Free Report About Financial Statement Analysis
McDonald’s Corporation. McDonald’s Corporation annual report 2013 (2014) reveals the increase of net income from $27,006 to $28,106 million at the annual rate of 2% for the three-year period ended December 31, 2013. We have selected the most applicable financial ratios to perform the in-depth analysis of the company over the period from 2011 to 2013.
The proportion of current assets available to cover current liabilities of McDonald’s Corporation (or current ratio) was 2.43 in 2011, 2.05 in 2012 and 2.58 in 2013. Basically, the company has the sufficient short-term assets such as cash equivalents, receivables etc. to cover the short-term liabilities (e.g. current payables, taxes). According to Financial Trends Within Restaurant Industry (2015) the average current ratio is 0.61. Therefore we can assume the working capital ratio of McDonald’s Corporation is high and no liquidity issues are anticipated in nearest future.
The company’s Return On Equity (ROE) ratio is important in understanding how much shareholders benefit from investment in the company and profitability indication. The ROE of McDonald’s Corporation in 2011 was 0.38, in 2012 – 0.36 and 0.35 in 2013. The profitability of investment in McDonalds Corporation was declining during the last three years but is still relatively high. No additional share issues were performed in the three-year period ended December 31, 2013. The ROE decrease can be explained by the excessive increase of paid-in capital in comparison to the growth of net income.
For such companies as McDonalds and Burger King the Operating Cash Flow to Sales is an important indicator to understand how company’s sales turn into cash. For McDonald’s Corporation this ratio was balancing in range of 0.25-0.26 during the three-year period ended December 31, 2013. Basically, the 25% of sales are turned into cash or cash equivalents. For fast-food industry this indicator shows strong positions of the company and the ability to generate sufficient amounts of cash throughout operating activities.
Burher King Worldwide. The Burger King Worldwide Annual Report (2014) reveals significant increase of net income over the reviewed three-year period – from $88.1 million to $117.7 in 2012 (or by 33.6%) and to $233.7 million in 2013 (or by 49.6%). The growth is explained by the increase of the number of restaurants. The network was expanded by 670 restaurants in 2013, representing the 5.2% restaurant system growth comparing to 2012.
The current ratio of Burger King Worldwide has increased from 1.53 in 2011 to 2.24 in 2012 and to 3.11 in 2013. The positive change is stimulated by the increase of current assets due to the mentioned network growth and 13% decrease of current liabilities in 2013 comparing with 2012. The current ratio is remarkably high for restaurant industry.
However, the ROE of the company was only 0.08 in 2011 rising to 0.10 in 2012 and eventually to 0.15 in 2013. Lower operation expenses and higher operation income has lead to the improvement of ROE ratio in the period analyzed. The ROCE indicator has also increased: from 0.06 in 2011 to 0.07 in 2012 and to 0.09 in 2013. The Burger King Worldwide revealed the positive dynamics in the ability to generate 9 cents of profit on each dollar invested. The further expansion of the company can improve the ROCE outcome given that the ratio is lower than industry average. It can be noted that no new significant long-term loans were taken during the reviewed period.
The ability to generate cash and cash equivalents through the operating activity has significantly improved. The proportion of net operating cash inflow to net sales has decreased from 0.17 to 0.11 in 2012; however in 2013 it increased up to 0.28 which is rather positive figure.
McDonald's Corporation Annual Report 2013. (2014, February 24). Retrieved February 4, 2015, from http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/McDs2013AnnualReport.pdf
McDonald's Corporation Annual Report 2012. (2013, May 23). Retrieved February 4, 2015, from http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/Investor 2013/2012 Annual Report Final.pdf
Burger King Worldwide Reports Fourth Quarter and Full Year 2013 Results. (2014, February 13). Retrieved February 4, 2015, from http://investor.rbi.com/~/media/Files/B/BurgerKing-IR/documents/legacy-filings/fourth-quarter-and-full-year-2013-results.pdf
Financial Strength Information and Trends Within Restaurant Industry. (n.d.). Retrieved February 4, 2015, from http://csimarket.com/Industry/industry_Financial_Strength_Ratios.php?ind=914
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