Core income is related to the income (revenues - expenses) related to normal business activity.
The notes to the financial statements give a breakdown of revenues.
- Beverage (58%)
- Food (16%)
- Packaged and Single-Serve Coffees and Teas (14%)
- Other (12%)
Comprehensive income is comprised of the unrealized gains and losses of the company, typically from equity investments, as well as income that is not part of core income.
The Consolidated Statements of Comprehensive Income provide information about Starbucks' comprehensive income.
Included in Starbucks' "other comprehensive income" are the following:
- Income from noncontrolling interests
- Unrealized gains/losses from available-for-sale securities
- Unrealized gains/losses from hedging instruments
- Translation adjustments
- Reclassification adjustments
Quality of Earnings
Examination of the company's profitability to determine if they are from manipulation or from true growth.
- The financial statements for 2014-2016 show an increase in net income, and good operating cash flows throughout those years.
- The company has been repurchasing some of their common stock, but it is a small amount compared to the total equity shares outstanding.
- Total revenue is increasing at a higher rate than accounts receivable (11% vs. 7% in 2016).
Operating vs. Non-Operating Income
Operating income is related to the day-to-day activities of business. It is similar to core income, but is focused only on operating activities.
Non-Operating income is everything else.
- Starbucks' operating income includes the revenues and expenses associated with its sales in the food service industry.
- The non-operating income would include their gains and losses from other activities, impairment losses, unusual, infrequent or other non-operating revenues or expenses.
Permanent vs. Transitory Earnings
Permanent income is similar to core income, both are based on the company's normal business activity, and are expected to continue into the future.
Transitory earnings result from nonrecurring events, and are not expected to continue into the future.
- Starbucks' permanent income is similar to net income, but there are some transitory items on the statement that must be excluded.
- Transitory income would include litigation credit or expense, gain from acquisitions, loss on extinguishment of debt, items found on the income statement that are not consistent.
Implications for Projecting Future Earnings
Starbucks' revenue, net income, and cash flows have been trending consistently, but not significantly, upward. Based on this consistency, and the quality of income, it can be reasonably assumed that future earnings will continue to trend as they have in years past.
Financial Statement Analysis (Vol. 1). (2016). McGraw-Hill Education.
Quality of earnings. (n.d.). Retrieved from http://www.investopedia.com/terms/q/qualityofearnings.asp
Starbucks Financial Statements. (n.d.). Retrieved February 20, 2017, from https://www.sec.gov/cgi-bin/viewer?action=view&cik=829224&accession_number=0000829224-16-000083&xbrl_type=v#