Question

The balance sheet and income statement for the McDonald's are as follows.

		McDonald's Corporation 2016 Income Statement ($ Millions)
Sales $11,508 Cost of goods sold   6,537 Gross profits $ 4,971 Marketing expenses and general     and administrative expenses $ 1,832 Depreciation expense    345 Total operating expenses $ 2,177 Operating profits $ 2,794 Interest expenses      387 Earnings before taxes $ 2,407 Income taxes      765 Net income before preferred stock dividends $ 1,642 Preferred stock dividends        25 Net income available to common stockholders $ 1,617

		McDonald's Corporation December 31, 2016 Balance Sheet ($ Millions) Assets
Cash $ 341 Accounts receivables 484 Inventories 71 Prepaid expenses      247    Total current assets $ 1,143 Gross fixed assets $20,088 Accumulated depreciation    5,127    Net fixed assets $14,961 Investments 702 Other assets    1,436    Total assets $18,242 Liabilities and Equity Liabilities (debt):    Short-term notes payable $ 1,629    Accounts payable 651    Taxes payable 53    Accrued expenses      652        Total current liabilities $ 2,985    Long-term debt   6,325        Total liabilities $ 9,310 Equity:    Preferred stock $ 80    Common stock:    Par value and paid in capital $ 708    Retained earnings 11,927    Treasury stock (3,783)    Total common equity $ 8,852        Total equity $ 8,932        Total liabilities (debt) and equity $18,242

1. Calculate the following ratios:

RATIO	INDUSTRY NORM
Current ratio	0.70
Inventory turnover	90
Average collection period	6.5 days
Debt ratio	50%
Total asset turnover	1.5
Fixed asset turnover	2
Operating profit margin	21%
Return on common equity	15%

2. Calculate the future sum of $5,000 given that it will be held in the bank 5 years at an annual interest rate of 6 percent.

3.

1. Knutson Products, Inc., is involved in the production of airplane parts and has the following inventory, carrying, and storage costs:
   • Orders must be placed in round lots of 250,000 units.
   • The carrying cost for 1 unit of inventory is $ 10
   • The ordering cost is $100 per order.
     1. Determine the optimal EOQ level.
     2. Determine the average inventory when the safety stock is 2000 units.

Answer 1

Solutions:

Current Ratio
Formula	Current Assets / Current Liabilities
	2016
Current Assets	1143
Current Liabilities	2985
Current Ratio	0.38
Inventory Turnover
Formula	Cost of goods sold / Average Inventory
	2016
Inventory	71
Cost of goods sold	6537
Inventory Turnover	92.07
Receivable Turnover
Turnover Ratio	Sales / Average accounts receivables
	2016
Accounts receivables	484
Credit Sales	11508
AR Turnover ratio	23.78
Average Collection period
Formula	365 / Turnover ratio
	2016
AR Turnover ratio	23.78
Average collection period	15.35
Total Asset Turnover
Formula	Total Sales / Average Total Asset
	2016
Total Assets	18242
Sales	11508
Total Asset Turnover	0.63
Fixed Asset Turnover
Formula	Total Sales / Average Total Asset
	2016
Fixed Assets Assets	14961
Sales	11508
Fixed Asset Turnover	0.77
Operating Profit Margin
Formula	Operating Profit / Sales
	2016
Operating Profit	2794
Sales	11508
Gross Profit Margin	24.28%
Return on common stockholders equity
Formula	Net Income available to equity shareholders / Average Common Equity
	2019
Common Equity	8852
Net Income available to common equity holders	1617
Return on common stockholders equity	18.27%

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