Selection,Calculation and Interpretation of the Ratios

Liquidity Ratio: These ratios demonstrate how capable a company is in meeting its shortterm obligations (Fridson & Alvarez, 2014). That’s why they’ve been chosen for this analysis. There are 2 types of liquidity ratios. They are

Current Ratio: Current Assets / Current Liabilities

Quick Ratio: (current assets – inventories) / current liabilities

Efficiency Ratio: The efficiency ratios were chosen because they show the management how efficient the company is in utilizing its liabilities and assets internally (VelezPareja, n.d.). Different efficiency ratios are calculated by using the following formulas

Inventory Turnover: Sales / Inventory

Total Asset Turnover: Sales / Total Assets

Leverage Ratios: According to Fridson & Alvarez, (2014), leverage ratios show how much of a company’s capital and assets come in the form of loans (debt), and evaluates the capability of a business of meeting its financial obligations. Different leverage ratios are calculated by using the following formulas

Total Debt to Assets: Total Debts / Total Assets

Longterm Debt to Total Assets Ratio: Total Longterm Debts / Total Assets

Total Debt to Equity: Total Debts / Total Equity

Profitability Ratios: VelezPareja (n.d.) mentioned that, profitability ratios indicate a company’s ability to generate profits in a fiscal year, taking all the operating expenses and other expenses into consideration. As a result, these ratios have been chosen for this analysis. Different profitability ratios are calculated in the following ways

Net Profit Margin: Net Income / Sales

Return on Assets: Net Income / Total Assets

Return on Equity: Net Income / Total Equity

Market Value Ratios: These ratios tell us whether the shares of a company are underpriced or overpriced (Fridson & Alvarez, 2014). Since Burger King is not a publicly traded company anymore (last day of NYSE trading was December 14, 2014), so calculating different kinds of market value ratios wasn’t possible in this case. Only the Price/Earning (P/E) ratio was calculated for both the companies.
The formula to calculate P/E ratio is: Market Value per Share /Earnings per Share.
References
Annual Reports :: AboutMcDonalds.com.(2016). Aboutmcdonalds.com.Retrieved 23 July 2016, fromhttp://www.aboutmcdonalds.com/content/mcd/investors/financialinformation/annualreport.html
Burger King Annual Reports.(2016). Investor.rbi.com.Retrieved 23 July 2016, fromhttp://investor.rbi.com/en/investorinformation/annualreports.aspx
Fridson, M. & Alvarez, F. (2014). Financialstatement analysis (3rd ed.).New York: John Wiley & Sons.
Long Term Debt To Total Assets RatioDefinition. (2011). Investopedia.Retrieved 23 July 2016, fromhttp://www.investopedia.com/terms/l/longtermdebttototalassetsratio.asp
McDonald`s Corporation (MCD) Stock Chart.(2016). NASDAQ.com.Retrieved 25 July 2016, fromhttp://www.nasdaq.com/symbol/mcd/stockchart?intraday=off&timeframe=2y&splits=off&earnings=off&movingaverage=None&lowerstudy=volume&comparison=off&index=&drilldown=off
Profit Margin Definition.(2013). Investopedia.Retrieved 23 July 2016, fromhttp://www.investopedia.com/terms/p/profitmargin.asp
Return On Equity (ROE) Definition.(2013). Investopedia.Retrieved 23 July 2016, fromhttp://www.investopedia.com/terms/r/returnonequity.asp
Total Debt To Total Assets Definition.(2012). Investopedia.Retrieved 23 July 2016, fromhttp://www.investopedia.com/terms/t/totaldebttototalassets.asp
VelezPareja, I. Looking Forward FinancialRatio and Value Analysis (Valor de la firma y razones financieraspara el análisis financiero). SSRNElectronic Journal.http://dx.doi.org/10.2139/ssrn.999103