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Starbucks Fiscal Decision Making
Financial decision making refers to the decisions concerning the justness of assets, liabilities, and stockholders’ equity in the balance sheet of the firm (Vance, 2002). The Starbucks business manager is capable of applying the analytical tools to the firm’s specific business problems and decisions. Financial review takes place as part of the process of financial decision making. Starbucks’ business decision-making entails analyzing the financial problems faced by the firm and deciding on the course of actions to take. The Starbucks manager identifies the potential financial problems to the firm and analyzes the impacts of the alternative courses of actions in order to facilitate business decision making. Financial management is split into the three major decisions, namely: the financing decisions, the dividend decisions, and the investment decisions. Likewise, the application of different financial analytical techniques might be split into these directions.
The investment decisions are possibly the most imperative of the three kinds of fiscal decisions, since their outcome determines the sum of cash flows in the future. Investment decisions are both short term and long term reallocations of the corporate funds (Porter & Norton, 2008). The short term investment decisions comprise the current level of assets (cash, inventories, and accounts receivable) necessary for the daily operations of Starbucks. The long-term investment decisions are fixed asset purchases, corporate reorganizations, as well as mergers and acquisitions.
Starbucks has efficiently used different techniques in order to manage short term accounts receivable and cash to match with the long term fixed assets. The firm develops a cash budget and uses ratio analysis in order to establish the variations or trends of current liquidity and assets indicators (Vance, 2002). The business entityalso uses the balance sheet and pro forma income statement in order to plan income, cash flows, and fund flows. The capital investment proposal evaluation involves many interrelated procedures and forms of business analysis.
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Financing decisions: The decision of financing varies on the basis of firm’s size, needs, financing alternatives accessible to the firm, and firm’s location (Vance, 2002). Starbucks’ manager determines the best capital structure or financing mix for the firm, when making fiscal decisions. Starbucks’ best option is the capital arrangement that allows for the optimal assessment of the firm for the shareholders. The firm takes the following key factors into consideration, when making business decisions: the riskiness and nature of the business operation, capital structure desired, cost of the substitute financing, and length of time that the assets would be needed for.
The Starbucks Company uses various pertinent analytical tools in order to analyze its capital structure. An analysis of the financial leverage determines the firm’s financial leverage, as well as the way Starbucks uses fiscal leverage in its money structure (Starbucks Shared Planet, 2014). Analysis of the ratios determines Starbucks’ current fiscal structure and other fiscal indicators.
Fiscal Problems Facing Starbucks
The most obvious financial problem that Starbucks is facing is the current fiscal crisis in America. Starbucks is suffering from the economy of America and its situation (Dudovskly, 2013). Starbucks has been faced with numerous store closures since 2008. The company also faces considerable problems in the United Kingdom business, which is related to the issues of tax (Kwok, Rabe, & Kozlowski, 2007). These challenges threaten Starbucks with negative implications on the firm’s growth prospects in the United Kingdom. The company runs its business in an extremely competitive environment with its top competitors including McDonald’s, Dunkin Donuts, Costa, Brand groups, and others. In addition, the firm faces very stiff competitions from the local cafeterias.
Based upon the financial analysis of Starbucks, the major problems facing the firm also include the saturation of the market. The food and catering business, in general, and Starbucks niche marketplace in particular, is highly saturated in the developed states with a variety of international brands, such as Dunkin Donuts, and many other small coffee shops and local cafes. This saturation presents a massive challenge to Starbucks in terms of expanding its incomes through the attraction of the new customers (Lauren, 2011). The growing dependence upon the suppliers is another fiscal challenge facing Starbucks. The firm has higher levels of dependence upon its suppliers, since it can only contract the suppliers of coffee beans from the specific locations that are favorable for the production of coffee in terms of climatic conditions. The fiscal problem facing Starbucks is also brought about by the increasing costs of coffee beans. The prices of coffee beans are going up, and this exerts additional pressure on the cafes in an international scale. Starbucks, however, is more susceptible, as this increase in the prices of coffee beans affects the firm negatively. The company experiences the negative effects of the growing coffee prices more than other firms, because the retail prices of Starbucks are already significantly above the average market prices (Lauren, 2011).
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The emergence of fresh competitors is another challenge causing financial problems to Starbucks. New competitors are increasingly coming up for the company in the forms of the energy drinks that are manufactured by the growing numbers of firms (Lauren, 2011). These drinks are produced by particularly the leading supermarket chains and growing numbers of pubs and bars that provide the services of the third place experience. Lastly, Starbucks’ fiscal problem is also caused by the frequent adjustments in the marketplace trends. The world population is becoming ever more tuned into the downscales of caffeine, when it comes to its negative effects upon the human health via different channels, and this inclination presents a substantial challenge to the firm in terms of being sure about its long term growth.
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