Analysis - McDonalds Industries

Managers review financial data because it's the process of determining and evaluating financial ratio. The ratio analysis helps a company determine something about a company's activities, which includes the difference between current assets and current liabilities or accounts receivable and annual sales. Most ratios include the financial statements where it contains figures of assets, liabilities, profit, and losses. Financial ratio can indicate the company's strength or weakness.

McDonald's goals are to provide quality service to all of it customers in a cleanliness establishment, and instill value in each and every one that is part of the McDonald's corporation. The key to McDonald's success is balancing the interests of owner/operators, suppliers, and company employees. The company has a good business ethics which hold itself to high standards of fairness, honesty, and integrity.

The current ratio tells you, does the business have enough current assets to meet the payments for the current liabilities, and still have a safety margin. Therefore, looking at McDonald's balance sheet it tells you that for every dollar in current liability they have $1.49 of current asset. As a result, McDonald's has been able to increase its current ratio from $1.39 in 2008 to $1.49 in 2010 by increasing its current assets. The quick ratio gives the investors a better picture of a company's ability to meet current obligations then current ratio. It also tells you whether a company can pay off their current debt liabilities without relying on their inventory. As a result, McDonalds has an excellent quick ratio (which is $1.46) because it can pay back its current liabilities. Cash ratio measure the ability to repay its current liabilities by only using its cash and cash equivalents. In other words, if the company has a cash ratio above one then the company is able to pay its liabilities back in the short-term. In many cases, like McDonalds, they choose to keep their current liabilities the same as their cash so they can use a portion of the cash to generate profits. Therefore, McDonald's cash ratio looks like it's been consistent in the past year which is about .81.

McDonald's is a publicly traded company. The company works to provide sustained profitable growth for their shareholders wealth. Equity multiplier ratio is used to measure a company's total assets against the stockholder's equity, which provides a way for investors to examine the level to which a company uses debt to finance its assets. In example, McDonald's has 1 to 2.18 equity multiplier, which means that the company has a high financial leverage and they rely more on debt to finance all of their assets. Times interest earned ratio is a measurement of the long-term viability of a company to pay off its debts. Therefore, the higher value of the time interest earn the more favorable, which means the greater the chance ability the company is able to repay its interest and debt. In general, McDonald's is favorable to creditors because they have a high ratio for the past 3 years and this means that the lenders are willing to lend to them because they will be able to pay back their loan in the future.

Total asset turnover is useful in determining the amount of sales that are generated from each dollar of asset. While examining McDonald's asset turnover you can see that it very low because it have low receivables and inventory. Therefore, the company has been utilization it assets inefficient. In other words, looking at McDonald's pass 3 years financial statement they declined in 2008 to 2009 and it look like in 2009 they reviewed their financial statement and their asset turnover increase about .0004, and figuring out ways to increase its asset turnover.

Net profit margin equation is used to determine how much a company's revenues is profitability and how the company can control its cost. In most cases companies likes a high profit margin McDonald and still finding ways to increase. Reviewing the financial statements this company is finding way to increase its profit margin by growing its sells and in return getting a higher net income each year. Return on assets (ROA) looks at the ability of a company to utilize its assets to gain a net profit. After finding the asset turnover and net profit margin, you can easily find the ROA by multiplying net profit margin by asset turnover because it will cancel out revenue which will leave you with the asset. Therefore, McDonald's evaluating its company how well their company is generate cash flow on their assets. However, McDonald's cash inflow on assets has been the same consisted for the pass three year which is about 15%, which mean that this company has a high return on its assets and can use its assets efficiently. Return on Equity ratio (ROE) helps to measure a company profitability of stockholders' investments. Therefore, the higher