE 3.6% 3.5% 3.6% 5.3% 5.3% 5.3% 5.2% 5.2%
× Asset Turnover 2.4 2.4 2.4 2.4 2.4 2.3 2.3 2.3
× Capital Structure Leverage 2.5 2.7 2.7 2.6 2.6 2.5 2.5 2.4
= Return on Common Equity 22.1% 22.5% 23.0% 33.1% 32.0% 30.8% 29.7% 28.6%
Chapter 10
Forecasting Financial Statements
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in whole or in part.
OPERATING PERFORMANCE:
Gross Profit / Revenues 25.3% 25.0% 24.9% 25.0% 25.0% 25.0% 25.0% 25.0%
Operating Profit Before Taxes / Revenues 6.1% 5.9% 5.9% 6.0% 6.0% 6.0% 6.0% 6.0%
ASSET TURNOVER:
Revenues / Avg. Accounts Receivable 91.4 81.1 73.9 70.3 69.7 69.0 68.3 67.7
COGS / Average Inventory 9.1 8.7 8.3 8.3 8.5 8.5 8.5 8.5
Revenues / Average Fixed Assets 4.0 4.1 4.1 4.1 4.2 4.3 4.4 4.5
LIQUIDITY:
Current Ratio 0.9 0.9 0.8 0.9 0.9 1.0 1.0 1.1
Quick Ratio 0.2 0.2 0.2 0.2 0.3 0.3 0.4 0.5
SOLVENCY:
Total Liabilities / Total Assets 60.6% 60.8% 59.8% 58.7% 58.1% 57.4% 56.6% 55.7%
Total Liabilities / Total Equity 153.6% 155.3% 148.5% 151.8% 147.3% 142.3% 137.2% 132.0%
Interest Coverage Ratio 11.7 11.5 12.4 12.8 12.9 13.1 13.3 13.5
Revised Forecasts (with Plug to Dividends):
Actuals Forecasts
2010 2011 2012 Year +1 Year +2 Year +3 Year +4 Year +5
FORECAST VALIDITY CHECK DATA:
GROWTH
Revenue Growth Rates: 3.4% 6.0% 5.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Net Income Growth Rates: 14.1% –4.2% 8.3% 4.1% 4.1% 4.1% 4.1% 4.1%
Total Asset Growth Rates 6.0% 7.1% 5.0% 2.5% 2.9% 2.6% 2.3% 2.0%
RETURN ON ASSETS (based on reported amounts):
Profit Margin for ROA 4.4% 4.0% 4.1% 4.1% 4.1% 4.1% 4.1% 4.1%
× Asset Turnover 2.4 2.4 2.4 2.4 2.4 2.4 2.5 2.5
= Return on Assets 10.5% 9.6% 9.7% 9.7% 9.9% 10.0% 10.1% 10.3%
RETURN ON ASSETS (excluding the effects of nonrecurring items):
Profit Margin for ROA 4.1% 4.0% 4.1% 4.1% 4.1% 4.1% 4.1% 4.1%
× Asset Turnover 2.4 2.4 2.4 2.4 2.4 2.4 2.5 2.5
= Return on Assets 9.9% 9.6% 9.7% 9.7% 9.9% 10.0% 10.1% 10.3%
Chapter 10
Forecasting Financial Statements
10-28
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in whole or in part.
Actuals Forecasts
2010 2011 2012 Year +1 Year +2 Year +3 Year +4 Year +5
RETURN ON COMMON EQUITY (based on reported amounts):
Profit Margin for ROCE 3.9% 3.5% 3.6% 5.3% 5.3% 5.2% 5.2% 5.1%
× Asset Turnover 2.4 2.4 2.4 2.4 2.4 2.4 2.5 2.5
× Capital Structure Leverage 2.5 2.7 2.7 2.6 2.6 2.7 2.7 2.8
= Return on Common Equity 23.6% 22.5% 23.0% 33.5% 33.5% 34.0% 34.7% 35.7%
RETURN ON COMMON EQUITY (excluding the effects of nonrecurring items):
Profit Margin for ROCE 3.6% 3.5% 3.6% 5.3% 5.3% 5.2% 5.2% 5.1%
× Asset Turnover 2.4 2.4 2.4 2.4 2.4 2.4 2.5 2.5
× Capital Structure Leverage 2.5 2.7 2.7 2.6 2.6 2.7 2.7 2.8
= Return on Common Equity 22.1% 22.5% 23.0% 33.5% 33.5% 34.0% 34.7% 35.7%
OPERATING PERFORMANCE:
Gross Profit / Revenues 25.3% 25.0% 24.9% 25.0% 25.0% 25.0% 25.0% 25.0%
Operating Profit Before Taxes / Revenues 6.1% 5.9% 5.9% 6.0% 6.0% 6.0% 6.0% 6.0%
ASSET TURNOVER:
Revenues / Avg. Accounts Receivable 91.4 81.1 73.9 70.3 69.7 69.0 68.3 67.7
COGS / Average Inventory 9.1 8.7 8.3 8.3 8.5 8.5 8.5 8.5
Revenues / Average Fixed Assets 4.0 4.1 4.1 4.1 4.2 4.3 4.4 4.5
LIQUIDITY:
Current Ratio 0.9 0.9 0.8 0.8 0.8 0.8 0.8 0.8
Quick Ratio 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
SOLVENCY:
Total Liabilities / Total Assets 60.6% 60.8% 59.8% 59.4% 59.8% 60.3% 61.0% 61.9%
Total Liabilities / Total Equity 153.6% 155.3% 148.5% 156.0% 158.6% 162.0% 166.9% 173.2%
Interest Coverage Ratio 11.7 11.5 12.4 12.8 12.9 13.0 13.1 13.3
Chapter 10
Forecasting Financial Statements
10-29
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in whole or in part.
Integrative Case 10.1: Starbucks
Introduction to Starbucks: A Comprehensive Example.
This chapter describes and demonstrates the seven-step forecasting procedure by
applying it to PepsiCo. Each chapter of the book contains end-of-chapter materials for the
Starbucks integrative case to provide students with an opportunity to apply all the steps of
the chapter and, for that matter, all of the analysis in the book to an interesting and
growing company. This portion of the case relies on analysis of Starbucks’ financial
statements through fiscal 2012 to develop complete forecasts of Starbucks’ financial
statements for Year +1 through Year +5.
You should encourage students to develop from scratch their own forecast
spreadsheets using Microsoft Excel® (or a comparable spreadsheet program). Students’
proper design and preparation of a spreadsheet for financial statement forecasts provides
an excellent learning process to enhance and solidify their understanding of the relations
among various financial statement items. Once students become comfortable with
forecasting financial statements and spreadsheets, using the FSAP spreadsheet will save
considerable time when they prepare forecasts in the future. The analysis presented in this
discussion was prepared using FSAP. The case calls for students to enter the data for
Starbucks from Chapter 1 into a blank FSAP template, which can be downloaded from
the book website www.cengage brain.com. In addition, the FSAP spreadsheet used for
this case analysis, with data entered and forecast and valuation assumptions provided, is
available for instructors only through the same website. Go to instructor’s resources page
at www.cengage brain.com.
All financial statement amounts throughout this chapter appear in millions. Because
the spreadsheets make all computations to multiple decimal places, some minor rounding
differences occasionally arise and make it appear as though various subtotals and totals
disagree with the sum of the individual items that comprise the subtotal or total.
Brief Overview of Starbucks
Starbucks is the leading global retail chain of premium coffee shops. Starbucks
successfully developed and expanded a European idea—enjoying a coffee-based
beverage and sharing that experience with others in a comfortable, friendly environment.
The Starbucks 2012 Annual Report refers to this as the Starbucks Experience.
Starbucks has grown from a single store near Pike’s Place Market in Seattle to a
global company with 18,066 locations worldwide at the end of 2012. Starbucks has six
types of stores, varying by geographic segment and ownership (Segments: Americas,
Europe, Middle East and Africa (EMEA), and China Asia Pacific (CAP); Ownership:
company owned and operated versus licensed). Geographically, most of Starbucks’ retail
stores at the end of 2012 are in the Americas, with a total of 12,903 company-operated
and licensed stores. Starbucks has a total of 1,869 stores in the EMEA segment and 3,294
stores in the CAP segment at the end of 2012. In terms of ownership, at the end of 2012,
Starbucks owns and operates 9,405 stores worldwide and licensees own and operate
8,661 stores. Starbucks uses different strategies for licensing versus owning stores by
segment, with 61% of the stores in the Americas being owned and operated by Starbucks,
but only 47% in EMEA and only 20% in CAP. During 2012, Starbucks opened 1,063
new retail locations; Starbucks owns and operates 398 of these locations and licenses the
Chapter 10
Forecasting Financial Statements
10-30
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in whole or in part.
remaining 665 to others. Starbucks’ reported earnings of $1,384 million for 2012, up 11%
over fiscal 2011 earnings.
To further expand the business model, Starbucks also markets and distributes
Starbucks whole bean and ground coffee in approximately 30,000 grocery and warehouse
club stores throughout the United States.1 Further, Starbucks sells whole bean and ground
coffee through institutional foodservice companies (such as SYSCO Corporation) that
service business, education, office, hotel, restaurant, airline, and other foodservice
accounts.
Text Exhibits 10.14 and 10.15 present the balance sheets and income statements for
Starbucks for 2004–2012 in dollar amounts, in common-size format, and in rate-of-
change format.2 Text Exhibit 10.16 presents Starbucks’ statements of cash flows for
2004–2012. Text Exhibit 10.17 provides a detailed breakdown of Starbucks’ revenues
and revenue growth by segment and by store, as well as store-operating data through
fiscal 2012 for Starbucks, including same-store sales growth rates, new store openings,
and total numbers of stores open. For your convenience, we reproduce those exhibits to
follow?. We will use these data to develop forecast assumptions and to forecast financial
statements for Starbucks for Year +1 to Year +5. We denote forecast years as Year +1,
Year +2, and so on, to denote they are forecasts rather than actual statements.
The following forecast assumptions and projections are reasonable approaches to
forecasting Starbucks’ financial statements. Students understand and relate easily to the
Starbucks business model, so the Starbucks case generates lively and active classroom
discussion, with good debate around reasonable and appropriate forecast assumptions.
There is much to be gained by allowing students to debate these assumptions and arrive
at conclusions that reflect some degree of class consensus (although it is rare when
everyone in class agrees with all of the assumptions). Thus, consider the assumptions that
follow as a starting point to trigger and organize classroom discussion of forecast
assumptions and the development of forecasting techniques.
1 Starbucks terminated its distribution agreement with Kraft Foods during 2011. The two firms are in major
legal battle. In Note 15, Commitments and Contingencies, in the 2012 Form 10-K, Starbucks discloses
that it alleges $62.9 million in damages from lost sales against Kraft, whereas Kraft alleges it is entitled to
recover $2.9 billion in losses and damages from Starbucks’ wrongful termination of the distribution
agreement. The suit has not been settled at the time of this writing.
2 The term Text Exhibit refers to exhibits that are included in the case materials in the textbook. The term
Exhibit refers to exhibits that appear in the case notes only and not in the textbook.