Financial Ratios

Question 1

McDonald’s - financial ratios [-] Liquidity – current ratio (current assets ÷ current liabilities)

Answer 1

The current ratio of McDonald’s and Yum! Brand Inc. was identical until 2021, when McDonald’s current ratio increased

Question 2

McDonald’s - financial ratios [-] Gearing – debt to equity ratio (total liabilities ÷ total equity)

Answer 2

As McDonald’s embarked on a campaign to buy back their stock, the gearing ratio was poor, with the value of the total liabilities exceeding the total equity

Question 3

McDonald’s - financial ratios [-] Profitability – gross profit ratio (gross profit ÷ sales); net profit ratio (net profit ÷ sales); return on equity ratio (net profit ÷ total equity)

Answer 3

• The gross profit ratio of both McDonald’s and Yum! Brand Inc. is consistently at ~69%
• Until recently, Yum! Brand Inc had a higher net profit ratio than McDonald’s in the restaurants
• McDonald’s consistently has a far superior net profit ratio when considering the entity as a whole

Question 4

McDonald’s - financial ratios [-] Efficiency – expense ratio (total expenses ÷ sales), accounts receivable turnover ratio (sales ÷ accounts receivable)

Answer 4

Until recently, McDonald’s had a higher expense ratio than Yum! Brand Inc. in the restaurants

Question 5

Apple - financial ratios [-] Liquidity – current ratio (current assets ÷ current liabilities)

Answer 5

Apple’s current assets have steadily decreased, meaning the current ratio has also decreased

Question 6

Apple - financial ratios [-] Gearing – debt to equity ratio (total liabilities ÷ total equity)

Answer 6

Apple’s total liabilities have increased and the total equity has decreased, and as a result, the gearing ratio has increased

Question 7

Apple - financial ratios [-] Profitability – gross profit ratio (gross profit ÷ sales); net profit ratio (net profit ÷ sales); return on equity ratio (net profit ÷ total equity)

Answer 7

Both the gross profit ratio and net profit ratio has steadily increased
Apple’s return on equity ratio experienced a sharp increase from 2020 to 2021

Question 8

Apple - financial ratios [-] Efficiency – expense ratio (total expenses ÷ sales), accounts receivable turnover ratio (sales ÷ accounts receivable)

Answer 8

Apple’s expense ratio has remained relatively constant
Apple’s accounts receivable turnover ratio improved drastically from 2019 to 2020, with the days to turnover from 64 days to 21.5 days