Using the above McDonalds financial information, prepare a common size income st

Question

Using the above McDonalds financial information, prepare a common size income statement where all data is expressed as a percentage of revenues. Be sure to discuss the year-by-year trends that are significant, the overall financial situation of the organization, any areas of company operations that might need immediate management attention, and any areas that seem particularly strong.

Financial Ratios Competitive Comparison Liquidity (Balance Sheet) Calculations Starbucks Yum! 2010 2009 2008 2010 2010 Current Ratio 1.49 1.14 1.39 1.55 0.94 Quick or Acid Test 1.22 0.96 1.18 0.98 0.69 Inventory to net working capital 0.08 0.25 0.11 0.56 -1.4 Activity (Balance Sheet) 2010 2009 2008 Inventory turnover 219.06 214.17 210.96 8.21 42.96 Fixed asset turnover 1.09 1.06 1.16 4.43 2.96 Total Asset Turnover 0.75 0.75 0.83 1.68 1.36 Leverage (Balance Sheet) 2010 2009 2008 Debt to Assets Ratio 0.36 0.35 0.36 0.08 0.35 Long-term debt to equity ratio 0.79 0.75 0.76 0.15 2.28 Debt to equity 1.18 1.15 1.13 0.74 3.98 Times-interest earned ratio 16.53 14.71 12.78 44.94 9.17 Profitability (Income Statement) 2010 2009 2008 Gross profit Margin 0.40 0.39 0.37 0.58 0.16 Operating profit margin 0.31 0.31 0.28 0.13 0.15 Net Profit margin 0.21 0.20 0.18 0.08 0.1 Return on total assets 0.15 0.15 0.15 0.15 0.14 Return on equity 0.34 0.32 0.32 0.26 0.73

Explanation / Answer

Ans 1

Significant year -by-year trend

The major trend seems to be the consistent reduction in Gross margin , though the reduction is minimal.

Overall Financial Situation

Common Size Income Statement Details 2010 2009 2008 Sales 100% 100% 100% COGS 60% 61% 63% Gross profit Margin 40% 39% 37% Operating Expenses 9% 8% 9% Operating profit margin 31% 31% 28% Interest Expense 10% 11% 10% Net Profit margin 21% 20% 18%

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