Note: Data in millions, except per share data

Liquidity Ratio
Current Ratio

=
Industry average

Current Assets
Current Liability

5 , 050.1
3 , 170.0

= 1.59

= 1.33

Here, we could see that McDonalds is considered to have a healthy business.

It has a higher current ratio than the industry average which indicates good shortterm financial strength and that McDonalds is capable in paying its obligation. In
2013, the current liabilities are having a decreased in value compared to 2012,
which means that McDonalds has fewer obligations than in 2012. The high ratio can
be seen as a result of the good performance in increasing the current assets while
maintaining the decreasing of its current liability (compare to 2012) which resulting
in higher current ratio.
Although current liabilities may appear to be negative for a business,
however these liabilities can be seen as a free loan keeping the almighty cash in
hand as long as possible. So too low current liabilities which indicate a too high
current ration may be considered bad, because it means the company may not be
using its current assets efficiently.

Quick Ratio

Industry average

Current AssetsInventories
Current Liabilities

5 , 050.1807.9
3 , 170.0

= 1.37

= 1.19

McDonalds has a higher quick ratio in comparison with other companies in its
industry. And from the annual report, we could also gather that its quick ration is
increasing compare to 2012. This means that McDonalds has greater company
liquidity, at least above average, thus indicates the better McDonalds ability to
meet current obligation using liquid assets.

Asset Management Turnover

Inventory Turnover =

Sales
Inventories

Note: Data in millions, except per share data

=
Industry Average

18,874.2
123.7

= 152.58

= 43.87

As a rough approximation, each item of McDonaldss inventory is sold out and

restocked, or turned over, 152.58 times per year. It seems that McDonalds have too
high inventory turnover ratio, it can indicate that McDonalds have a very strong
sales, which could increase McDonalds profit faster and this is a good thing.
However, it can also indicate a shortage or inadequate inventory levels, which may
lead McDonalds to a loss in business. Too high ratio can also means an ineffective
buying, which is the company buys too often in small quantities, therefore the
buying price is higher. In this case, McDonalds should increase its inventory levels
and buying goods in larger quantities to avoid higher buying price.

Total Assets Turnover

=
Industry Average

Total Revenues
Total Assets

28,105.7
36,626 .3

= 0.77

= 1.44

McDonalds total assets turnover ratio is below the industry average,

indicating that the company is not generating a sufficient volume of business given
its total asset investment. Compare to 2012 and 2011, the assets turnover is also
decreasing, from 0.82 (2011) to 0.78 (2012) then to 0.77(2013), this means that
although McDonalds sales are increasing, yet it still couldnt generate a sufficient
volume of business, hence, it is better for McDonalds to sold some of its assets
while still increasing its sales.

Debt Management
Debt-to-Equity Ratio

=
Industry Average

Total Debts
Total AssetsTotal Liabilities

14,129.8
16,009.7

= 0.88

= 0.55

In here, it shows that McDonalds has $0.88 of debt of every dollar of equity.
We could also see that McDonalds debt to equity ratio is slightly lower than in 2012
by 0.01, which means that creditors are now supplying less than total financing.

Note: Data in millions, except per share data

However with the upward trend, the level of the debt to equity ratio is well above
the industry average which could lead to creditors reluctant to lend McDonalds
more money due to greater rick of bankruptcy.

Times-Interest Earned

=
Industry Average

EBIT
Interest Expense

8,764.3
521.9

= 16.79

= 16.0

McDonalds interest is covered 16.79 times. The industry average is 16 times,

so McDonalds is covering its interest charges by a relatively high margin of safety.
In other word, McDonalds have more earnings available in order to meet interest
payments and that the business is more impregnable to increases in interest rates.
Compare to 2012, the TIE ratio has increased a bit from 16.64 to 16.79.

Profitability
Return on Total Assets

=
Industry Average

Net Income Available

Common Stockholders
Total Assets

5,585.9
36,626 .3

= 15.25%

= 6.9%

McDonalds return is well above the industry average. This high return can be
classified as the companys high basic earning power (BEP=23.39%) and thus lead
to high McDonalds net income. Generally, it indicates that McDonalds is good at
using their assets to generate income, on the contrary, Total Assets Turnover ratio
indicates that McDonald is doing quite poor in generating its business. Hence, I
think there is a possibility that the assets were paid for through leveraging which
explained the low Assets Turnover.

Return on Common Equity

Net Income Available

Common Stockholders
Common Equity

5,585.9
16,009.7

= 35%

Note: Data in millions, except per share data

Industry Average

= 12.96%

McDonalds ROE is above the industry average, which means that the company is
increasing its abilities to generate profit without needing as much capital. This ratio
also shows how well McDonalds management at using their assets to generate
their earnings growth.

Market Value
Price/Earnings (P/E)=

=
Industry Average

Price per Share

Earnings per Share
97.03
5.59

= 17.36

= 48.78

McDonalds price/earnings ratio is lower than the average, this suggests that the
company is regarded as being riskier than most companies in the industry and/or as
having poorer growth prospects. As me can see, McDonalds in not a kind of food
you want to eat every day, that is if you want to be healthy. Therefore, this
explained the not so high growth prospects in McDonalds over the last quartiles in
2013.

Book Value per Share

Market/Book

Common Equity
Shares Outstanding

16,009.7
998.4

Price per Share

Book Value per Share

97.03
16.04

Industry Average

= 6.56

S&P 500

= 2.28

=16.04

= 6.05

(Industry Average)
This ratio gives another indication of how investors regard the company. Here,
investors are willing to pay relatively little for a dollar of McDonalds book value.
Since the market-to-book ratio exceeds 1.0 this means that investors are willing to

Note: Data in millions, except per share data

pay more for stocks than their accounting book values. The McDonalds market-tobook ratio is higher than the S&P 500 ratio, yet is lower than the industry average
ratio, so investors would expect more successes in other firms than in McDonalds.

Overall Opinion
In overall, I think McDonalds was doing not so well in 2013, although there
was a 2% increase over the same quarter in 2012, yet the increase could be
counted as a flat performance. McDonalds president and CEO Don Thompson did
acknowledge that 2013 was a challenging year. And this could be seen in the notso-good growth performance on the last quartiles of 2013, adding the somewhat
poor reviews on its new products. McDonalds is facing a huge challenge in how to
achieve a long-term growth.
Whats more, the poor performance on how McDonalds generate its business
shows us that there is a possibility that the companys assets were paid for through
leveraging, which explains the high level of income despites its poor performance.