McDonald's & Wendy's Financial Statement Comparison

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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 liquidate its assets if operations were discontinued, and debts needed to be collected. In 2005 Wendy's had $2,076,043 worth in total assets and $846,264 in total liabilities. When divided, Wendys has the lower ratio of the two competitors at 40%. This means that they would take losses of 40% if operations were shut down, and the cash received from valuable assets would still be sufficient to pay off the entire debt. It also means that 40% of Wendys assets are made through debt. McDonalds in 2005 had $12,545.3 (in millions) of total liabilities and $22,534.5 (in millions) of total assets. After doing the math, McDonalds ends up with a ratio of 56% which is higher than Wendys by sixteen percent. This means that there is more default on McDonalds liabilities, which can be a costly event from lenders perspective. McDonalds makes 56% of all its assets through debt. In reality, its not good to have a debt-to-assets ratio over 50%. Its also not good to have a debt-to-assets ratio that is too low because... ... middle of paper ... ... likely to have more investors. After comparing the two firms as an investor I would invest in McDonalds. Based on McDonalds debt-to-assets ratio, I believe that McDonalds is actively using all its assets to maximize profits. As an investor McDonalds stock is also cheaper and gives a greater return. Wendys isn't far behind and seems like a firm with economic success and great debt management, but with the money in my pocket I would use it on McDonalds. References Bourdette, D. (2003). Campground Data - Appraisal. Retrieved Dec. 7, 2005, from Dale Bourdette: Hoevel, A. (2005, July 15). Luxury camping: roughing it the easy way. CNN News. Retrieved December 4, 2005, from Mabee, Y. (2004, May). Accounting for a marina/resort. Management Accounting, 11. 50-53.
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