Using the ratios, compare the situation of two companies D/E (Debt-to-equity rat

Question

Using the ratios, compare the situation of two companies

D/E (Debt-to-equity ratio) 2016 2015 2014 Starbucks 0.61 0.40 0.39 3.40 117 McDonald's OPM (operating profit margin) 2015 2014 2016 19.57% | 18.79% | 18.73% Starbucks McDonald's | 31.45% | 28.12% | 28.97% McDonald's Corp.'s shareholders' equity (deficit) declined from 2014 to 2016 Quick 2016 2015 2014 Starbucks 0.67 0.64 0.81 McDonald's 0.78 3.05 1.20 Current 2016 2015 2014 Starbucks 1.05 1.19 1.37 McDonald's 1.40 3.27 1.52 Inventory turnover Year Starbucks 6.17 5.96 Dunkin Donuts 20162015 2014 6.29 4.56 3.94 4.32

Explanation / Answer

Answer:

   D/

Starbucks and Mc-Donalds:

From the table above, following analysis is arrived at:

1. Debt is rising in the capital structure leading to more cash outflow on interest repayment.

2. Operating Income is rising. Total Assets turnover shall rise leading to higher RoE.

3. Quick Ratio is declining indicating liquidity stress.

4. Current Ratio is declining indicating liquidity stress.

5. Inventory turnover is rising indicating lower days of inventory thus reducing the time to convert inventory into cash and thus improving cash conversion cycle.

Overall both companies need to maintain liquidity ratios above 1 level and keeping debt/equity ratio between 1 to 2 level.

D/E Ratio Operating Profit Margin Quick Ratio Current Ration Inventory Turnover Starbucks Rising Rising Declining Declining Rising McDonalds Rising Rising Decling Declining Rising

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