Secure https://di api/v1/print/finance Instructor: Matthew Imes Course: Financia

Question

Secure https://di api/v1/print/finance Instructor: Matthew Imes Course: Financial Print The debt rao for Dianey s Round to four decimal places.) The debt ratio for McDonalds is Round to four decimal places.) (Round to four decimal places) The current ratio for McDonald's is The total asset tumover ratio for Disney is The total asset tunover ratio for McDonalds is (Round to four decimal places.) (Round to four decimal places) Round to four decimal places) Round to four decimal places) %. (Round to two decimal places. ) The proft margin ratio for McDonald's is The retum on equity for Disney is The return on equity for McDonald's is %. Rond to two decimal paces) %-(Round to two de mal places.) %, (Round to two decmal places.) The best company to ievest in appears to be (1) $4B, 763

Explanation / Answer

Debt Ratio

The debt ratio can be calculated with the use of following formula:

Debt Ratio = Total Liabilities/Total Assets

Using the values provided in the question in the above formula, we get,

Debt Ratio (Disney) = 39,259/84,003 = .4674

Debt Ratio (McDonald) = 20,697/36,553 = .5662

_____

Current Ratio

The current ratio for each company is arrived as follows:

Current Ratio = Total Current Assets/Total Current Liabilities

Using the information provided in the question, we get,

Current Ratio (Disney) = 15,074/13,228 = 1.1396

Current Ratio (McDonald) = 4,963/3,148 = 1.5766

_____

Total Asset Turnover Ratio

The total asset turnover ratio is calculated as below:

Total Asset Turnover = Sales/Total Assets

Using the information provided in the question, we get,

Total Asset Turnover Ratio (Disney) = 48,763/84,003 = .5805

Total Asset Turnover Ratio (McDonald) = 28,043/36,553 = .7672

_____

Financial Leverage Ratio

The financial leverage ratio for each company is determined as below:

Financial Leverage Ratio = Total Assets/Total Equity

Using the information provided in the question, we get,

Financial Leverage Ratio (Disney) = 84,003/44,951 = 1.8688

Financial Leverage Ratio (McDonald) = 36,553/16,041 = 2.2787

_____

Profit Margin Ratio

The profit margin ratio for each company is arrived as below:

Profit Margin Ratio = Net Income/Sales

Using the information provided in the question, we get,

Profit Margin Ratio (Disney) = 7,429/48,763 = .1523

Profit Margin Ratio (McDonald) = 5,438/28,043 = .1939

_____

Return on Equity

The return on equity for each company is calculated as follows:

Return on Equity = Net Income/Total Equity

Using the information provided in the question, we get,

Return on Equity (Disney) = 7,429/44,951 = .1653

Return on Equity (McDonald) = 5,438/16,041 = .3390

_____

Analysis:

The best company to invest in appears to be McDonald with its higher ROE and solvency position as most of the financial ratios are very similar across these firms.

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