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Write a short note on liquidity ratios
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In regards to the corporation’s balance sheet, it is necessary to place an importance on liquidity ratios to demonstrate the company’s ability to pay its short term obligations such as accounts payable and notes that have a duration of less than one year. These commonly used liquidity ratios include the current ratio, quick ratio, and cash ratio. All three ratios are used to measure the liquidity of a company or business. The current ratio is used to indicate a business’s ability to meet maturing obligations. The quick ratio is used to indicate the company’s ability to pay off debt. Finally the cash ratio is used to measure the amount of capital as well short term counterparts a business has over its current liabilities. When looking …show more content…
As shown in this exhibit Dunkin Brand Group currently has $3,177,383,000 in total assets; $2,809,424,000 in total liabilities; and $367,959,000 in shareholder’s equity. Starbucks has total assets of $12,446,100,000; $6,628,100,000 in total liabilities; and $5,818,000,000 in shareholder’s equity. McDonald’s has the highest total assets as well as total liabilities and shareholder’s equity of the three competitors. The company 's total assets of $34,281,400,000; $21,428,000,000 in total liabilities; and $12,853,400,000 in shareholder’s equity. The balance sheet is a financial statement that is used to report the financial position of a company in its fiscal year. With these three competitors, it is clear that McDonald 's is the largest of the three and has both the most assets and …show more content…
Each competitor 's current ratio, quick ratio, and cash ratio are able to be found in this exhibit for the year ended in 2015. McDonald’s currently has a cash ratio of 0.76, a quick ratio of 1.20, and a 1.52. Starbucks has a cash ratio of 0.44, a quick ratio of 0.64, and a current ratio of 1.19. Finally, the Dunkin Brand Group Inc. has a cash ratio of 0.59, a quick ratio of 0.74, and a current ratio of 1.25. When looking at these ratios one is able to find that compared to its competitors, Starbucks is less liquid than McDonald 's and Dunkin Brand Group
Suppliers are mostly concerned with a company 's ability to pay on their liabilities. Therefore, the current ratio and the quick ratio are both looked at by suppliers. The current ratio takes a company’s current assets and divides that by the company’s current liabilities. This number is
Net working capital represents organization’s operating liquidity. In order to compute the net working capital, total current assets are divided from total current liabilities. When there is sufficient excess of current assets over current liabilities, an organization might be considered sufficiently liquid. Another ratio that helps in assessing the operating liquidity of as company is a current ratio. The ratio is calculated by dividing the total current assets over total current liabilities. When the current ratio is high, the organization has enough of current assets to pay for the liabilities. Yet, another mean of calculating the organization’s debt-paying ability is the debt ratio. To calculate the ratio, total liabilities are divided by total assets. The computation gives information on what proportion of organization’s assets is financed by a debt, and what is the entity’s ability to pay for current and long term liabilities. Lower debt ratio is better, because the low liabilities require low debt payments. To be able to lend money, an organization’s current ratio has to fall above a certain level, also the debt ratio cannot rise above a certain threshold. Otherwise, the entity will not be able to lend money or will have to pay high penalties. The following steps can be undertaken by a company to keep the debt ratio within normal
The corporation I chose to discuss is McDonald’s. McDonald’s is a publicly traded corporation that includes the following domestic companies, McDonald’s, Chipotle Mexican Grill, and Boston Market. This paper will discuss the following:
The Dupont analysis includes the asset turnover ratio, the profit margin percantage, return on shareholder’s equity percentage, return on assets, and the equity multiplier (Spiceland, Sepe, and Nelson 258-264). The asset turnover ratio is the amount of revenue received for every one dollar of assets, it reveals how efficiently the company is distributing assets. Apple’s asset turnover ratio is 60.43 which means for every one dollar Apple has in assets, they receive approximately sixty cents (Apple Inc). Microsoft’s asset turnover ratio is 13.17 so for every dollar they only receive about thirteen cents (Microsoft Inc). Apple is doing significantly better in this category. The profit margin is just how much of a company’s sales they keep as a profit. Apple’s profit margin is 21.67% while Microsoft has a 28% profit margin so Microsoft is accumulating more profit off each sale but their sales are lower. The return on shar...
Our primary argument is simple, the cost of internal funds and the demand for external financing vary because of possible investment costs and the external financing costs. The effect and relationship of these two factors are paramount in making an educated decision. Keurig Green Mountain would be prudent to consider the debt-to-equity ratio, total long-term liability ratio, and cash flow to determine if they can service an expansion. According to Almeida & Campello (2008) Keurig Green Mountain needs to explore three specific areas to determine the best route: The opportunity costs, constraints of current investments on credit, and the high costs that may exist for external financing. Figures 6 through 8 show the different options for Keurig Green Mountain whether they issue a bond, commercial paper, or via a traditional loan. JAB Holding Company recently purchased Keurig Green Mountain, and this places them in a stronger position to consider a merger or acquisition themselves. J.M. Smucker is slightly larger, and they own distribution rights to Dunkin Donuts, Folgers, and Millstone. A merger could present a promising opportunity to gain market share, but would be a different strategy for expanding operations and would have a different
Measuring the liquidity position of the company through current ratio and quick ratio, we found that over the years the company has been struggling with its liquidty as the ratios have been been consistently decreasing. However, the ratio of operating cash flow to current liabilities indicates that the condition seems to be improving with increased percentage as against 2012.
This calculation will include all sources of Starbucks’s capital like preferred stock, common stock, bonds together with all other long-term debt. Usually, as a firm’s WACC rises, its rate of return on equity and beta also increases as an indication of a shrinkage in appraisal and a greater risk (Pandey, 2015). The weighted average sheds light on the amount of interest the establishment has to pay for every financed dollar. This calculation uses the following figures: (1) tax rate of 40%; (2) Cost of Debt before taxation of 3.85%; (3) Cost of Equity of 7.69%; Debt or total liabilities for 2015 of $6.626 billion; (4) Stock Price of $6.58; (5) Outstanding Shares of 1.4991 billion. Using these assumptions Starbuck’s WACC is calculated as
Liquidity: A company’s liquidity depends on the amount of liquid assets it possesses, which are cash or assets that can easily be converted into cash. The cash flow statement shows how much money is coming in and going out of the business therefore it shows how liquid a company is and how flexible it is to cope with emergencies. Working capital is a significant part of the cash flow analysis, it consists of the current assets less the current liabilities and can help assess the liquidity of the business for the upcoming accou...
In 2012 Dunkin donuts had roughly $658.2 million in sales from all of its brands combined (Bloomberg, 2016). In 2016, the company now boasts $817.0 million in sales total (Bloomberg, 2016). We expect sales to be about $300,000 at first just from our one Melbourn location. To project this sales number, we used Bloomberg to explore Dunkin’ Donuts stocks, sales, and profits internationally, and just in America from 2012 to 2016. We then divided the total sales by the total number of stores worldwide. We used this average to predict an average yearly sales number for a Dunkin’ Donuts restaurant. The typical Dunkin’ Donuts shop runs a bit more in profit each year, however as a start up in a new country we are taking into consideration the that we may not rake in sales as quickly, therefore we reduced the average sales by a fraction . We would expect sales to double over the next five years as we add locations and increase our customer base across the
The term liquidity refers to the ability of a firm to pay its short term obligations as and when they become due. As asset is considered liquid if it can be converted into cash without loss of time or value. Cash is the most liquid asset. Other assets which are considered to be relatively liquid and included in the quick assets are accounts receivable (i.e., debtors and bills receivable), short-term investments,Stock or Inventory excluded because it is not easily and readily convertible into cash. Similarly, prepaid expenses, which cannot be converted into cash and be available to pay off current liabilities, should also exclude from liquid assets. The quick ratio can be calculated by dividing the total of the quick assets by total of current liabilities.
This section will discuss ratio analysis for the following ratios: current ratio, quick (acid-test) ratio, average collection period, debt to assets ratio, debt to equity ratio, interest coverage ratio, net profit margin, and price to earnings ratio. Depending on the end user which ratio carries more importance, however, all must be familiar with ratio analysis. Details on each company's performance for each of these areas can be found in the attached ratio analysis worksheet.
The Quick Ratio shows that the company’s cash and cash equivalents are the highest t...
Starbucks’ solvency ratios provide valuable insight into whether the company is generating sufficient cash flow to meet short-term and long-term obligations. At the end of 2014, Starbucks current assets of $4169 million and current liabilities of $3039 million produced a current ratio of 1.37. During this same period, Starbucks had quick assets of $2474 million (cash of $1708 million + short-term investments of $135 million + accounts receivable of $631 million) with current liabilities of $3039 million resulting in a quick ratio of 0.81. These ratios imply that Starbucks was reasonably liquid at the end of 2014 with $1.37 in current assets and $0.81 in quick assets for every $1 in current liabilities. In 2013, Starbucks had a current ratio of 1.02 and a quick ratio of 0.71 and the previous year the company’s current ratio was 1.90 with a quick ratio of 1.14. This data shows that Starbucks’ current ratio and quick ratio decreased considerably from 2012 to 2013 indicating a reduction in liquidity. Starbucks liabilities increased dramatically in 2013 because of an accrued
Overall, how satisfied are you , with [PRODUCT/SERVICE]? Please answer using the rating scale where (5) means "extremely satisfied" and (1) means "very unsatisfied."
The purpose of this report is to compare financial reports from the two largest soft drink manufacturers in the world. The Pepsi Co. and Coca Cola have been the industry's leaders in their market since the early 1900's. I will use relevant figures to determine profitability, and break down key ratios in profitability, liquidity, and solvency. By breaking down financial statements, and converting them to percentages and ratios, comparisons can be made between competitors regardless of size.