Liquidity Ratios
Liquidity Ratios measure the ability of a company to meet its short-term needs. The ratios include Current ratio and Quick ratio among others. For McDonalds, it can be seen that the Current ratio has been increasing over the past three years from 1.25 in 2011, 1.45 in 2012 and finally 1.593 in 2013. In increase in the current ratio means that the company cash sales are increasing as opposed to credit sales. Such an increase makes the business more liquid hence in a position to meet its short term obligations much better as opposed to business with current ratios of below 1. The quick ratio of the business could also be seen increasing from 1.22 in 2011, 1.41 in 2012 to 1.55 2013. Quick ratio involves the calculation of the business’s most liquid short-term assets minus the inventory.
As compared to the general industry, McDonalds could be said to performing much better. In the year 2012, the Current ratio of the industry was 1.222 while the quick ratio was 0.65, this is compared to McDonald’s 1.45 and 1.41 respectively. McDonalds could be seen to be on average 15% better than other organizations in the same industry. This could be attributed to its cash sales and increased number of customers due to the quality services it offers.
Efficiency Ratios
Efficiency Ratios measure how well a company performs its daily duties such as collection of credit and the management of stock. The ratios included in this category include receivable turnover, days sales outstanding, inventory turnover, days sales inventory and asset turnover.
The Inventory and Asset turnover of McDonalds could be seen to have been decreasing since 2011. This means that the business has been slowing down as at the rate at which inventory and assets are being converted into cash is slower than the previous years. However, receivable turnover could be seen to have declined between 2011 and 2012, but increased between 2012 and 2013. Day sales outstanding increased between 2011 and 2012 showing that the inventory was not moving from the business at the desired rate, but declined between 2012 and 2013. One can quickly realize that the period between 2011 and 2012, the organization was faced with some hardship when it came to moving their inventory. This can be attributed to the great recession that ended in 2011. Inventory retention could be seen to have increased between 2011 and 2012, but remained constant in 2013 as the business was trying to recover the recession.
When compared to the industry, McDonalds could be seen to faring well in terms of receivables turnover, asset turnover and inventory turnover. In fact, in the year 2012, it could be seen that McDonald’s day sales outstanding stood at 17.94 while that of the industry stood at 32.43. McDonalds is nearly doubling its competitor’s efforts when it comes to making sales and clearing off their daily inventory.
Leverage Ratios
Leverage ratio determines the solvency or the bankruptcy of a business. For McDonalds, it can be seen that its debt to equity ratio is 0.88 in 2013, 0.89 in 2012 and 0.87 in 2011. The decrease in the debt to equity ratio as compared in the previous year means that the business has many debts as compared to equity. In the period between 2011 and 2012, it can be seen that the debt in the business increased as the debt to equity ratio increased, and the time interest earned increased. However, in the period 2011-2012, the business could be seen to gaining ground as the debt to equity ratio decreased, and the interest earned increased. Cash Coverage for the business can be seen to be constantly increasing over the period from 0.67 in 2011, 0.69 in 2012 and 0.88 in 2013.
For industry analysis, McDonald is performing much better as compared to its competitors. In terms of Debt to Equity ratio, the trend of the industry could be seen to be rising but McDonald managed to lower theirs in 2013, unlike its competitors. Time interest earned increased for the industry all through while McDonald struggled in the period between 2011 and 2012 as it decreased.
Profitability
The profitability of a company could be measured in terms of various ratios and include gross profit margin, operating profit margin, net profit margin, return on assets and return on equity. McDonald’s maintains on average profit margin of 40% per business year. However, it could be noticed that the profit margin decline from 40% in 2011 to 39% in 2012 and 2013. From analyzing of the given ratios, one could say that his fall in profits could be attributed to the assets and equity of the company as the Return on Asset and Equity could be seen to have decreased at a higher rate from 2011 to 2012.
The profit margin for the industry in 2011 is 9.04 as compared to 40% of McDonald’s. From this, once can quickly conclude that the McDonald is profitable than any other company in the industry due to a range between the margins. McDonalds could also be seen to have considerable higher return on assets and equity, almost double the industry size meaning the business is profitable.
Market Value
The market value of McDonalds has been rising in general since 2011. The earnings per share as at 2011 was 5.27, 5.36 in 2012, 5.55 in 2013. The profitability of the company could be noticed to have declined, but the market value is increasing yearly. Price to earnings ratio is also increasing as it was 48 in 2011, 53.6% in 2012 and 56.2% in 2012.
As compared to the figures of the industry, McDonald is almost five times expensive than the average business in the industry. The earnings per share of the industry in 2012 was 0.34 as compared to McDonalds 5.36. From this facts, it could be said that McDonalds is performing better business wise than any other company in the industry due to its sound management and good customer relationships as it is in a service industry
References
Growth, Profitability, and Financial Ratios for Burger King Worldwide Inc (BKW) from Morningstar.com. (n.d.). Retrieved from http://financials.morningstar.com/ratios/r.html?t=BKW
McDonald's Corp. (MCD) | Debt and Solvency. (n.d.). Retrieved from http://www.stock-analysis-on.net/NYSE/Company/McDonalds-Corp/Ratios/Long-term-Debt-and-Solvency
