A Financial Analysis Of Starbucks Coffee

A Financial Analysis Of Starbucks Coffee The aim of this financial analysis of Starbucks is to obtain a deep knowledge of annual financial reports and other corporate information, which can provide us measurable conclusions about the company. It is essential to understand the nature of companys business, by analyzing its economic and financial environment and strategy choices made in the past. This report will begin with industry and company description, followed by financial performance overview and projection of company development over the next two years. Conclusions drawn from above analysis will support managers in making a decision whether to invest in the company. 2. The industry description The coffee industry is growing since 2002, and in recent years there was a boom caused by consumers becoming more educated about espresso-based drinks and how they are made (H. Holmes, 2004). The coffee industry includes 20,000 outlets with combined revenue of $11 billion. Approximately 20 million people work in the coffee industry worldwide. Market is very concentrated at the top with the 50 companies taking up 70% of the sales, and fragmented at the bottom. Starbucks is the market leader (Franchise direct, 2010). 2.1. Starbucks description Starbucks Corporation is involved in: purchasing, roasting, and sale of whole bean coffees, cold-blended beverages, various food items, selection of teas, and beverage-related accessories and equipment, primarily through its company-operated retail stores. It was established in 1971 in Seattle, Washington. In 1986 Howard Shultz, Retail Sales and Marketing Manager, left the company to start his own retail coffee outlet, Il Giornale. In 1987 the original investors of Starbucks bought Peets Coffee and sold Starbucks to H.Shultz, who renamed Il Giornale to Starbucks. Firm expended with shops in Chicago and Vancouver. Starbuck was the first coffee company to offer employee stock options in 1991 and went public in 1992. In 1990s Starbucks started distributing coffee through department stores, bookstores, hotels, supermarkets and online; it signed contract with PepsiCo, AOL and Dyers and opened stores in Japan, Singapore, and UK. (Hoovers.com, 2008) Starbucks has built one of the worlds most powerful and recognizable brands and the image of a unique Starbucks Experience. Its mission statement was to revolutionize the coffeehouse industry by building a perception of a coffee shop as the third place between work and home. Wi-fi internet access in all stores makes it a place where customers can work. The companys goal was to make each location a community center for higher-income crowd of the young and college-educated, a group that tends toward higher luxury-consumption levels. (Wikinvest.com, n.d.) 2.2. Competition Starbucks close competitors include other specialty coffee shops, doughnut shops, and restaurants. Starbucks holds a dominant position in the coffeehouse market which is dispersed among the thousands of independent or small-chain coffee shops. Their largest direct competitors are Dunkin Donuts and McDonalds. Both offer specialty coffee at a lower price. Main competitors short description: Dunkin, specializes in fresh baked goods, but began offering coffee in 2005. Their level of sales is at $4.3b. Currently, their coffee sales start to exceed food sales, 5-10% of total sales are from espresso-based drinks. Dunkin has a 22.9% market share. (Starbucks in the aggregate category controls a 24.7% market share) McDonalds entered the coffeehouse industry in 2007, offering coffee at its flagship stores and opening its espresso-centric McCafe concept in some markets. McDs coffee sales generate $813m in additional annual income. Current revenue from coffee is around $490m, about 6-6.5% of Starbucks coffee sales. Their price point is at 18% discount on Starbuckss. The two competitorss targets are slightly different from Starbucks. They focus on cheaper coffee to go, whereas Starbucks is providing a premium experience for a luxury price. Consequently, they compete with each other more directly than with Starbucks, however McCafe has a negative impact on Starbucks. Analysts believe that competitors will settle into separate niches, McDonalds being the better value proposition and Starbucks offering higher quality experience. 3. Financial Performance 2007-2009 3.1. Overview of Starbucks performance 2007-2009 In the fiscal year 2007, Starbucks achieved a solid performance. All goals like new stores opening, total revenue growth, comparable store sales growth and considerable cost rises from dairy products were completed. The consolidated operating income in 2008 was $503.9 and operating margin 4.9%. This was a significant decrease compared with the past few years, the reason for decrease was a changing of structure. In 2009, Starbucks faced many challenges caused by unexpected economic environment and more intense competition, which had impact on the revenue, comparable store sales, operating income and margins. 3.2. Income statement analysis 2007-2009 While net revenues of Starbucks havent been stable from 2007 to 2009 (first increasing then decreasing), its total operating income have also been moving in 2008 it decreased by 52,2% and it was $503.9 million, 4.9% of total net revenues. The reason for decrease was high distribution costs and high rent expenses. In 2009 it increase again by $58.1. Main reason for this improvement was the restructuring charges which contain: assets impairment, lease exit and severance costs. In 2008 and 2009 while net revenues were $10,383 million and $9,774.6, total operating expenses were $9,992.7 million in 2008 and $9,334.5 in 2009 that means expenses were highly eating up more than 96% of the net revenues. The company suffered a major loss of 113.185% in net earnings between 2007 and 2008. Starbucks realized that he need to re-think its business strategy. In 2008, the company incurred restructuring charges of $266.9 million due to store closures in the US and Australia and reduction of the work force. Starbucks Company derived 84% of total net revenue from the company-operated retail stores. They opened 681 new stores in the last 12 months and this offset -3% losses in comparable store sales. Total net revenue of 2009 was showed a decrease of 5.9%, stayed at $9,774.6. The company-operated retail also went down. In detail, there was a change of nearly 6.7% in comparable, for 4% decrease in transactions and a 2% decrease in the average value per transaction. Figure 1: Net Revenue of Starbucks 2007-2009 (Starbucks annual financial report) Figure 2: Operating Income of Starbucks 2007-2009 (Starbucks annual financial report) Figure 3: Net earnings of Starbucks 2007-2009 (Starbuck annual report) 3.4. Balance sheet In term of assets, the total assets for the three years kept staying around $5,600 million. The total current assets in 2009 were $2,036 million. This was higher than in 2008 and 2007 due to the high cash and cash equivalents in 2009. The marketable securities in 2007 were $157 millions so in 2007 the company had more short term investment. On the other hand, the total liabilities in 2008 were the highest in three years because of the commercial paper and short-term borrowing in 2008. Additionally, there was no short-term debt in 2009 but it was the highest accrued expenses during the three years. The shareholders equity in 2009 was the highest in three years owing to the additional paid-in capital. 3.4. Ratio analysis: By doing ratio analysis, the company performance would be evaluated more clearly. As we can see the current ratio for the 2009 was higher than 2008 and 2007. In 2008 and 2007, the current ratio was under 1. That means Starbucks was not in good financial health in these two years. However, this situation didnt exist for a long time but it was not a good sign. The current ratio for 2009 was 1.29, so the company had 1.29 times more current assets than current liabilities. That means Starbucks was able to cover its own obligations. As the Exhibit 1 shows the quick ratio was low for 3 years that is all below 1. This indicates that the company had difficult to turning their inventory into cash like a short-term liability which the company could not pay off immediately. In 2007, the profit margin of Starbucks was 7.15%. This means 7 cents of each dollar is companys profit. In the next two years, the profit margin decreased by nearly 3 percent. That means the net income in 2009 was visibly lower than 2007. It may mainly caused from the increase of the restructuring charges. The return on assets ratio in the year 2007 was 13.77% while the ratio declined to 6.95% in 2009. From this we know Starbucks earned more in 2007 and the net income in 2007 was higher than in 2009. The reason for this decrease results is also from increase cost of the restructuring and innovation in 2008 and 2009. In terms of leverage ratio, to measure its ability to meet financial obligation from 2007 to 2009 the debt ratio was around 50%. That means nearly 50% of funds for assets came from debt. This does not seem good for the company and the most liabilities were long-term liabilities. The debt to equity ratio from 2007 to 2009 was pretty high and the highest point was in 2007, so in 2007 more debt was used. Interests earned ratio in Starbucks during the 3 years was extremely high like in 2007, the ratio was nearly 28 times, but finally in 2009 the ratio was around 15 times a year. It could be a really good margin since the company was able to cover its interest expenses 15 times with operating income. 3.5. Cash flow Operating activities: the net cash provided by operating actives in 2009 was highest during the 3 years. The main part of activities was depreciation and amortization. Same as in 2008 the company spent $604.5 thousands on depreciation and amortization. Investing activities: the net cash used by investing activities in 2007 was $-1201.9 thousands. The main costs here were addition to property, plant and equipment and the company also spent money on purchasing available-for-sale securities. But in 2009 the net cash used by investing activities was $-421.1 thousands. This was much less than in the 2007. The reason for this was the company spent less money on additions to property, plant and equipment. Financing activities: the net increase/ (decrease) in cash and cash equivalents in 2009 was $330.0 thousands. That means Starbucks gained money from financing activities in 2009 while in 2008 and 2009 they had losses in financing activities. The reason for the gain of money in 2009 was the profit in short-term borrowing and nothing spent on the issuing of long-term debts. 4. Forecasting 2010-2011 In order to project the next two fiscal year performance of Starbucks, particularly to construct the pro forma income statements of 2010 and 2011, establishing the revenue (or sales) projection should be the first task of all. In the next steps, the rest items of the statement would be projected by the percent of sales method since it does provide simple, logical estimate of many important variables (Higgins, 2009). In fact, there was a visible growth of Starbucks revenue in both volume and speed during the period of time from 2000 to 2009. Especially, from 2000 to 2007, the annual company sales increased in steady pace in the range of 20% to 29%. This impressive growth of Starbucks revenue was a sophisticated proof for its great business strategies during the beginning of this decade. However, the story had some changes since 2008. At the end of this fiscal year, Starbucks finished with $10,383 million revenue, in comparison with 2007, the growth ratio was 10.3% only, the lowest rat io since 2000. Continuously, in the midst of the US economic crisis, Starbucks sales got negative growth at 5.9% after finish the fiscal year 2009, stay at $9,744 million. Figure 4: Starbucks Sales chart in 2000-2009 (in Millions) Obviously, the trustable estimation should be the sophisticated one, that normally came from data base statistic analyses. Specifically, with the availability of the last ten years data of Starbucks revenue, it was possible to apply most of time series forecast methods such as moving average, weighted moving average, exponential smoothing, and so on. Since each method had its own advantages and limitations, it is necessary to compare how every method would reflect the same provided data (Exhibit 4). The value of W3 (for the Weighted moving average method) and ÃŽÂ ± (for the Exponential smoothing method) were decided high at 0.6 and 0.3 due to the emphasis of the closest time period in term of its impact to the next following year. As a result, the forecasts for 2010 sales were quite low though there was still a slightly growth than 2009. Among the three methods, the weighted moving average method seems to be the most appropriated one since it had the smallest value of the Mean Absolute Deviation. Basically, it proved that this method had less forecasting error than others and might be the best choice of all. To be clear, the plot chart was established base on the result of the three forecast methods in Figure X. Figure 5: Plot of Actual Sales and Forecast Sales for 2010 in three different models (in $ Million) Visibly, the line created from weighted moving average method was the closest one to the actual sales line. Its trend reflected almost similarly to the actual during the period of time from 2003 to 2009. That is why this method was chosen to determine the 2010 Starbucks sales instead of the two methods remaining. Objectively, $9,920.81 million may not be a number that Starbucks shareholders and investors really expect, even it showed slightly growth at 1.5% than 2009. However, in some levels, it seems to reflect quite appropriately the reality of the economic conditions as well as the Starbucks status. In spite of many positive signs of the economic recovery, Starbucks is still continuing its plan to close 800 retail stores over two year 2009 and 2010. Since the 566 stores had already released in 2009, another 244 are expecting to be cleared in fiscal year 2010. Thus, it could be hard to see a rapid growth in revenue of Starbucks at the end of fiscal year 2010. In regard to fiscal year 2011, since all of the three forecasting method above only allowed forecaster to see the result of 2010 revenue, the Linear Regression method was applied to estimate the sales in 2011. By collecting the sales data from the last three years (2007 to 2009) in quarterly, by the calculation of the regression line (Exhibit 11), the value of a ( the y intercept) and b (slope of regression line) were found. These two values were use to determine the dependent variable (y). The regression forecast of sales in equation is: y = a + bx (Exhibit 5 ). The forecast results of $10,078.21 and $10,189.41 for each year of 2010 and 2011 once again confirmed about the growth trend of Starbucks sales in the next two year. Nonetheless, base on the Starbucks plan of opening over 500 new stores in US and over sea during 2011, there should be a stronger increase in sales of Starbucks in this year. Subjectively, the authors believed that Starbucks revenue would increase no less than 15% in 2011. In other words, if the 2010 revenue was forecasted at $9,920.81 million, the same item in 2011 would be around $11,408.93 million. This result was also determined base on many positive factors that Starbucks could get benefits from such as the economic recovery in higher volume and speed, the more effective operating of Starbucks after the reorganizing process in its retail stores system as well as the objective increase in customers demand. Moreover, the volume of average transaction would be higher due to the increase in cost of goods sold and the im pact of inflation. In the Exhibit 6, all the operating performances of Starbucks from 2005 to 2009 were displayed in detail by the percent of total revenue. Base on those historical data and theirs visible trends, it was possible to anticipate logically the operating results for next two fiscal years 2010 and 2011 (Exhibit 7). According to the Exhibit 14, the net income of Starbucks stays at $466.27 and $479.18 million for each of 2010 and 2011. This may be considered as the acceptable results in regard to the challenges of the current circumstance. In fact, the forecast net income of 2010 is 19.3% higher than 2009. Since the revenue of 2010 did not rise in a strong level (only 1.5%), this impressive net income mainly came from the reducing the stores operating expenses and the more effective tax rate. In 2011, the operating expenses are expected to increase and stay at 95.2% of total sales, this is an objective fact that many items in operating expenses areas are in trend of steady increase year by year accompany with the business enlarge strategy of Starbucks, such as store operating expenses or general and administrative expenses. However, this ratio might be less in the next following years if the restructure process of Starbucks would get its aims of improving efficiency of cost control in various act ivities. Conclusion and recommendation Starbucks has been the largest specialty coffee retailer in its industry, but due to the problems with our economy, it has been seeing an effect on its sales and profits. The economic situation has affected consumers spending at Starbucks and other luxury goods. Starbucks also raised prices by an average of 9 cents a cup in July of 2007, causing U.S. customers who face higher food, fuel and housing expenses to go to McDonalds and Dunkin Donuts for cheaper coffee. These issues have affected Starbucks stocks performance in the market and are slowly making this stock an unfavorable one for potential investors. My recommendation for potential investors would be to hold off on purchasing stocks from Starbucks at this moment because now is not a good time to invest in them. I would advise these investors to keep looking into this stock until they see a positive change in its market pattern and that would be when I would advise them to purchase the stock; before its price increases higher t han the average market price. My recommendation for investors holding the share of the company would be to hold on to it until they can see for certain if Starbucks stocks will continue to go down and become a loss or maybe potential go back up and become profitable as they once were. After conducting my research, I believe the Starbucks stock will eventually start going up again after they put into effect their plans for the upcoming year. This stock is definitely a valuable one that I would not let go of if I owned shares in it. Starbucks hold value to its stock, which is why my advice to shareholders is to hold off on selling their shares until they see how the upcoming year goes for the company. In a response to the McDonalds challenge Starbucks is teaming up with Burger King, which has announced that by September 2010 it would begin selling Starbucks Seattles Best Coffee in about 7,250 U.S. outlets it would launch its first national advertising campaign.

Hamlets Relationships with Women in Hamlet by William Shakespeare Essa

Hamlet's Relationships with Women in Hamlet by William Shakespeare When reading Hamlet it becomes clear right from the beginning that Hamlet has a deep relationship with his mother, Gertrude, because he loves and respects her so much. In the opening scene we can see Hamlet and Gertrude engaged in tender, loving behaviour. But as the play develops we see this relationship suffer some great dents. Gertrude?s role in Hamlet is to show us how Hamlets insanity develops, her actions are a big part of what drives Hamlet mad. Because when she marries his uncle so soon after his fathers death Hamlet feels she is acting in such a betraying way that he is almost incapable of forgiving her. He has difficulties in coping with his fathers sudden death and to see his mother kiss and cuddle her new treacherous husband almost drives Hamlet over the edge. Hamlet, not wanting to offend his mother by telling her about his disapproval, hides his true feelings about the marriage. His disapproval then grows into hatred and is not let out until Hamlet approaches his mother boldly by taunting he...

The Constitution of the United States Essay -- Papers History USA Gove

The Constitution of the United States When the Constitution of the United States was first created in 1787, its purpose was to unify our country. However, by 1850, the United States had become 'source of sectional discord and tension and ultimately contributed to the failure of the union it had created.' What happened during the 63 years after it was first established to 'contribute to the failure of the union it had created?' One must look at what the Constitution promoted to make the country unified and what it did to make it disunified. Compromises such as 3/5, the Missouri, and the tariff of 1850 all helped to unify and shape our country. However, compromises such as the Fugitive Slave Law, Popular Sovereignty, and the slave trade all led to disunify our country. The large populous states naturally wanted the number of representatives in the new Congress to be based on population. The Virginia Plan provided that there would be two houses of Congress and that in each one representation would be based on population. Li ke many other ideas that have made history, it was remarkably simple. Why not divide the Congress into two houses? In one house (the Senate) each state, regardless of population, would have the same number of representatives. In the other house (the House of Representatives) each member would represent the same number of people. 'Quite appropriately this came to be called the Great Compromise. Other major compromises came on slavery and on the control of commerce. The southern states, where the slaves were really treated as property, still wanted the slaves counted as people for the purposes of representation in the New House of Representatives. Some delegates argued that if one kind of property was counted f... ... a truce that announced the opening of fight to the finish. The Missouri Compromise preserved sectional balance for over 30 years and provided time for the nation to mature. The Fugitive Slave Law however, helped lead to the disunification of both the country and the Constitution. The F.S.L. stated that any captured person who claimed to be a free black and not a runaway slave was denied the right to trial by jury. Popular Sovereignty held the greatest possibility maintaining the unity of the Democratic Party and national unity, but that like a lot of other things was proven to be wrong. Buchanan presumably premeditated the Dred Scott Decision but no one really proved it. In conclusion, like stated in the thesis, there were many factors that led to the nation's sectional discord and the unity within the nation. Some of which are still around today but work better.

Colonial Rule of the Dominican Republic Essay -- History Historical Do

In The Beginning The first instance of colonialism forced upon the inhabitants of the Dominican Republic was the â€Å"discovery† by Christopher Columbus on October 12, 1492. Ernesto Sagas and Orlando Inoa presented the interaction in their book The Dominican People: A Documentary History. The confrontation between these two diametrically opposed cultures proved to be â€Å"far from equal; the Amerindians’ Stone Age culture was no match for European military technology. The initial encounter took place on the Caribbean island of Hispaniola, part of which is now the Dominican Republic† (Inoa pg. 1). This was the first step in a trek through five and a half centuries of Dominican Republic history, and unfortunately much of it was filled with the horror of colonialism. In fact, the Dominican Republic became the â€Å"hub† for the colonization of the America’s, and acted as the stepping-stone for European colonizers into a vast, never before exploited goldmine for both natural and human resources. As Sagas and Inoa discuss, the island of Hispaniola, "became the center of the Spanish colonial enterprise in the New World. It was in Hispaniola where the first major contacts between Europeans and Amerindians took place, where the first exploitative economic activities in the New World were developed, where Europeans first established permanent settlements and colonial institutions, and where the stage was set for the colonization of the rest of the New World (Inoa pg. 1.)." Thus the groundwork was established for colonialism not only for the Dominican Republic, but for the entire hemisphere. According to Sagas and Inoa, colonization was inevitable because interaction with Europeans was predictable. They wrote, â€Å"[i]f Christopher Columbus had... ...l developments taking place in the Eurasian land mass. The encounter was far from equal;† (Inoa pg. 1). It began as an unequal interaction, and has remained to this day a relationship of aggressor versus defender. Bibliography The Center for Strategic Studies. Dominican Action—1965: Intervention or Cooperation?. Washington, D.C.: The Center for Strategic Studies, 1966. Chester, Eric Thomas. The U.S. Intervention in the Dominican Republic, 1965-66: Rag-Tags, Scum, Riff-Raff, and Commies. New York: Monthly Review Press, 2001 Inoa, Orlando, and Sagas, Ernesto. The Dominican People: A Documentary History. Princeton: Markus Wiener Publishers, 2003. Lundahl, Mats, and Lundius, Jan. Peasants and Religion: A socioeconomic study of Dios Olivorio and the Palma Sola Movement in the Dominican Republic. New York: Routledge: Taylor & Francis Group, 2000.

Speech: Adolescence and Higher Risk

The amount of teenages getting pregnant around the age of 15-17 is quite concerning . Although most Teenage Pregnancies are unintentional . It still means there are chances of them becoming pregnant. At the same time,Teenage Pregnancies associate with social issues. Finally they come to a time when they need help and support. Well , My name is Taylah and by now you should know my speech will be about Teenage Pregnancy. Firstly most teenage pregnancies are unintentional.Women of all age may have unintended pregnancies , but some groups , such as teens are at a higher risk. A lot of teenagers who become pregnant sometimes wish they weren't . This happens because they either dont want to be parents or they know it's not the right time. By the time they find out they are pregnant they start stressing out because it was never meant to happen and also because they dont want thier parents to know or to find out. Teenage Pregnancies associate with social issues , such as lower educational le vels and higher rates of Poverty.This happens because when they are pregnant they drop out of shcool and just worry about their baby. Although they are unemployed they go on a benefit which is when money is given by the goverment. Why do the young mums still lead a poor life inspite of money given by the goverment ? Well , they lead poor life because they dont think about the future , instead they spend all their money on their child. They don't save up any money and they keep buying things for themselves and their child. Finally they come to a time when they need help and support with their child.They need support with their child so they live a happy life and they need support from their family so that they dint get stressed out and start abusing their baby,and they also need help with buying the right items such as nappies ,food,clothes e. t. c. In conclusion,Teenage Pregnancy need to decrease as it is making NZ look very bad because the rate of Teenage Pregnancy is the highest i n NZ as compared to other countries in the world. In the end I would like to say that teenagers should stay in school and study so that they have a brighter future and can give a very dignified life to their families.

Modern World History Essay

The children had very different reactions to the policy of evacuation. They all had a lot of different experiences. Some liked it and felt as if it was an adventure for them, everything was new to them so they enjoyed it especially the ones who lived with wealthy hosts, some did not want to leave. It was like a holiday. But for these children some felt scared and didn’t like the change, for example this is Source I, taken from the Modern World History Heinemann textbook page 138, ‘Everything was so clean in the room. We were given face flannels and tooth brushes. We’d never cleaned out teeth until then. And hot water came from the tap. And there was a lavatory upstairs. And carpets. And clean sheets. This was all very odd. I didn’t like it. It was scary. ‘ This shows hard and weird it must have been for the children, all the changes would be very confusing. It was even worse though for the children who were mistreated, here is Source M from the same book and page. ‘Clarence and I used to sleep together and poor Clarence used to wet the bed because he was a very nervous kid. She (the foster mother) could never tell who’d done it so she used to bash the daylights out of both of us. So, of course, the more Clarence got hit the more he wet the bed. It was then we started to get locked in the cupboard. ‘ This source tells us how hard it must have been for children like Clarence. First of all they leave their family behind, leave the city they grow up in and don’t know what to expect just that it would be safer than the cities. Then they end up getting beaten by the foster parents. They would feel terrified and would probably wish they had never moved. It would also be very hard for children as they would miss their family and for little kids of about 5 and 6 it would be even harder. They would feel lost and not know what to do. For the mothers and fathers it would be probably be a sad experience letting your children go and live with strangers. You only knew that your children would be safer than in the city and hopefully wouldn’t be killed. You yourself wouldn’t know what to expect and would probably fear the worst. All you knew was that you had a job to do in the war and had to work hard. You didn’t know who you children were staying with or what they were like so it would be a traumatic experience for the parents as well as the kids. Only mums with babies were allowed to evacuate out of the cities with them otherwise they had to work. But at least you knew you were doing your bit and hopefully the hard work would take your mind off things and stop you from worrying. The parents knew the policy was a good idea but probably still had their doubts about it. Another reaction was from the emergency services. They seemed to like it. It gave them a lot more time to concentrate on the war and big things rather than having little kids causing trouble. They liked the situation and it helped them out a lot which was another reason why the evacuation itself took place. There was a lot less people in the cities, less crimes, fires etc. which made their job a lot easier which I’m sure they appreciated. They definitely liked the policy. So this shows the different reactions about the policy. There were a lot of mixed opinions on whether it was good or not. Some liked it some didn’t, but in my opinion it was a good thing but maybe if I was there I might have a different reaction to it.

Record Management

Running head: Records Management Name Instructor Date of submission Executive Summary An effective records management program is an integral part of an organization’s effective business operations. Organizations must consider records management requirements when implementing the system management strategies or whenever they design and augment an electronic information system. Organizations are required by law to â€Å"make and preserve records containing adequate and proper documentation of the organization, functions, policies, decisions, procedures, and essential transactions of the organization. This legal requirement applies to electronic records kept by the organizations as well. Organizations that do not consistently adhere to standard records management practices run the risk of not having records that can be depended upon in the course of subsequent business transactions or activities. This paper focuses on the various methodologies that organizations can implement in order to develop ECM/ERM strategies that are backed with electronic signature systems. It also gives an insight into the various ways through which organizations can implement good IT practices to complement or parallel existing records management practices. In systems implemented in line with ECM/ERM guidelines, developing the most efficient systems will form the core of organizational success. This will be achieved by making electronically signed records the core of organizational IT systems. The organizational IT professionals will come to terms with the fact that signatures are an integral part of the records they keep. If the records need to be preserved, whether for a short duration of time or permanently, then the organization is required to promote integrity of its records by electronically signing them in scheduled series. Additionally, this paper discusses the general principles that govern application of electronic signature technology in organizations. Organizations can accomplish electronic signatures through the use of different technologies such as Personal Identification Number (PIN), smart cards and biometrics. However, some organizations can decide to apply additional technology specific-record management systems. Introduction Records Life Cycle vs. System Development Life Cycle According to Adam (2008), the terms â€Å"records life cycle† and â€Å"system development life cycle† are significant concepts that are often confused in information technology and records management discussions. Records life cycle: The records life cycle refers to the life span of a record from the time it is created or received to its eventual disposition. The process is usually carried out in three main stages: creation, maintenance and use, and eventual disposition (Sampson, 2002). Majorly, this paper focuses on information creation stage since the electronic signature record is created at the initial stage of the records life cycle. The second stage, maintenance and use, is the part in the records life cycle in which the record is maintained at the organizational level while in active use, or is maintained when not in frequent use. The final stage of the records life cycle is disposition, which marks the ultimate fate finish to the record. Most organizational records are categorized as having either a â€Å"temporary† or â€Å"permanent† disposition status (Addey, 2002). Temporary records are held by organizations for stated periods before they are destroyed or deleted. On the other hand, permanent records are initially held by organizations before they are eventually transferred to state and other involved agencies. The eventual disposition of the electronically-signed records is subject to debate between the involved agency and the statutory bodies, in which some organizations may be authorized to dispose some of the records. System development life cycle: The â€Å"system development life cycle† gives a description of the developmental phases that an electronic information system entails. These phases typically include initiation, definition, design, development, deployment, operation, maintenance, enhancement, and retirement. The most important steps in all this are the definition, development, and refinement of the data model, which mostly involves treatment of the records being created or managed (Stephens, 2007). Information systems are developed according to system development methodologies, including those that organizations use to implement the electronic signature as required by the statutory bodies; which govern production and augmentation of existing records. The records life cycle usually exceeds the system development life cycle. When it does the organization involved needs to retain the particular record for a period of time longer than the life of the electronic information system that generated the electronic signature. However, this presents special challenges, such as maintaining the integrity of record in case of system migration. Background Characteristics of Trustworthy Organizational Records Reliability, authenticity, integrity, and usability are the features used to describe trustworthy records from a records management perspective. An organization needs to consider these features when laying implementation plans for ERM programs; such that it can meet its internal business and legal needs, as well as external regulations (Boiko, 2002). The degree of effort that an organization puts into ensuring that these characteristics are attained depends on the organizational business strategies and the structure of the market environment. Transactions that are of great importance to the organization require greater assurance level than those usable with transactions of less criticality to the organization Reliability: A reliable record is one that carries contents that can be trusted as a whole and actual representation of the transactions, activities, or facts to which it refers and can be relied upon in the subsequent transactions Authenticity: An authentic record is one that is proven to be what it purports to be and to have been created or sent by the person who purports to have created and sent it. A record should be created at the point in time of the transaction or incident to which it relates, or soon afterwards, by individuals who have direct knowledge of the facts or by instruments routinely used within the business to conduct the transaction (Wiggins, 2007). To demonstrate the authenticity of records, organizations should implement and document policies and procedures which control the creation, transmission, receipt, and maintenance of records to ensure that records designers are authorized and identified and that records are protected against unauthorized addition, deletion, and alteration. Integrity: The integrity of a record refers to the state of being complete and unchanged. It is essential that a record be protected against changes without signed permission. Records management policies and procedures should specify what, if any, additions or annotations may be made to a record after it is created, under what circumstances additions or annotations may be authorized, and the people authorized to make the changes. Any authorized annotation or addition to a record made after it is complete should be explicitly indicated as annotations or additions. Another aspect of integrity is the structural integrity of organizational records. The structure of a record refers to its physical and logical format; as well as the relationship between the data elements contained in the record. Failure to maintain the structural integrity of organizational records can easily impair reliability and authenticity of the record Usability: These are records that can be located, retrieved, presented, and interpreted. In any subsequent retrieval and use, the record needs to be directly connected to the business activity or transaction which produced it. It should be possible to identify a record within the context of broader business activities and functions. The connection between records which document a sequence of activities should be maintained. These contextual linkages of records should carry the information needed for an understanding of the transaction that created and used them. Preserving Trustworthy Records For a record to remain reliable, authentic, with its integrity maintained, and useable for as long as the record is needed, it is necessary that it’s content, context and sometimes structure is maintained. A trustworthy record preserves the actual content of the record itself and information about the record that draws relation to the context in which it was first designed and used. Specific contextual information will vary depending upon the business, legal, and regulatory requirements of the business activity (e. g. , issuing land use permits on Federal lands). It is also necessary to preserve the structure of the record, as well as the content arrangement. Failure to preserve the content structure of the record will affect its structural integrity. That, in turn, undermines the record’s reliability and authenticity; which is of great essence. There are special considerations when dealing with the preservation of the content, context, and structure of records that are made possible by Electronic Record Management through electronic signatures: †¢ Content: The electronic signature or signatures in a record are part of the content. They give a clear indication on who signed a record and whether that person gave approval for the record content. In organizations, multiple signatures are an indication of initial approval and subsequent approvals. It should be understood that in ERM, signatures should accompanied by dates and other identifiers such as organizational titles. All of these peripherals are part of the content of the record and needs to be kept well. Lack of this information seriously impairs the reliability and authenticity of a record †¢ Context: Some electronic signature technologies are centered on individual identifiers which are not embedded in the record content, trust paths, and other means used to create and verify the validity of an electronic signature. This information is not inclusive of the record content but is nevertheless significant. It provides contextual support to the record since it provides evidence that can be used to support the authenticity and reliability of the record. Lack of these contextual records seriously impairs subsequent attempts to verify validity of the organizational records. †¢ Structure: Preserving the structure of a record means that the physical and logical formats of a record are well drawn. In doing this, organizations must ensure that the physical and logical formats of the record elements remain intact physically and logically. An organization may find it necessary to maintain the record structural form through the use of an electronic signature. In that case, the organization is required to preserve both the hardware and software that created the electronic signature, which can either be encryption algorithms or chips. This ensures that the electronic record can be revalidated at a later time when required Advantages and disadvantages of using ECM/ERM systems in organizations The main advantage of organizations using ECM/ERM approaches in organizations is the fact that it offers the platform to verify the validity of records. There are various approaches that organizations can use to achieve trustworthiness of electronically-signed records within their systems over time. This requires that organizations choose an approach that is applicable, fit for their particular line of business; as well as risk assessment The first approach may involve an organization deciding to maintain adequate documentation of its records’ validity. This involves maintaining of adequate documentation of the records such as, trust verification of records gathered at or near the time of record signing. This record keeping approach enables organizations to retain contextual information through an adequate document processes carried out at the time the record was electronically-signed, along with the electronically-signed record itself. The additional contextual information is then retained for as long as the electronically-signed record is retained. Thus the agency preserves the signature’s validity and meets the adequacy of documentation requirements by retaining the contextual information that documented the validity of the electronic signature at the time the record was signed. Maintaining adequate documentation of validity gathered at or near the time of record signing may be preferable for records that have permanent or long-term retentions since it is less dependent on technology and much more easily maintained as technology evolves over time (Rockley, 2003). However, using this approach, the signature name may not remain readable over time because of bit-wise deterioration in the record or as a result of technological obsolescence. Agencies must ensure that for permanent records the printed name of the signer and the date when the signature was executed be included as part of any human readable form (such as electronic display or printout) of the electronic record. Similarly, an organization may opt to maintain the capacity to re-validate digital signatures. The re-validation approach demands that an organization retains the ability to revalidate the digital signature, together with the electronically-signed record itself. The information necessary for revalidation (i. e. , the public key used to validate the signature, the certificate related to that key, and the certificate revocation list from the certificate authority that corresponds to the time of signing) must be retained for as long as the digitally-signed record is retained. Both contextual and structural information of the record must be retained. This is of benefit to the organization since it can review it records over time effectively (Jenkins, 2005). However, this approach of record keeping is potentially burdensome, particularly for records that are digitally signed records with long retention requirements. Conclusions Record keeping is consistently becoming a priority for many organizations with advancement in technology. The challenging part is keeping up with the drastic options that are being launched within short periods. As discussed in this paper, the most efficient method of managing organizational records is through the adoption of Electronic Content Management or Electronic Record Management systems (Halvorson, 2009). This is mostly achieved by electronically signing records depending on their importance and usage in the organization. In doing this, organizations are able protect the reliability, authenticity, integrity, and usability, as well as the confidentiality, and legitimacy of their records. When implementing electronic signature technology, organizations are expected to accord special consideration to the use of electronic signatures in electronic records that preserve organizational legal rights. This is based on the fact that long-term temporary and permanent electronically signed records have greater longevity than typical software obsolescence cycles, it is certain that organizations will be required to migrate those records to updated versions of software to maintain access to the records (Hackos, 2002). The software migration (as opposed to media migration) process may invalidate the digital signature embedded in the record. This may adversely affect an agency’s ability to recognize or enforce the legal rights documented in those records. References Adam, A. (2008). Implementing electronic document and record management systems. Boca Raton: Auerbach Publications. Addey, D. (2002). Content management systems. Birmingham: Glasshaus, cop. Boiko, B. (2005) Content Management Bible. Hoboken: John Wiley & Sons. Hackos, T. (2002). Content management for dynamic web delivery. New York: John Wiley & Sons. Halvorson, K. (2009). Content strategy for the web. Indianapolis: New Riders. Jenkins, T. (2005). Enterprise content management: what you need to know; [turning content into competitive advantage]. Waterloo: Open Text Corp. Rockley, A. (2003). Managing enterprise content: a unified content strategy. Indianapolis: New Riders. Sampson, K. (2002). Value-added records management: protecting corporate assets, reducing business risks. West port: Quorum Books. Stephens, D. (2007). Records management: making the transition from paper to electronic. Alexa: ARMA. Wiggins, B. (2000). Effective document management: unlocking corporate knowledge. Aldershot: Gower.