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Ethics and Compliance Paper Sonya Flint Katovia Reeves Brian Seminar Harrison Wall FIN/370 Finance for Business February 10, 2011 John Kadlec Ethics and Compliance Ethics and compliance is an important staple in many organizations across the country. Without ethics and compliance, coworkers could steal from the company and can get away with it. Employees could harm one another and not have to worry about the consequence. An employee working in the financial department could alter records to show the company made less than it did, whereas he or she kept the unrecorded funds for personal use. In this paper, team B will take a look inside Starbucks’ ethical and financial departments and touch upon a few things, such as assessing the role of ethics and compliance in Starbucks’ financial environment, describing the procedures Starbucks has in place to ensure ethical behavior, and identifying the processes Starbucks uses to comply with SEC regulations. Also being discussed will be Starbucks’ financial performance during the last two years, using financial ratios (University of Phoenix, 2011). The Role of Ethics and Compliance Starbucks has in place what it calls Business Ethics and Compliance. Business Ethics and Compliance is a something that pushes the mission of Starbucks protects its reputation by providing resources that help employees/partners of Starbucks make ethical decisions while in the workplace. The program makes and sends out awareness materials, including the Standards of Business Conduct. The Standards of Business Conduct is a resource sent to employees/partners in an effort to assist them in making the best decisions at work. The standards are an overview of some of Starbucks’ expectations to conduct business, consistent with Starbucks’ vision. The Standards of Business Conduct provide a look at some of the ethical and legal standards employees/partners are expected to follow while in the workplace. These standards were put into place to ensure continued integrity, honesty, and following the law. Starbucks follows the highest ethics guidelines when dealing with business transactions. Employees/partners are required to follow the rules and regulations that Starbucks sets forth when business. Starbucks partners are not allowed to influence any business decision because of a potential bribe. Partners are not allowed to buy or sell stock based on confidential, “inside” information unless the information is made public and only after a full day has passed after the information was made public. The books of account, financial statements and records of Starbucks should be maintained in accordance with the requirements of law and generally accepted accounting principles. All of Starbucks assets and liabilities should be properly recorded in its books. Concerns regarding accounting, internal accounting controls or auditing matters should be reported through the Business Conduct Helpline, and depending on how the reports are classified, will be sent to the office of Business Ethics and Compliance, where they will be looked over by the chief compliance officer (Starbucks, 2010). Starbucks has also made the list of “World’s Most Ethical Companies” for four years in a row, through Ethispere.com. Procedures in Place to Ensure Ethical Behavior Starbucks business philosophy, mission statement, and principles are the foundation standard of what the organization stands for: “Our mission: to inspire and nurture the human spirit - one person, one cup and one neighborhood at a time” (starbucks.com). “We fulfill this mission by a commitment to: • Understanding of environmental issues and sharing information with our partners. • Developing innovative and flexible solutions to bring about change. • Striving to buy, sell and use environmentally friendly products. • Recognizing that fiscal responsibility is essential to our environmental future. • Instilling environmental responsibility as a corporate value. • Measuring and monitoring our progress for each project. • Encouraging all partners to share in our mission” (starbucks.com). Starbucks believe in empowering all partners to make decisions that impact their reputation. It is the individual’s actions at work which shapes how the world views Starbucks this is why it is so important that each individual acts ethically in all situations. Starbucks implemented a Business Ethics and Compliance program which supports the mission, protect the culture, and reputation by providing resources which help to make good ethical decisions daily. Management is train and taught how to handle ethical issues so if any partner is unsure of how to respond or what to do they should always go to management, Partner Resources or Business Ethics and Compliance for assistance. The program includes distribution of the “Standards of Business Conduct” booklet; facilitation of legal compliance and ethics training; investigates sensitive issues including conflicts of interest; and provides additional channels for partners to voice their concerns. These options are available and encouraged for use by all partners to ensure ethical behavior. Processes used to Comply with SEC Regulations One of the internal controls and processes Starbucks have in place is to comply with the Securities and Exchange Commission (SEC). The primary purpose of the SEC is to promote the disclosure of important market-related information, maintain fair dealing, and protect against fraud (U.S. Securities and Exchange Commission, 2011). Starbucks maintain its integrity and sustain economic growth by disclosing on its company website certain financial aspects and processes making investors willing to buy, sell, or hold certain security. Starbucks uses various processes to comply with the SEC regulations. It files a quarterly report on Form 10-Q pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 to the United States Security and Exchange Commission (Starbucks, 2009). The report includes financial information for a certain period that reflects all adjustments and accruals that reveals Starbucks financial position, results of cash flows, and operations. The report also includes the cash dividends to be paid to shareholders and the date of payment. The report discloses its legal proceedings that management believes could have a material adverse effect on its consolidated financial position or results of operations (Starbucks, 2009). Starbucks report its financial outlook for the year and its expected approximate expenditures. Starbucks agree to maintain disclosure controls and procedures designed to ensure that material information is disclosed as specified in SEC’s rules and regulations. This pertinent information is disclosed to the public so investors can make sound investment decisions and to make Starbucks operations transparent to the public. Financial Performance | | | | |   |  |  |  |  |  |  |  |  |  | |Current ratio |Current assets |2,756.40 | | |  |2,035.80 | | |  | | |Current liabilities |1,779.10 |  |1.55 |:1 |1,581.00 |  |1.29 |:1 | |Average: 1.42% | |  |  |  |  |  | | | | | | | | | | | | | | | |  |  |  |  |  |  |  |  |  |  | |Debt to total assets ratio |Total liabilities |549.40 | | |  |549.50 | | |  | | |Total assets |6,385.90 |  |8.6% |  |5,576.80 |  |9.9% |  | | Average: 9.3% | | | | | | | | | | |  |  |  |  |  |  |  |  |  |  | |Return on common |Net income - Preferred Dividends | 946 | | |  | 391 | | |  | |equity ratio |Common stockholders' equity | 3,675 |  |26% |  | 3,046 |  |13% |  | | Average: 19.5% | | | | | | | | | | |  |  |  |  |  |  |  |  |  |  | |Daily collection period |Accounts Receivable |302.70 | | |  |271.00 | | |  | | |Daily credit sales |282.60 |365 |391.0 |days |267.10 |365 |370.3 |days | |Average: 381 Days Current Ratio Average is 1.42% A liquidity ratio, which measures a company's ability to pay short-term obligations that he higher the current ratio, the more capable the company is of paying its obligations. In general, a ratio under one suggests that the company cannot pay off its obligations if they came due at that point. That is the case of Starbucks for 2010. The current ratio of 1.55 can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. A Quick Ratio is an indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company (Keown, Martin, Petty, & Scott, 2005). Starbucks Quick Ratio in 2009 to 2010 is 1.42, “however,” is slightly below the industry margin average. Debt to Total Assets Ratio Average is 9.3% A debt ratio indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load. A debt ratio of greater than 1 indicates that a company has more debt than assets; meanwhile, a debt ratio of less than one indicates that a company has more assets than debt, which is exactly the case of Ratio for Starbucks in 2009 to 2010. Return on Common Equity Ratio Average is 19.5% At over 19.5%, the increase in ROI between 2009 and 2010 is remarkable and shows that Starbucks increased its sales while increasing the utilization of its assets used to generate these sales and to achieve these results, the sales, operating income, and average total assets had to all increase proportionately (Starbucks, 2011). In the short term, this would be a good trend, but if it continues, it could be a sign that Starbucks is not keeping a big investment in assets because not that as the denominator in this ROI calculation, a low asset figure is used to help drive up the general result; meaning that if this trend continues, it may be an indication of increased operations rather than improvement in asset efficiency (Starbucks, 2011). Day’s Collection Period Average is 381 Days Activity ratios measure a firm's ability to convert different accounts within their balance sheets into cash or sales. Companies will typically try to turn their production into cash or sales as fast as possible because this will generally lead to higher revenues. Such ratios are frequently used when performing fundamental analysis of different companies. The Average Collection Period Ratio for Starbucks is a poor example of activity ratios with a margin of 381 days of margin for each ratio respectively (Starbucks, 2011). Conclusion Looking back, one can see that Starbucks takes very seriously its ethics and compliance program it has in place. Employees who violate the ethical vision of Starbucks can expect heavy punishment. The Standards of Business Conduct was put into place to steer employees/partners away from indulging in unethical behavior. Employees are expected to comply with all rules and regulations of Starbucks as a condition of employment. Starbucks’ debt to total assets ratio is slightly below the industry average, while the return on common equity ratio is above average. References Starbucks. (2010). Business Ethics and Compliance. Retrieved from http://www.starbucks.com/about-us/company-information/business-ethics-and- compliance Starbucks. (2009). Investor Relations. Retrieved from http://investor.starbucks.com/phoenix.zhtml'c=99518&p=irol-irhome U.S. Securities and Exchange Commission. (2011). How the SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital Formation. Retrieved from http://www.sec.gov/about/whatwedo.shtml University of Phoenix. (2011). Course syllabus. Retrieved from University of Phoenix, FIN/307- Finance for Business website. Keown, Martin, Petty, & Scott. (2005). Financial Management: Principles and Applications, Tenth Addition. Retrieved from https://ecampus.phoenix.edu/