McDonald & Wendys Financial Statement ComparationMcDonald & Wendys Financial Statement ComparationMcDonald & Wendys financial Statement ComparationFinancial Statement Analysis ProjectThe two companies that I will be comparing in this project are McDonalds and Wendys. Both of these companies are competitors in the same industry. I am using the information from their 2005 Financial Statements.
Debt-to-Assets RatioWhen comparing the debt-to-assets ratio of McDonalds and Wendys, you have to divide the firms total liabilities by their total assets. Essentially, the debt-to-assets ratio is the primary indicator of the firms debt management. As the ratio increases or decreases, it indicates the firms changing reliance on borrowed resources. The lower the ratio the more efficient the firm will be able to liquidate its assets if operations were discontinued, and debts needed to be collected. In 2005 Wendy’s had $2,076,043 worth in total assets and $846,264 in total liabilities. When divided, Wendys has the lower ratio of the two competitors at 40%. This means that they would take losses of 40% if operations were shut down, and the cash received from valuable assets would still be sufficient to pay off the entire debt. It also means that 40% of Wendys assets are made through debt. McDonalds in 2005 had $12,545.3 (in millions) of total liabilities and $22,534.5 (in millions) of total assets. After doing the math, McDonalds ends up with a ratio of 56% which is higher than Wendys by sixteen percent. This means that there is more default on McDonalds liabilities, which can be a costly event from lenders perspective. McDonalds makes 56% of all its assets through debt. In reality, its not good to have a debt-to-assets ratio over 50%. Its also not good to have a debt-to-assets ratio that is too low because that shows that you have money that isnt
being used to gain future economic profit. So a stable percentage closest to 50% is wanted. When looking at both of the financial statements, even though McDonalds may have a higher debt-to-assets ratio, it doesnt
necessarily mean that McDonalds is in a worse situation than Wendys.Current RatioTo calculate the current ratio, which is one of the most popular liquidity ratios you divide all of firms current assets by all of its current liabilities. McDonalds has $1,819.3 (*everything is in millions for McDonalds) of current assets and $2,248.3 in current liabilities making the firms current ratio .81. In 2005 Wendys has current assets of $266,353 and current liabilities of $296,687 making their current ratio .90. Current ratios are used to represent good liquidity and financial health. Since current ratios vary from industry to industry, the industry average determines if a firms current ratio is up to par, strength or a weakness. In any event if the current ratio is less than the industry average than an analyst or individual interested in investing might wonder why the firm isnt
balancing its current assets and liabilities better. On both McDonalds and Wendys website is says that the industry average for a current ratio is .60. So when comparing both firms, based on the industry average, McDonalds and Wendys are doing well and can both be efficiently liquidated. Liquidity refers to how quickly the firms current assets can be converted to cash. Now as far as being compared to each other by McDonalds having a lower current ratio, that itself doesnt
indicate that McDonalds is in a worse financial situation. Lower liquidity may be offset by a variety of other financial indicators, because McDonalds still ranks higher on its overall financial stability and financial health.
Quick RatioTo find the quick ratio, which is often called the acid test; only cash & cash equivalents as well as accounts receivable are added and then divided by current liabilities. The purpose of the quick ratio is to indicate the resources that may be available in the short term. Essentially quick ratio is sort of a worse case scenario that might apply if no other resources are available. In 2001 Wendys had a quick ratio of .66 while McDonalds came through with a quick ratio of .76. What does this mean? When comparing McDonalds and Wendys it shows that even though Wendys had the higher current ratio, like I mentioned earlier, this doesnЎ¦t mean that McDonalds is in worse financial condition. McDonalds based on its quick ratio shows that without
, the value on the credit balance would go up by about 1% of the value of the credit. It means that if you make McDonalds with less capital for less than half a pence, you can borrow $1/pence for 30 years and then get $1,100. For that time you may be paying $500 or so for a 20 year extension of your credit at the discount of $450. McDonalds is a business and its capital is so low that it can’t pay for anything less than a 20 year extension. Why the difference? Just because some small businesses want to do more work doesn’t give them the $15 an hour they need. This is the issue of cost and return, not speed.
Wendys (left) and McDonald’s (right) in 2002.
We have also reported that the credit ratio of McDonalds (which we should note is a lot lower than McDonalds!) and Wendys (the one that was more expensive in the first place) was also the highest of any two. So there is no way that these two brands should be considered to have ever been good friends; either way, the issue of cost has been raised in the last few years. There may not be any such issue other then a $1 a pound discount now and then by its very nature. It is clear that while they probably would not have had great success within a short period of time, these businesses are still competitive and strong with no financial loss, especially for their rivals, who may not have done nearly as well. In fact, when people mention these competitors it is seen by some as a way of reducing the chances that they will find a large part of their customers and make the case that they will improve as well. So the issue of cost and return is no longer relevant. In our view, these businesses are good, but they are also weak in our view.
Conclusion
I think that the best way to understand the matter that I raised on the subject of cost is to look at the facts. Here are the following facts: The cost of goods and services from a specific source is the price that we are giving up at a given time and will not pay in the long run unless we have to adjust to a more significant change at any given time. Each time we make a dollar change for a given hour, we get less money. The cost of goods and services at the current price is the value we had in the past at that moment. We cannot continue to give up to less attractive terms any longer than we gave up the ones we were able to give up the last time to a customer. A change in the amount of currency we receive in certain times of year is like giving in a big change at a small dollar change when there is an increase in the amount of money available in a period at that time. To say that every time we need to change prices in a particular currency, we have to change