Posted: August 1st, 2015

Financial Statement Analysis

 
The goal of this assignment is to expand your understanding of the uses of financial statement information. This project is based on the information provided in Ch. 4. We will examine the financial performance of McDonald’s and one of its competitors. You will need to select a competitor.
Obtain financial statements and market data (current stock price, number of shares outstanding) for the two companies from its Hoover’s dataset (easy and available through the library website), company’s website, finance.yahoo.com, money.msn.com, SEC.gov, or Edgar (also easy and available through the library website).
Calculate following ratios and measures for McDonald’s and the company you selected and compare them to the industry ratios. McDonald’s is usually classified as a quick service restaurant, but depending on the competitor you pick, you may be able to justify another industry classification. Here are the ratios that you will need to calculate:

Performance measures:
• Market value added (MVA)
• Market-to-book ratio
• Economic value added and profitability measures: • EVA
• Return on capital (ROC)
• Return on assets (ROA)
• Return on equity (ROE)
• Measuring efficiency–asset management or turnover measures:
• Assets turnover
• Fixed assets turnover
• Inventory turnover
• Average days in inventory
• Receivables turnover
• Average collection period
• Analyzing the return on assets
• Profit margin
• Operating profit margin
• The DuPont system
• Measuring financial leverage–long-term solvency measures
• Long-term debt ratio
• Long-term debt-equity ratio
• Total debt ratio
• Times interest earned
• Cash coverage ratio

· Measuring liquidity–short-term solvency or liquidity measures

NWC to total assets ratio
• Current ratio
• Quick ratio
• Cash ratio
• Growth measures: • Payout ratio
• Sustainable growth

Compare the performance of your companies to the industry as a whole. Find some of the ratios on financial websites such as yahoo.finance or msn.money. You will not be able to find all the rations, this is fine.
For each ratio, comment on why it might be viewed as positive or negative relative to the competitor and industry.

Suppose you calculate the inventory turnover ratio. How would you interpret the ratio? How dos your company compare to the industry averages for this ratio?

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