The first case at the end of this chapter and each of the remaining chapters is a series of integrative cases involving Starbucks. The series of cases applies the concepts and analytical tools discussed in each chapter to Starbucks’ financial statements and notes. The preparation of responses to the questions in these cases results in an integrated illustration of the six sequential steps in financial statement analysis discussed in this chapter and throughout the book.
Statement of Cash Flows
a. Why does net income differ from the amount of cash flow from operating activities?
b. Why does Starbucks add the amount of depreciation and amortization expense to net income when computing cash flow from operating activities?
c. Why does Starbucks show an increase in inventory as a subtraction when computing cash flow from operations?
d. Why does Starbucks show a decrease in accounts payable as a subtraction when computing cash flow from operations?
e. Starbucks includes short-term investments in current assets on the balance sheet, yet it reports purchases and sales of investment securities as investing activities on the statement of cash flows. Explain why changes in investment securities are investing activities while changes in most other current assets (such as accounts receivable and inventories) are operating activities.
f. Starbucks includes changes in Short-Term Borrowings as a financing activity on the statement of cash flows. Explain why changes in Short-Term Borrowings are a financing activity when most other changes in current liabilities (such as accounts payable and other current liabilities) are operating activities.