Discussion of Starbucks Annual Report
Starbucks Corporation is an American company of coffeehouses and roastery reserves all over the world. Child et al. (2019) note, it is “the largest coffee chain in the world” (p. 172). As it is a public facility, it is logical that Starbucks has many difficulties because of COVID-19. Quarantines, pandemics, and measures that do not allow crowds, for example, social distance, all of these factors played their role in the company’s existence. Pandemic is a problem for the healthcare system and all society and its institutions, specifically for economic and financial aspects. It impacts their activities mainly negatively, for one can see how, for instance, Starbucks’ finances change by decreasing income and increasing expenses, losses, and debts.
There has been a net change in Starbucks’ financial activities for the last three years about the increase of charges and decrease in income. “We recognized net disposition charges of $84.9 million, $64.6 million and $32.8 million in fiscal 2020, 2019 and 2018, respectively” (Starbucks, 2020, p. 57). Partly, some of these charges were because of restructuring processes that started after pandemics’ appearance and spread. It tells about the necessity to adapt to the current circumstances. On a table on page 47 of Starbucks Annual Report (2020), everyone can see that total net revenues and earnings seriously decreased, whereas expenses increased. Therefore, it shows that the net change for the last three years was significant in a negative sense, mainly because of adaptation to new conditions that were settled by the pandemic.
In addition, discussion of Starbucks Corporation debts and equity is also necessary because these markers show the change in Starbucks’ financial activities. The company has two credit facilities: the “2018 credit facility” and the “364-day credit facility”, which the company always repays on time (Starbucks, 2020, p. 74). The second credit has been extended until September 2021 (Starbucks, 2020, p. 74). As for equity, the company has been permanently buying new shares. “In total, we repurchased 139.6 million shares at a total cost of $10.1 billion for the year ended September 29, 2019” (Starbucks, 2020, 79). In 2020 it also repurchased 36.6 shares, and dividends to shareholders ($ 0.45) were paid on November 27, 2020 (Starbucks, 2020, 80). Thus, there is a trend that Starbucks, for the last three years, has been increasing its equity, buying more shares, and COVID-19 did not stop it.
A large cash balance has its pros and cons that impact the whole company. A large cash balance serves as a buffer for an organization that may have sometimes decreased revenue; it allows continuing to pay loans and credits. Additionally, a large cash balance may prevent different debts that companies can take when they do not have money to pay4everyday activities. However, there is a disadvantage that appears from the nature of money. Money is an instrument that must be appropriately used to increase profit and develop a company, but it does nothing when it is on a bank account. In addition, the value of cash may be reduced by inflation.
To conclude, COVID-19 seriously affected the financial activities of Starbucks in the domain of revenue and losses. For the last three years, the company’s losses are becoming more prominent than its income. It is an effect of measures to prevent the growth of pandemics and restructure the system to adapt to new conditions. However, Starbucks continues to pay its debts on time and, no matter what, continues to repurchase shares. Therefore, there is a severe change in some aspects, but there are strategies that the company follows during the pandemic and decreasing revenue.
Child, J., Faulkner, D., Claiborne, E., Tallman, S., Hsieh, L. (2019). Cooperative Strategy. Managing Alliances and Networks. OUP Oxford. Starbucks Annual Revenue (2020).