Discussion
Starbucks Corporation is a public company that is based in the United States. It deals with the sale of coffee. The company has more than 21,000 stores in over 60 countries. The stock of the company trades on NASDAQ with the ticker symbol SBUX. Over the past three years, total revenue for the company rose from $13,300million in 2012 to $16,448million in 2014 (Starbucks Corporation, 2014). Thus, the total growth rate during the three years was 23.66%. The sales growth rate in 2012 was 13.67%. The growth rate dropped to 11.98% in 2013 and further to 10.45% in 2014. A review of the income statement shows that the cost of revenue grew from $5,813m in 2012 to $6,859m in 2014. The total growth is equivalent to 17.99%. Further, the total operating expenses rose from $5,700m in 2012 to $6,508m in 2014 (Starbucks Corporation, 2014). The growth rate is equivalent to 14.71%. Finally, the net income dropped from $1,384m in 2012 to $8m in 2013, a decrease of 99.42%. The value rose to $2,068m in 2014, an equivalent of 257.5% (Morningstar, Inc., 2015). Thus, it can be noted that sales are growing at a higher rate than the cost of sales and operating expenses. Further, the growth rate of net income is more volatile than the growth rate of the other items. The volatility is caused by non-operating activities.
In 2011, the economic growth rate in the US was 1.6%. In 2012, the growth rate was 2.3%, while in 2013 the value was 2.2%. In 2014, the growth rate rose to 2.4% (Mitchell, 2015). Dunkin’ Brands Group, Inc., McDonald’s corporation and Nestle S.A. The growth for the companies during the past five years is 18.38%, 3.76%, and 14. 13%, respectively (Yahoo Finance, 2015). However, the growth rate for Starbucks Corporation for the past five years is 20.20%. Thus, it can be observed that Starbuck had a higher growth rate than competitors in the industry. When preparing the budget, various items will grow at a different rate. Further, the economic growth rate will be taken into account. The interest rate for 2014 was 3.02%. The tax expense for the year 2012 amounted to $674.4m. The value dropped to ($238.7m) in 2013 (Starbucks Corporation, 2014). However, in 2014, the tax expense rose to $1,092m. Interest income and expense will remain constant while provision for income tax will be made at 34.55%.
In the case of a flexible budget, once it is prepared, it is adjusted according to the actual results. For instance, the budget is adjusted on a quarterly basis with the actual results. In the case of a statistic budget, it is prepared once for a whole year. At the end of the year, the actual results are compared with the budget. The budget acts as a control tool because it ensures that the actual activities of an entity do not significantly diverge from the planned activities. Thus, budgets ensure that resources are allocated to the planned activities. As a planning tool, a budget brings together the various units in an organization. It synchronizes the personnel, management, structure, goals, and activities to be done to achieve the objectives. Therefore, from a planning perspective, a budget converts a strategic plan of an entity into a period-based guide to the organization’s activities. A budget helps in performance evaluation because the management of an entity will be able to establish whether there are variances or not by comparing the results at the end of the period with the budget.
Flexible budget
In this section, a flexible budget for Starbucks corporation will be prepared for the year 2015. The three different growth rates that will be used for sales are 18%, 14%, and 8%. The costs will grow at a rate of 14%, 10%, and 6% for high, average, and low respectively. These rates are arrived at after taking into account the economic growth rate, industry, and company growth rates. The flexible budget will focus on budgeted revenue and costs. The table presented below shows a summary of the estimation of sales and production.
Therefore, the flexible budget will be prepared based on the estimates presented in the table above.
Starbucks Corporation
Flexible budget
For the period ended September 2015
References
Mitchell, J. (2015). U.S. economy hits speed bumps. Web.
Morningstar, Inc. (2015). Starbucks Corp (SBUX). Web.
Starbucks Corporation. (2014). Investor relations – annual reports. Web.
Yahoo Finance. (2015). Starbucks Corporation (SBUX). Web.