Essay on Financial Analysis Case Study

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McDonald's Financial Analysis Case Study

The purpose of this study is to assess a company’s future financial health. This study provides a "hands on" experience to synthesize the finance concepts that we learned throughout the course by applying them to a "real life" individual or organization. On this study I elected to assess McDonald Corporation’s future financial health.
McDonald’s Corporation franchises and operates McDonald’s restaurants in the global restaurant industry. These restaurants serve a menu at various price points providing value in 119 countries globally. As of December 31, 2011 out of the 33,510 restaurants in 119 countries around the world 27,075 were franchised or licensed (including 19,527 franchised to …show more content…

Financial Strength 12-Mo Dec 09 12-Mo Dec 10 12-Mo Dec 11 MRQ 3-Year Average
Quick Ratio 0.96 1.22 1.05 1.21 1.08
Current Ratio 1.14 1.49 1.25 1.24 1.29
LT Debt/Equity 0.75 0.79 0.84 0.91 0.79
Total Debt Equity 0.75 0.79 0.87 0.97 0.8

Current Ratio is calculated by dividing the Current Assets of a company by its Current Liabilities. It measures whether or not a company has enough cash or liquid assets to pay its current liability over the next fiscal year. The ratio is regarded as a test of liquidity for a company. This concept is one of the most commonly cited financial ratios, measures the firm’s ability to meet its short-term obligations. A measure of liquidity calculated by dividing the firm’s current assets by its current liabilities (Gitman & Zutter, 2012, p. 71).
Current ratio = Total Current Assets ÷ Total Current Liabilities
From the above the above equation, we will determine the current ratio or liquidity for McDonald’s in 2011 is. McDonald’s Current ratio = 4,403.00 ÷ 3,509.20 McDonald’s Current ratio = 1.25 Typically, short-term creditors will prefer a high current ratio because it reduces their overall risk. However, investors may prefer a lower current ratio since they are more concerned about growing the business using assets of the company. Acceptable current ratios may vary from one sector to another, but generally accepted benchmark is to have current assets at least as twice as current liabilities