Accounting Project
Group Project:
Madison L. Vestergaard
David Serkosky
Emma Borson
Ryan Griscom
Alfredo Frausto
I.
1. Looking through the percentage change in revenues for all of the selected
restaurants, Wendy’s had the highest positive percentage change in revenue with
96.40%. The lowest percentage change in revenue was the Cheesecake Factory with
-0.03%. Ruby Tuesday’s and Burger King both had a positive percentage change in
revenues under 10%. Ruby Tuesday’s had an 8% change in revenue and Burger King had
a 3.37% change in revenues. What was surprising was McDonald’s had a negative
percentage change in revenues, with -3.30%.
2. The largest decrease in costs of goods sold was The Cheesecake Factory with a -5.37%
decline. This could be a result of the economy’s downturn; they are not making as much
money, therefore they would not have to buy as many goods. The next lowest was
McDonald’s with -5.14%, because their inventory turnover ratio is very high at 145.83.
Their business is very efficient and inventory surpluses are rare. However, the most
surprising increase of costs of goods sold was Wendy’s. The percentage change was
recorded at a 92.7% increase. The high percentage change in revenues is attributed to
the company investing in more inventories.
3. The highest percentage change in income was Wendy’s with 102.6%. This is also a
positive result of the global economic downturn. Even though they lost money in the
previous year of 2008, this increase shows that Wendy’s has high customer retention,
even in the toughest of times. Ruby Tuesday’s had the lowest percentage change in
income at -32%. Revenue decreased because many loyal customers that they had no
longer have the disposable income.
4. Burger King came out on top when we analyzed the percentage change in assets.
With a 70% increase Burger King shows expansion through allocation of new properties
and equipment. An example of this is present in Milford, CT when the newly renovated
Burger King is now in business. The lowest was Ruby Tuesday’s. They decreased assets
by -11.60%. 88% of their total assets were property and equipment and there was
approximately a $103 million decrease in 2009 total assets because 54 out of their 933
restaurants closed.
5. The Cheesecake Factory has the highest asset turnover ratio at 1.55. This means the
company is making $1.55 for every dollar in assets they have. This beats out the other
selected restaurants; it is a higher quality restaurant, and holds to be true because
comparatively, Ruby Tuesday’s attains the second highest asset turnover ratio, 1.11, and
is also the second most expensive restaurant of all our chain restaurants.
6. McDonald’s dominated in the area of net profit margin. This is to say that the
performance of McDonald’s is well done, and the expenses are controlled appropriately.
They are documented at a 20.01% net profit margin. However, Wendy’s has the lowest
recorded net profit margin. Because Wendy’s lost so much profit in 2008 (as a result of
the economic downfall), they had a lot of ground to recover.
7. Again, McDonald’s is in lead with 91.57% gross profit percentage. What is surprising is
that McDonald’s has the most affordable price structure and still manages to exceed
Ruby Tuesday’s (78.47%), Burger King (35%), and The Cheesecake Factory (75.30%).
Because of the income deficit of 2008, Wendy’s only had a gross profit percentage of
14.70%. This formula is relevant because even after considering cost of products sold, it
informs us of the percentage of profit earned on each dollar of sales and whether they
have developed strength or a weakness. Even though Wendy’s had the lowest gross
profit percentage, it shows the company’s ability to come back from a low-earning fiscal
year.
8. McDonald’s and Burger King have the highest return on equity. McDonald’s shows a
32.40% return on equity followed closely by a 20% return on equity from Burger King.
Both companies’ stockholders are able to enjoy greater returns on invested dollars.
Wendy’s, showing the lowest return on equity of .40%, shows that investor confidence
with this company was shaken due to the loss of income during 2008.
9. The highest current ratio is 1.74 by Wendy’s. The current ratio has increased by 2010,
suggesting that the company is adequate and able to pay current liabilities. Following
the highest current ratio is McDonald’s with 1.1. Ruby Tuesday’s (.816), Burger King (.77)
and The Cheesecake Factory (.16) all fall short of being able to quickly pay their short
term obligations.
10. Ruby Tuesday’s receivable turnover was shockingly high. The receivable turnover
was 200.47, while all others came in between 20-40. Ruby Tuesday’s does not provide
information regarding inventory because the company only sells what is received by
third-party suppliers. Therefore, this company has an especially high receivable turnover
but a non-applicable inventory turnover.
11. Wendy’s and McDonald’s represent the highest inventory turnover. This shows that
these two companies take advantage of their inventory to quickly and efficiently
generate income. This is strength within both companies because the higher the ratio
the faster the inventory is turned over. Both Wendy’s and McDonald’s had sales that
allowed them to purchase new inventory multiple times during the year.
12. Debt-to-asset ratio shows a company’s debt position for that fiscal year. Potential
lenders would prefer the debt to total assets ratio to be smaller because it would mean
the company has the ability to repay its existing liabilities, or little financial risk. In the
instance of The Cheesecake Factory, not many lenders would be in favor of this
company in the year of 2009 because the debt-to-asset ratio was a high of 1.16, in
comparison to the lower ratio of McDonald’s at .349.
13. Times interest earned tells us whether sufficient resources are generated to cover
interest costs; a higher number means greater coverage. In 2009, McDonald’s attained
the highest at 10.62 and Burger King had the lowest. This is strength for McDonald’s
because it is capable of covering its interest charges up to 10 times before it lacks
efficient coverage. This is good for its investors because it illustrates that McDonald’s
can repay their investments. In Burger King’s circumstances, it tells us that they would
not have enough money to cover their debts.
II.
Wendy’s: The Inventory turnover ratio was extremely high in comparison to the annual
ratio report. This can be justified by the comeback that the company has gone through
in the past year as a response to the economic downfall. Also, their return on equity was
very low; the annual report was at a 19.39 and Wendy’s was recorded at .4. This means
that the stockholders of Wendy’s Inc. will not enjoy great returns. We also noticed that
the net profit margin for Wendy’s was very low at a .003 compared to the annual ratio
report of 7.26. This can also be a consequence of the economy. Considering the
$-365,086 recorded as net income in 2008, Wendy’s had a lot of ground to cover to
replace that lost income.
McDonald’s: Similar to Wendy’s records, the inventory turnover ratio is extremely high
compared to the annual ratio report. This is because they sell so much of their product
within the fiscal year at a higher rate than the average restaurant. A reason supporting
this is because it is shown that McDonald’s pushes their dollar menu to sell more
products at a cheaper price. McDonald’s also recorded a low net profit margin; even
though McDonald’s does not meet industry standards, in the past three years they have
reported significant net profit margin increases. In 2007, it was .1051, which increased
to .1834 in 2008 and increased further in 2009 with an ending .2001 net profit margin.
Ruby Tuesday’s: When looking at the numbers recorded for the 2009 fiscal year of Ruby
Tuesday’s we found many of their numbers were very similar to the annual report with
the exception of the return on equity and receivable turnover. The industry standards
suggest a 19.39% return on equity and Ruby Tuesday’s recorded a 4.3%. Compared to
the annual ratio report the total asset turnover for Ruby Tuesday’s is extremely high.
The industry standards for the receivable turnover are 36.63 and Ruby Tuesday’s has a
recorded 200.469 for receivable turnover. This shows that Ruby Tuesday’s receivables
are turning over faster and more often during the fiscal year than that of industry
standards.
Burger King: For all of the other companies the return on equity and net profit margin
were extremely low; however, Burger King’s numbers match up, almost exactly, to that
of the annual ratio report. The net profit margin was 7.80% and the industry standard
was 7.26%. This is a calculation shows that Burger King is controlling their expenses very
well.
The Cheesecake Factory: The numbers for the current ratio, inventory ratio, receivables
turnover, and total asset turnover match up with the numbers on the annual ratio
report. However, The Cheesecake Factory’s net profit margin was 2.6 compared to 7.26
on the annual report ratio. This shows The Cheesecake Factory is not controlling their
expense as well as industry standards. The return on equity is the amount of income
earned for every dollar of stockholder’s equity, for the Cheesecake Factory this is only
8.3% and on the annual ratio report the return on equity is 19.29%. Although this
number is low compared to industry standards the return on equity ratio is rather high
compared to other companies.
III.
Wendy’s, McDonald’s and Burger King have larger ratios as a result of their larger
franchises. The most surprising number from Wendy’s was the percentage change in
income. We have come to the conclusion that the losses in 2008 and the gains in income
in 2009 is caused the percentage change in income. For McDonald’s the gross profit
percentage was higher than any other company with 91.57%. We believe that this is
through global expansion and acquisition of new markets. Receivable turnover for
Wendy’s, McDonald’s, Burger King, and The Cheesecake Factory were consistent. The
largest deviance was from Ruby Tuesday’s with 200.469. The reason for this large
difference is because Ruby Tuesday’s inventory comes from third-party suppliers and is
sold immediately.
IV.
We feel McDonald’s is a conservative investment. Showing consistency in gains for the
past two years with the earnings share in 2009, recorded at 4.16 and in 2008, recorded
at 3.82. That shows a .34 gain on the investment. Also, the return on equity has
remained consistent, which shows stability with the investors’ money. 2009 reports a
32.4% return on equity and in 2008 a 32.2% return on equity. These similar numbers
show that McDonald’s manages invested money properly.
V.
We would lend money to McDonald’s. They have a low debt-to-asset ratio; in 2009 it
was a .349, which shows the lack of excessive debt. McDonald’s has substantially raised
their net income through taking advantage of long-lived assets. The second reason is
that their earnings per share have increased over the past year (McDonald’s is able to
generate income). Lastly, their assets have risen in the past year. This is because of
increase in global expansion and acquisition of new markets, showing an increase in
profitability through operations.