Ratio Analysis and Statement of Cash Flow: Wendy's vs. McDonald's.

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Cash flow is the lifeblood of all businesses, regardless of size; if a company has no cash flow it would have to cease doing business. For the McDonald's Corporation, cash flow from operating during the time period ending December 2004 was $3,903,600,000. The balance sheet of McDonald's also reveals that the cash flow generated by investing was $1,383,100,000 through December 31, 2004, according to annual data, and cash flow from financial activities was $1,633,500,000. McDonald's major competitor, Wendy's International Inc. generated $130,217,000 from investing, according to the annual data collected through January 2005. This number is derived from $29,650,000 in direct investments and $125,301,000 in financing activities with cash flow…show more content…
By using each company's financial statements the following financial ratios were calculated: Gross margin is gross income divided by net sales, expressed as a percentage. Gross margins reveal how much a company earns taking into consideration the costs that it incurs for producing its products and/or services. In other words, gross margin is equal to gross income divided by net sales, and is expressed as a percentage. McDonald's is at 74.55 and Wendy's is at 24.68. Gross margin is a good indication of how profitable a company is at the most fundamental level. Companies with higher gross margins as in the case with McDonald's will have more money left over to spend on other business operations, such as research and development or marketing. The current ratio is an indication of a company's ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is (Investorword.com). The industry average is .97. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations. In the case for McDonald's they fall below the industry average at .81, while Wendy's is at .67. Return on Assets (ROA) is the measure of a company's

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