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in whole or in part.
LIABILITIES:
Accounts payable $ 283 $ 540 $ 398 $ 591 $ 534 $ 711 $ 659 $ 848 $ 874
common size 4.4% 7.3% 4.8% 28.0 28.0 28.0 28.0 28.0
rate of change 91.1% –26.3% Assume a 28 day payment period consistent with recent years.
rate of change –0.4% 15.2% Assume steady 3% growth
Current Liabilities $ 1,779 $ 2,076 $ 2,210 $ 2,613 $ 2,783 $ 3,206 $ 3,961 $ 3,884 $ 4,001
common size 27.9% 28.2% 26.9% 28.9% 27.3% 28.2% 31.5% 27.1% 27.1%
rate of change 16.7% 6.5% 18.2% 6.5% 15.2% 23.5% –1.9%
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in whole or in part.
Actuals Forecasts
2010 2011 2012 Year +1 Year +2 Year +3 Year +4 Year +5 Year +6
SHAREHOLDERS’ EQUITY
Total Common Shareholders’ Equity $ 3,675 $ 4,385 $ 5,109 $ 5,499 $ 6,409 $ 7,123 $ 8,086 $ 9,862 $ 10,157
common size 57.5% 59.6% 62.2% 60.8% 63.0% 62.7% 64.2% 68.8%
rate of change 19.3% 16.5% 7.6% 16.5% 11.1% 13.5% 22.0%
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in whole or in part.
Dividends forecasts:
Total dividend forecast amounts.
Treasury Stock Purchases:
Flexible Financial Account:
Original Forecast Amounts:
Treasury Stock Purchases: 0 0 0 0 0
0 0 0 0 0
Total Treasury Stock Purchase Amounts
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in whole or in part.
a. Cash and Cash Equivalents. Starbucks’ holdings of cash and cash equivalents
have been fairly steady during 2010 through 2012. During this period, Starbucks’
cash balances were roughly equivalent to thirty days of sales {computed as 365
To make the three primary pro forma financial statements articulate, the change
b. Short-Term and Long-Term Investment Securities. Starbucks’ holdings of short-
term investments jumped dramatically in 2011 from a beginning balance of $286
million to an ending balance of $903 million. In 2012, short-term investment
securities declined a bit to $848 million. We assume in Year +1 through Year +5
c. Accounts Receivable. Starbucks’ Retail Sales are primarily cash-based sales of
coffee beverages to retail consumers, but the Licensing, CPG, Foodservice, and
Other revenues are primarily sales to commercial enterprises that involve credit
terms and accounts receivable. We therefore project that accounts receivable will
foodservice revenues to average accounts receivable, = 365/($1,210.3 +
$1,554.7)/($486 + $387)/2)]. By projecting that accounts receivable will grow with
licensing, CPG and Foodservice revenues, we are implicitly assuming Starbucks
will maintain an average 58-day collection period in the future. We assume that all
company-operated retail store sales are collected in cash or credit card charges,
Inventories. Based on the average balance in inventory in 2011, Starbucks took an
average of roughly 56 days to sell inventory (computed as 365 days divided by
cost of sales divided by average inventory). In 2012, Starbucks increased its
inventory turnover period to 69 days, in part because it is now managing all of its
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Forecasting Financial Statements
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in whole or in part.
surprised by the length of Starbucks’ inventory turnover period, so you may want
substantial inventory holdings and forward purchase commitments in order to
avoid the (likely greater) costs associated with stock outs of this commodity, which
is so essential to Starbucks’ business.
operated stores in the future.
e. Deferred tax assets—Current. We simply project that deferred tax assets will
grow at the same rate as the tax provision.
g. Property, Plant and Equipment (PP&E). Details of the computations for the
forecasts of Starbucks’ capital expenditures, PP&E, and depreciation are presented
in Exhibit 10.K.
Starbucks’ capital expenditures involve acquiring fixed assets for new stores,
through +5, we project that CAPEX will continue to be roughly 8.0% of projected
revenues.
Each year of capital spending will trigger additional depreciation. In 2012,
Starbucks recognized $580.6 million in depreciation expense. Depreciation
compute these amounts appear in Exhibit 10.L.
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in whole or in part.
Starbucks reports only 95% of total depreciation expense each year on a
rest in cost of goods sold.
h. Goodwill, Amortizable Intangible Assets, and Other Non-Current Assets. Other
assets for Starbucks include goodwill and other identifiable intangible assets from
order to drive future sales growth. Therefore, we forecast that goodwill,
amortizable intangible assets, and other noncurrent assets will grow with revenues.
Amortizable intangible assets are a minor part of Starbucks’ total assets and
Starbucks discloses in Note 8, Other Intangible Assets and Goodwill, that
i. Projecting Assets That Vary as a Percent of Total Assets. Students may wish to
project certain asset amounts to vary as a percentage of total assets. The chapter
describes how to infer the amounts of total assets, then the individual assets.
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in whole or in part.
Exhibit 10.K
Starbucks
(amounts in millions; allow for rounding)
(Integrative Case 10.1)
Capital Expenditures: CAPEX Forecasts:
2010 2011 2012 Year +1 Year +2 Year +3 Year +4 Year +5
CAPEX:
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in whole or in part.
PP&E at cost: 2010 2011 2012 Year +1 Year +2 Year +3 Year +4 Year +5
Beg. balance at cost: $ 6,903.1 $ 8,103.1 $ 9,443.9 $ 10,940.0 $ 12,599.6
Add: CAPEX forecasts from above: 1,200 1,341 1,496 1,660 1,839
Existing PP&E at cost: $ 6,903.1 $ 613.5 $ 613.5 $ 613.5 $ 613.5 $ 205.0
Note: Keep track of remaining balance to be depreciated. 2,659 2,045 1,432 818 205 0
PP&E Purchases: Depreciation expense forecasts on new PP&E:
Depreciation methods: 2010 2011 2012
PPE at Cost $ 5,888.7 $ 6,163.1 $ 6,903.1
Avg Depreciable PPE $ 6,025.9 $ 6,533.1
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in whole or in part.
Projecting Individual Operating Liabilities. Forecasting operating liabilities
j. Accounts Payable. Future credit purchases of inventory and Starbucks’ payment
policy to its suppliers will drive accounts payable. During the last two years, the
average payables period was 28 days. We assume that Starbucks will maintain an
accounts payable period of 28 days in the future. To forecast future accounts
balance, as shown in the chapter.
Because accounts payable decreased during 2012 by assuming a 28-day payable
period, the forecasts of future accounts payable exhibits the sawtooth pattern
described in the chapter. You can use this account to demonstrate techniques to
smooth forecast amounts if the sawtooth pattern is undesirable.
$510 million, which comprises advances from Starbucks’ customers for gift and
debit cards, redeemable for Starbucks’ beverages and products. Starbucks also
recognizes a long-term accrued liability of $442 million, which mainly comprises
deferred rent related to credits associated with operating leases, mainly for stores.
accrued and deferred taxes.
STEP 4: PROJECT LIABILITIES AND SHAREHOLDERS’ EQUITY.
Once analysts forecast the operating assets and liabilities on the balance sheet, they must
project the financial liabilities and shareholders’ equity that will provide the necessary
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in whole or in part.
can project individual financial debt and shareholders’ equity accounts using historical
a. Projecting Liabilities.
Short-Term Borrowing, Long-Term Debt, and Current Portion of Long-Term Debt.
Starbucks began to rely on short-term debt capital in 2005 and long-term debt capital
will retire the senior notes when they mature. We include these senior notes in the
current liability section of the forecast balance sheet for Year +4, the year before they
will mature.
For many years, the firm has used ten-year operating leases to finance all of its
interest expense that these short- and long-term debts will trigger.
b. Projecting Shareholders’ Equity.
Starbucks’ common equity took a dramatic turn in 2010, when Starbucks paid its
first-ever dividend. In addition, Starbucks resumed repurchasing common equity
shares on the open market. Although some of the share repurchases were used to meet
stock option exercises during that time, the majority of the repurchased shares were