The summarized information below is from the balance sheets of McDonald’s Corpor

Question

The summarized information below is from the balance sheets of McDonald’s Corporation at December 31, 2008 and Wendy’s/ Arby’s Group, Inc at December 28, 2008.

McDonald’s Wendy’s/
Arby’s Group
(in millions) (in thousands)
Current assets
Cash and cash equivalents $2,063.4 $90,090
Restricted cash equivalents 0 20,792
Accounts receivable and notes
receivable, net 931.2 97,258
Inventories 111.5 24,646
Prepaid expenses and other
current assets 411.5 28,990
Deferred income tax benefit 0 37,923
Advertising fund restricted assets 81,139
Total current assets $ 3,517.6 $ 380,838
Current liabilities $ 2,537.9 $ 502,489
Noncurrent liabilities $ 12,541.0 $1,759,840
Shareholders’ equity $ 13,382.6 $2,383,291



1. Information must be computed for each company at year end.
a) Working capital
b) Current ratio
c) Quick ratio

2. Brief comment on the liquidity of both companies and which appears to be more liquid.

Explanation / Answer

Particulars McDonald's Wendy Arby group Working Capital= Currennt assets-Current liabilities Current Assets 3,517.60 380,838.00 Current liabilities 2,537.90 502,489.00 Working capital 1,033.70 (121,651.00) Current Ratio= Current assets/current liabilities $3517.6/$2537.9 $380,838/502,489 1.41 times 0.75 times Quick ratio= Current assets- inventory/current liabilities Total current assets 3,517.60 380,838.00 Less: inventory 111.50 24,646.00 3,406.10 356,192.00 3406.10/2537.9 356192/502489 1.34 times 0.70 times McDonald is having more liquid than Wendy Arby, as their current assets are more than their current liabilities,. In the case of Wendy Arby their current liabilities are more than their current assets. So Mdonald is more liquid than Wendy Arby.

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