A. Discuss the relation between net income and cash flow from operations for eac

Question

A.     Discuss the relation between net income and cash flow from operations for each of the three years.

Exhibit 3.34 Starbucks Corporation Comparative Statements o Cash Flows amounts in millions) (Case 3.1) Fiscal Year Ended OPERATING ACTIVITIES: Net earnings including noncontrolling interests Adjustments to reconcile net earnings to net cash Sep 30, 2012 Oct 2, 2011 Oct 3, 2010 1,384.7 $1,248.0 948.3 provided by operating activities: Depreciation and amortization Gain on sale of properties Deferred income taxes, net Income earned from equity method investees, 580.6 61.1 (49.3) 540.8 550.0 (30.2) 106.2 (42.0) (17.2) net of distributions Gain resulting from acquisition of joint ventures Stock-based compensation Other Cash provided/(used) by changes in operating assets (32.9) (55.2) 145.2 33.3 153.6 23.6 113.6 75.5 and liabilities: Accounts receivable Inventories Accounts payable Accrued liabilities and insurance reserves Deferred revenue Prepaid expenses, other current assets and (90.3) (273.3) (105.2) 23.7 60.8 (33.4) 123.2 (3.6) (18.7) 24.2 (88.7) (422.3) 227.5 (81.8) 35.8 (19.7) 1,750.3 (22.5) 1,612.4 other assets 17.3 Net cash provided by operating activities INVESTING ACTIVITIES: Purchase of investments Maturities and calls of investments Acquisitions, net of cash acquired Additions to property, plant and equipment Cash proceeds from sale of property, plant, 1,704.9 (1,748.6) 1,796.4 (129.1) (856.2) (966.0) 430.0 (55.8) (531.9) (549.0) 209.9 (12.0) (445.8) and equipment Other Net cash used by investing activities 5.3 (13.2) (1,019.5) 2.3 (974.0) (789.5)

Explanation / Answer

Net income is calculated by reducing cost of sales, operating expenses, depreciation, amortization, interest and taxes from total revenue.

Cash flow from operations is calculated as a sum of net income, adjustments for non cash expenses and changes in working capital.Non cash expenses like depreciation and amortization are added back to net income while calculating cash flow from operations , because these do not actually result in any cash outflow.

For the Fiscal year ending October 3, 2010: net income of 948.3 is adjusted with non cash transactions and changes in working capital to arrive at cash flow from operations of 1704.9

For the Fiscal year ending October 2, 2011: net income increased to 1248.0 but cash flow from operating activities decreased to 1612.4 due to significant amount of gain on sale of properties, income earned from equity method, gain on acquisition of joint ventures,significant increase in accounts receivable and inventories, and significant decrease in accrued liabilities and insurance reserves.

For the Fiscal year ending September 30, 2012: net income increased to 1384.7 and cash flow from operating activities also increased to 1750.3 due to no gain on sale of properties,no gain resulting from acquisition of joint ventures,increase in stock based compensation,increased in accrued liabilities as compared to last year, also although there is an increase in inventories but it is significantly lesser as compared to last year.

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