Target one paragraph for each required item. Grammar, Formatting and Organization is a skill that should be demonstrated by accountants for all work. Therefore, it is part of the grade. Only Word files will be accepted. Although this deliverable relies on a collaborative effort, each group member is to create their own risk analysis. You should strive to be creative in your own way and share your writings.
1. Of the 15 risks that Starbucks ‘ management discloses, which one do you think could most adversely affect the balance sheet and why?
2. Of the 15 risks that Starbucks ‘ management discloses, which one do you think could most adversely affect the income statement and why?
3. Of the 15 risks that Starbucks ‘ management discloses, which one do you think could most adversely affect the Cash Flow Statement and why?
4. Risk number 10 above states “Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high-quality arabica coffee beans or other commodities could have an adverse impact on our
business and financial results.” Which ratios would be adversely affected if increases in cost or supply chain disruptions occurred for arabica beans? Explain why.
5. Compare your readings of management’s assertions andyour findings of your vertical, horizontal, ratio and chart analysis. Discrepancies may exist between what the ratios are indicating and what management is telling you. Is management telling the public one thing, but the financial information indicates another? Explain to the best of your ability.
Ensure that your answers for the five questions address each of the points in the following rubric:
For help in answering the questions, read the following. Form 10-Ks normally follow specific patterns. It is important to read all three years (2016, 2017 and 2018) to see how management modifies its discussion from year to year. The specific narrative in each section generally does not change too much unless new disclosure
requirements or other laws/policies/procedures are enacted. This is often a company’s Achilles heel. If management is telling the public a similar narrative each year, the charts should show a consistent pattern. If not, something is may not be right. Management may not accurately report what is going on, or they are issuing the wrong figures on their financials. Either way, it is an issue that must be further explored to make good business decisions.
Here’s an example of a potential discrepancy. Let’s look at a hypothetical scenario involving inventory turnover:
As you may remember, the inventory turnover ratio is a measure of how fast a company is getting rid of its inventory (through sales, obsolescence, theft, etc.). If you measure the inventory turnover ratio and it decreases slightly year over year, it generally indicates that inventories are moving slower. Imagine that you perform a ratio analysis and chart the inventory turnover ratio over six years. You notice that inventory is turning over slower. Then you compare
the chart to what management asserts in its discussion and analysis. Management boasts about its improved and efficient inventory management systems and how year after year it is constantly improving. This may indicate an area of increased risk. Why? The inventory turnover data shows that inventory may be moving slower, but management claims it improved ways to control inventory. It now becomes an issue for a proactive business decision-maker to delve into more deeply. The ratios are indicating one thing (through their reported figures), but management is telling everyone another (through their narrative). In this hypothetical situation, several things could be happening. Perhaps everything is fine with their inventory management system, but management is not doing a fine job of communicating the issue, or something could be drastically wrong such as production line breakdowns and management knows it but is not adequately disclosing it, or it could be that someone is stealing inventory but management does not realize it.
