Reformulation of Starbucks

1. Reformulation of Starbucks Mitchell Schmitt

2. Talking Points • Brief Overview of Enterprise Operations vs. Financing Activities • Calculation and Consideration of Net Enterprise Assets (NEA) • Calculation of Net Financial Liabilities (Net Financial Assets for Starbucks) • Enterprise Profit After Tax (EPAT) • Identifying and Calculating Financing Expenses after Tax (FEAT)

3. Reformulation • Purpose is to provide relevant information for forecasting and valuation purposes • Focus is on cash flows from operations rather than accounting income • Identification of Enterprise Income (EPAT) and Assets (NEA) is the first step

4. Identification of Enterprise Operations • The background obtained from Module 1 is key to knowing what the firm does • Similar activities may be categorized differently at each firm • Certain line items will demand further research into the notes

6. Required Cash Computation

8. Calculation of NEA

10. Net Financial Lender • Large amount of excess cash and short-term investments • May be gearing up for future expansion or large dividend • Most firms are net borrowers • Add Financial Assets to NEA to arrive at Common Shareholders Equity

11. Check Figure

13. Line Items I questioned 1. Gain on Sale of Property Classified as Operating • No description in notes, laid out as operating in original Income Statement 2. Income from Equity Investees • Royalties and gross margin receipt from franchisees

14. Computation of Adjusted Income Tax

15. Statement of Comprehensive Inc.

18. Check Figure

19. Questions?