The following information is provided for Starbucks (SBUX) and McDonalds (MCD) f
ID: 340554 • Letter: T
Question
The following information is provided for Starbucks (SBUX) and McDonalds (MCD) for the fiscal year (2017). All amounts are in millions of USD. SBUX MCD Net Sales Cost of Goods Sold Operating Expenses 22,386.60 9,038.20 9,605.30 24,621.90 11,698.80 5,178.60 Cash & Cash Equivalents Short-term Investments Accounts Receivable Inventory Other Current Assets Total Current Assets 2,462.30 228.60 870.40 1,364.00 358.10 5,283.40 2,671.20 1,569.00 54.20 495.90 4,790.30 Average Plant Assets Average Total Assets 4,726.65 4,339.05 22,18760 31,791.75 Total Current Liabilities Total Liabilities 4,220.70 8,908.60 ,468.30 33,228.20Explanation / Answer
SBUX MCD PROFITABILITY RATIOS Gross Margin = Gross Profit/Net Sales (22386.6-9038.2)/22386.6 (24621.9-11698.8)/24621.90) 59.63% 52.49% Operating Margin = Operating Income/Net Sales (22386.6-9038.2-9605.30)/22386.6= (24621.9-11698.8-5178.60)/24621.90) 16.72% 31.45% Return on Assets=Operating Margin x Total Asset Turnover 16.72%*(22386.6/14339.05) 31.45%*(24621.9/31791.75= 26.10% 24.36% LIQUIDITY RATIOS Current Ratio=Total Current Assets/Total Current Liabilities 5283.40/4220.70= 4790.3/3468.30= 1.25 1.38 Acid Test Ratio=(Cash & Cash Equivalents+ST investments+Accounts receivables)/Total Current Liabilties (2462.3+228.60+870.40)/4220.70= (2671.20+1569)/3468.3= 0.84 1.22 EFFICIENCY RATIOS Days' Sales uncollected = Accounts Receivable/Net Sales x 365 days 870.40/22386.6*365= 1569/24621.9*365= 14 23 Days'Sales in Inventory = Inventory / Cost of Goods sold x 365 days 1364/9038.2*365= 54.2/11698.8*365= 55 2 Total Asset Turnover = Net Sales/Average Total Assets 22386.6/14339.05= 24621.9/31791.75= 1.56 0.77 Plant Asset Turnover = Net Sales /Avereage Plant Assets 22386.6/4762.65= 24621.9/22187.60= 4.70 1.11 e. On average SBUX has higher markup on its products --- as its gross margin is higher comparatively. f. Days'Sales in Inventory (SBUX) is 55 Inventory in hand would last for 55 days But the supplier requires 60 days, to deliver the goods , from the date of placing the order. So SBUX should have placed the order on Jan.5 ,2018 ,so that the goods arrive in time, that they do not go without stock. g. SBUX has better accounts receivables management . It collects receivables once in 14 days as against 23 days by MCD. h. MCD has the higher ability to pay off its short-term obligations as they fall due--- as seen by better current & quick ratios compared to SBUX (1.38 & 1.22 of MCD as against 1.25 & 0.84 of SBUX) i. MCD can improve its receivables position by Offering cash discounts to accelerate its receivables
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