These questions need to be answered. The company that this is about is MCDONALD\

Question

These questions need to be answered. The company that this is about is MCDONALD'S.

It is important to properly classify and report current and long-term liabilities because they affect liquidity. Refer to the financial statements of the company you've selected to analyze. Research and answer the following:         

Is the amount of current liabilities more or less than the long-term liabilities?
What does the result mean?

Is the total stockholders' equity more or less than total liabilities?
What does the result mean?

Calculate the debt ratio for your company. Generally speaking what does the debt ratio tell you?

Please only answer this if you are able to locate reasonable information that will answer the questions properly!! 5 stars will be awarded to a good answer to all of the questions.

Explanation / Answer

In looking at the 2012 Mc Donalds annual report (numbers are in millions)

Current liabilities are 3403.1

Long term liabilities are 16689.8 (including deferred income tax)

So current liablities are less. This means they have fewer debts to pay of in the short term (onr year or less) than they do in the long term (in excess of one year)

15293.6 is stockholders equity which is less than total liablities. This means that the company is fairly highly leveraged (financed by debt). This is fairly risky because companies can be forced into liquidation if they don't pay off their debts, but for a large, stable business like McDonalds this is normally not a problem.

The debt ratio is (3403.1+16689.8)/15293.6= 1.31.

Generally speaking this tells you to what degree the company is levered (financed by debt rather than equity). High debt ratios are somewhat risky, but when you have a large, stable business like McDonalds this is usually not a problem. Having more debt allows you to increase shareholder returns becuse there are fewer shares outstanding.

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