McDonald's & Wendy's Financial Statement Comparison Essay

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McDonald's & Wendy's Financial Statement Comparison

Financial Statement Analysis Project

The two companies that I will be comparing in this project are McDonalds and Wendys. Both of these companies are competitors in the same industry. I am using the information from their 2005 Financial Statements.

Debt-to-Assets Ratio

When comparing the debt-to-assets ratio of McDonalds and Wendys, you have to divide the firms total liabilities by their total assets. Essentially, the debt-to-assets ratio is the primary indicator of the firms debt management. As the ratio increases or decreases, it indicates the firms changing reliance on borrowed resources. The lower the ratio the more efficient the firm will be able to
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When looking at both of the financial statements, even though McDonalds may have a higher debt-to-assets ratio, it doesn't necessarily mean that McDonalds is in a worse situation than Wendys.

Current Ratio

To calculate the current ratio, which is one of the most popular liquidity ratios you divide all of firms current assets by all of its current liabilities. McDonalds has $1,819.3 (*everything is in millions for McDonalds) of current assets and $2,248.3 in current liabilities making the firms current ratio .81. In 2005 Wendys has current assets of $266,353 and current liabilities of $296,687 making their current ratio .90. Current ratios are used to represent good liquidity and financial health. Since current ratios vary from industry to industry, the industry average determines if a firms current ratio is up to par, strength or a weakness. In any event if the current ratio is less than the industry average than an analyst or individual interested in investing might wonder why the firm isn't balancing its current assets and liabilities better. On both McDonalds and Wendys website is says that the industry average for a current ratio is .60. So when comparing both firms, based on the industry average, McDonalds and Wendys are doing well and can both be efficiently liquidated. Liquidity refers to how quickly the firms current assets can be converted to cash. Now as far as being compared to each other by McDonalds