Ethics and Compliance of Starbucks free essay sample

Starbucks has grown to now 18,000 stores in 62 countries and has become the premier roaster and retailer of coffee in the world. The company has strived to purchase and roast high quality whole bean coffees and has become the beacon for all of coffee lovers everywhere. Starbucks company website states that it is their goal to â€Å"make a positive impact one person, one cup and one neighborhood at a time. † Starbucks has committed to a good corporate citizen; using their scale for good to catalyze change â€Å"across entire industries so that Starbucks and everyone we touch can endure and thrive. Starbucks 2012 Annual Global Responsibility report shows more than 9,400 company operated stores were open as of September 30, 2012. In the United Kingdom, 595 stores were open as of September 30, 2012. As a global corporate citizen, Starbucks is doing well in achieving their goals of ethically sourcing their coffee, getting the customers more involved in their communities and recycl ing; just a few of their global goals. We will write a custom essay sample on Ethics and Compliance of Starbucks or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page However, as a billion dollar global corporation, Starbucks has found legal ways to avoid paying their fair share of taxes. In October 2012, an article published by Daniel Johnson of the Daily Mail, stating that Starbucks had managed to avoid paying taxes on $1. 2 billion pounds in sales over the past three years. The company employs at least three legal ways of avoiding tax payments on profits. First, the company charges their own overseas subsidiaries royalties for the right to use its brand and products. Each time a citizen of the United Kingdom purchases a cup of coffee, six percent of the price is a royalty paid back the United States parent company branches. Some of the royalties are placed in tax havens. The royalties would have been counted as profits in the United Kingdom and taxed at 24 % but because the royalties are sent back to the United States the money cannot be taxed. Second way of avoiding tax payments is accomplished by requiring the UK subsidiaries to pay the Holland subsidiary to roast the beans and to buy beans from its Switzerland subsidiaries Holland and Switzerland end up reporting profits because of this. Starbucks used its supply chain to move its profits out of the UK. The profits earned in Holland are taxed at 25%. Swiss law does not require Starbucks to report its profits, which are taxed at only 5 percent. By moving its supply chain operations out of the UK, the company has managed to move its profits out of the UK also. Finally, the company avoids paying taxes by funding the United Kingdom operations through the use of borrowing high interest rate loans from another part of the firm. This action lowers the profits made in the United Kingdom. Starbucks actions are not illegal, but they are not the most ethical practices either. By not paying their corporate taxes, the company is contradicting itself when it states that it desires to make everyone â€Å"endure and thrive. † Instead of being a corporation that inspires change it follows the pattern of the rest of the large corporations who seek to earn a profit by legally avoiding tax payments. â€Å"The U. S. financial markets consist of many separate markets for diverse products offered on a range of trading platforms and exchanges. Among the many products traded are fixed-income securities, equities, foreign exchange and derivatives. (U. S. Department Of The Treasury, 2010). In the United States people rely on other companies to buy their stocks and bonds so the company selling these stocks and bond can to receive money to increase their business. One example of the most popular financial market is the stock markets. This here all types of companies can sell stocks and bonds. There are three types of stock markets in the United States, New York Sto ck Exchange, over-the-counter market, and American Stock Exchange. The New York Stock exchange usually consists of the larger business whereas the Over-the-counter market is mostly made of smaller businesses. The way businesses can earn extra money they loan to the borrower is by charging them interest on the funds they had borrowed. A SEC filing helps the government keep track of a company and make sure they are not breaking any laws but this SEC filing helps the investor as well. The SEC filing helps the investor by showing them how well or how bad the company has been doing in their financial statements. Starbucks relies on their employees as well to follow the SEC regulations, which means for the employees that the board can to come in at any time to a store to regulate the jobs and duties of the employees. The committee is also able to check the stores books to make sure they are putting in all financial information and keeping correct taps on items sold as well as materials used. â€Å"The primary purpose of the Audit and Compliance Committee (the â€Å"Committee†) is to oversee the accounting and financial reporting processes of Starbucks Corporation (the â€Å"Company†) and the internal and external audit processes. The Committee also assists the Board of Directors of the company in fulfilling its oversight responsibilities by reviewing the financial information that is provided to shareholders and others, the systems of internal control which management and the Board of Directors have established, the Company’s risk management practices, and compliance with the Companys Standards of Business Conduct, Code of Ethics for the CEO and Finance Leaders and the Policy for the Review and Approval of Related Person Transactions Required to be Disclosed in Proxy Statements. (Starbucks Corporation Audit and Compliance Committee Charter, 2012) According to the formula current ratio = current assets/current liabilities, the current ratio for Starbucks in 2011 was 1. 83. The formula debt ratio= total liabilities/total assets, the debt ratio was . 40. The formula return on equity ratio = net income/shareholders equity, the return on equity ratio was . 28. According to the formula days receivable ratio = accounts receivable/ (credit sales/365), the days receivable ratio was 164. 47 (Google, 2013). According to the same formulas, in 2012 the current ratio was 1. 90. The debt ratio was . 38. The return on equity ratio was . 27. Finally, the day’s receivable ratio was 197. 52. The financial health of Starbucks is trending upward. The higher current ratio in 2012 implies that it was easier in 2012 for the company to pay back short-term obligations. The lower debt ratio in 2012 implies that the company can manage assets and debt. The return on equity remained close both years, implying that the company generated almost equal profit both ears with the money that the shareholders have invested. The day’s receivable ratio did climb, which means that it is taking the company longer to collect. This could be an issue if the company was smaller, but the size of the company, it should not be a problem at this point. Starbucks has been a wealthy business for some time now. It is the place to get the best coffee around. They seek to find the best coffee beans to roast and brew up into a specialty coffee. As we have read in this paper Starbucks has found legal ways to get around avoiding paying taxes. By selling the coffee in Holland and Switzerland, Starbucks is allowed to not pay taxes on everything sold overseas then send to the United States. This is an unethical way of managing taxes, but it is legal in those areas. The businesses ratios are well in the successful range and are doing very well for themselves. They are certainly holding up to their motto of inspire and nurture the human spirit one person, one cup, and one neighborhood at a time(Starbucks Corporation, 2012). Works Cited: Google. (2013). Retrieved from http://www. oogle. com/finance? fstype=iiamp;q=NASDAQ:SBUX Johnson, D. (2012, Oct 17). Starbucks and the stench of hypocrisy. Daily Mail. Retrieved from http://search. proquest. com/docview/1112339262? accountid=35812 http://www. starbucks. com/responsibility/global-report STARBUCKS CORPORATION AUDIT AND COMPLIANCE COMMITTEE CHARTER. (2012). Retrieved from http://team. starbucks. net/sites/CORP U. S. Department of the Treasury. (2010). Retrieved from http://www. t reasury. gov/resource-center/faqs/Markets/Pages/finmarketsfaq. aspx