What effect did the one-time charge have on the company

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Reference no: EM132608912

Starbucks Corporation reported the following data in its 2018 and 2017 10-K reports

($ millions)

Sept. 30, 2018

Oct. 1, 2017

Total assets

$24,256.4

$14,365.6

Total liabilities

22,980.6

8,908.6

Sales revenue

24,719.5

22,386.8

Cost of goods sold

10.174.5

9,034.3

Other expenses, including income taxes

10,027

10,467.6

Question A) In 2018, Starbucks reported a lawsuit is in process where plaintiffs allege that Starbucks did not inform customers about the chemical acrylamide in their products (as required by California law). Starbucks did not record a liability (and expense), stating that the loss was possible but not probable. What would Starbucks' ROE have been if it had accrued a $3,700 million litigation liability (and expense)? What effect did this one-time charge have on the company's return on quity ratio? (Hint: Compute the ratio and include the litigation charge in other expenses, reduce stockholders' equity, and compare to the ratio computed in b.) Ignore tax effects.

Question B) Starbucks disclosed information about the pending litigation in the footnotes to its 2017 financial statements (before the case was settled). Discuss the costs and benefits of disclosing information in its 2017 annual report

Reference no: EM132608912

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